Countdown to Armageddon: a deferral

Yo Griff get the green black red and
Gold down countdown to Armageddon

             - Public Enemy, Don't Believe the Hype

In some quarters, it's felt as if the clock has been ticking a countdown to...well, if not Armageddon, something a bit worse than a spot of indigestion.  If we take the results of last week's poll at face value, the purest measure of Trump's candidacy - USD/MXN- gave him a 38% chance of winning as of Wednesday's close and just nudged 50% at its peak on Thursday.  The news that the FBI news is not, in fact, news has sent dollar/peso plummeting, and at the time of writing is now pricing less than a 20% chance of a Trump victory, though price action is understandably erratic.


The SPX, of course, has famously declined 9 straight days for the first time since 1980.   This is one of the longest losing (or winning) streaks on record since Bloomberg's synthetic data began in the early 1920's.


It seems almost certain that James Comey's admission that there is no reason to prosecute Clinton on the basis of the Weinergate emails would tip at least some voters the Democrat's way, though given the prevalence of early voting in some states the die to some extent has already been cast. (Incidentally, when did early voting become such a big thing?  Before 2012 the last presidential election that Macro Man was present in the US for was 1988, and it wasn't a thing back then.   Also, he's never resided in a state where it is legal.)

While it would appear virtually axiomatic that the market should enjoy a big relief rally today, how much should we really expect from a possible escape from "Armageddon."   After all, using the poll outcome results for the SPX suggests that the market only priced a 1 in 3 chance of a Trump victory as of Friday's close.

Moreover, even though the equity market fell consistently over the last couple of weeks, it didn't actually fall very far.   Indeed, over the entire 9 day losing streak the SPX only fell by a little more than 3%.  That's less than every other 9 days-plus losing streak in the Bloomberg database except one, which matches it.


So if the market didn't fall very far on worries about a Trump victory, should it really rally that much on hopes of a Trump defeat?   Probably not, particularly given the perceived risks of a surprising and/or contested result.  After all, oil has still gone ropy again, with concomitant possible implications for credit.  And lest we forget, payrolls did nothing to dissuade the Fed from moving next month; if anything, the panoply of data suggested a closer approach to full employment (what with the rise in wages, etc.)   With the market only priced for one and a half hikes by the end of next year and the bar fairly low for upside inflation surprises relative to the Fed's own forecasts, there remains ample opportunity for policy outcomes that remain less than equity favourable.

After all, just because Armageddon is deferred doesn't mean you go straight to Nirvana....  
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japanjohn
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November 7, 2016 at 9:05 AM ×

In anticipation of a Clinton victory... got to get long some cattle futures strangles


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Nico
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November 7, 2016 at 10:54 AM ×

i told you folks this market would get merciless in November - they killed shorts over the week end while noone dared going long into the week end. Typical max fuckery. They're gonna shake so many small punters out of the market this week, the tape will get much healthier thereafter

that FBI farce is not finished and people can't look the other way from wikileaks forever

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Anonymous
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November 7, 2016 at 11:50 AM ×

Great call Nico. But who is "they"? Which punters are going to be shaken out - longs or shorts? And how do you see this being achieved?

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Leftback
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November 7, 2016 at 12:58 PM ×

We did sell some vol into the close on Friday, although we missed the entry into all the other tasty trades shorting safe havens. It might be interesting to see if someone "knew" something on Friday, options market action is always revealing.

Anyway, FBI bingo seems to be over again for the time being. What is it that we are trading from now on? Oh yes, Janet. But first of all, Nico is right, we have to eviscerate every last short and see every hedge expire useless, one imagines….?

I think we can expect 12yo to be back today with JBTFD and JSTFV calls (which were absent from him on Friday). Of course today he will be correct, we can't argue that this is the way to go this week.

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Nico
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November 7, 2016 at 1:04 PM ×

anon 11:50 Hillary win with squeeze shorts, and then trap late longs once folks start looking forward to a chaotic judicial mess

Trump win will precipitate a bond sell of where all risky bets are off

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Anonymous
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November 7, 2016 at 1:21 PM ×

Nico I am curious as to your reasoning behind your short position. What would be the catalyst that takes spooz from 2100 to 1800? What kind of time frame is on your mind?

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abee crombie
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November 7, 2016 at 1:54 PM ×

MM, want to know why I voted early, simply to avoid the long lines. Was in and out in 5mins.

I love where we are setting up today. right as the broken resistance of 2110, after bouncing from Friday's touch of the 200 day. Would think we get a nice doji ! I mean the S&P cant really get more technical than this.

