Being nimble is the crux of the investing game these days. There's a lot of economic data that we are seeing out of Europe, The US, and many other countries that point to a continuing deceleration in growth in year-over-year GDP terms. We are projecting that Germany is currently in a deflationary environment (decelerating growth and inflation) through year end. The Dax has been absolutely crushed over the past 2 weeks. Additionally, Spain's IBEX has been a completed disaster and has gone nowhere but down since June.
In the US, the S&P 500 and Nasdaq have acting like a couple of schizophrenics whipsawing traders in every direction. Obviously, the stock market and economic data have nothing in common as the economic data isn't getting much better, but the stock market continues to stay elevated, but that's what you get when you have massive stimulus. The bottom line regarding the stock market is that the worst is behind us and we are now positioned for a stagflationary environment, which will eventually move to an environment that provides an acceleration of inflation and growth in GDP terms in Q1 2021. This will be a transition that we will risk manage closely. You can obviously understand why we will see an acceleration of growth and inflation going into Q1 of 2021. The comps from 2020 to 2021 are going to be an easy beat. We are going from the worst economic data in the history of the US to better than worse. It can only get better from there as the rate of change of both CPI and GDP will see a positive increase.
As everyone is aware, the election is right around the corner. It's one of the most hedged events (2nd highest in the last decade) in history according to the VIX futures contracts. We measure risk day in and day out. So, we put on positions today for what we may see tomorrow. With such a massive hedge around the election event, does it mean that we will see volatility spike? Possibly, but we may start buying the positions that have the largest hedges. The consensus is betting on fear and volatility. This could absolutely occur, but I'm speculating that this is going to be a non-trending, cluster of volatility eventually breaking down and moving those large hedged positions to the upside. We will make that determination as we get closer to the event.