The big reason I am not max bearish is S&P500 12M earnings are still powering ahead. Feels like we might need to wait for the start of 2017, which has been the weak seasonally, to get some fundamental bearish really growling. In the meantime I'll be watching to see if the leaders like AMZN / FB etc can regain new highs and holding on to my long financials, which has been taking a long time to work

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Anonymous
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November 7, 2016 at 7:09 PM ×

I am struggling to understand the purpose of these political rallies. HRC is doing 4 today apparently. The audiences are quite obviously limited to ardent supporters. Why travel to a marginal location and then address a partisan crowd? If HRC wants to speak to supporters, why not just go to California...? Are there not constructive (ie vote winning) activities that the candidates could/should be engaged in? I'm surprised that so much time and energy is invested this way. What have I misunderstood?

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Anonymous
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November 7, 2016 at 7:27 PM ×

Anon 7:09pm,

I am curious that you even ask this question. I think it is common knowledge. In election politics, only marginal votes count.

California is 100% voting Hilary so why does she even want to waste time there, besides to ask for money? Marginal location on the other hand might help her get the additional votes that she really needs to win the election. And the rallies not only work for candidates to talk to supporters, but also help other candidates to compete for senates and houses seats.

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Skr
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November 7, 2016 at 7:36 PM ×

"What have I misunderstood?"

Anon- you are Brilliant, you are Fantastic, you are the Epiphany.

Why would anyone want to leave that cocoon? Times change - people don't.

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johno
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November 7, 2016 at 7:45 PM ×

A little hiatus from posting here. Thanks for all the great pieces and conducting the poll, MM.

Re the election, it's looking like rather than turning out some vast "silent (white) majority," Trump will instead turn out a silent latino minority (who, having voted for the first time, will be likelier to vote and influence election outcomes in the future too). I think the early voting results in Nevada (a state where 70% of votes are historically cast early) are at least as significant as the latest FBI findings. Michigan is becoming my focus now for any possible upset.

In markets, been busy with the micro parts of my book lately. Still very long USD. Hillary wins, the Fed hikes, dollar rallies into that (maybe a sell on the event). Trump wins, maybe dollar sells off versus other reserve currencies (EUR, CHF, XAU, JPY), but the implications for Latam, led by MXN, are clearly negative and for Asia, also very negative due to trade frictions, etc.. I also would think a Trump victory would end up putting a squeeze on the eurodollar market ... actually USD might be a great buy on a knee-jerk selloff if Trump won.

One currency that's got my attention lately is CHF. SNB has been very small the last couple weeks and EURCHF has slipped below 1.08. Is the SNB just saving ammo for post-election volatility? Or do we have a quiet abandonment of the 1.08 floor? Also, I'd have thought that CHF was more the reserve currency than EUR, so it's interesting to see it gaining against the latter today despite markets starting to price a risk-on scenario. If anyone cares to share their thoughts on this one, I'd be most grateful.

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Anonymous
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November 7, 2016 at 7:52 PM ×

Anons 7:27 & 7:36 - please take a closer look at my question. I am asking why candidates travel to marginal locations but then address what appear to be committed supporters only? Everyone shown in the reports today was fully decked out in HRC gear and waving HRC flags; similarly at Trumps event. Do the audiences really contain undecided voters? They have the appearance of supporters rallies to me.

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Skr
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November 7, 2016 at 8:20 PM ×

Anon 7:52

Please take a closer look at my Answer.

Skr ;)

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Anonymous
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November 7, 2016 at 8:22 PM ×

How many undecided voters are there at this rally (for example)....?

http://www.gettyimages.co.uk/detail/news-photo/donald-trump-waves-to-cheering-supporters-at-a-trump-rally-news-photo/618002616?#donald-trump-waves-to-cheering-supporters-at-a-trump-rally-at-sanford-picture-id618002616

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Anonymous
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November 7, 2016 at 8:42 PM ×

Hillary probably wins although it's definitely bad to go on for such a long time without ventilating the musty chambers of corruption and age long backdoor deals. Every political actor succumbs to corruption eventually but sometimes it would be good to reset. Now there's an Obama third term on steroids which means expanding existing wars, new wars, more censorship on everything anti-establishment, suppression of opinion, more uncontrolled immigration chaos EU style coming to a local US town near you (don't worry, there's plenty of aggressive Africans to go around for everyone) and general deteriorating of geopolitical, internal security and personal liberties at the same time. To be fair, most likely Trump couldn't have probably made much change as life long professional slime is too slick to get caught anyway, but at least might've weeded out the most flagrant corruption.

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Macro Man
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November 7, 2016 at 8:53 PM ×

@ Rally questioning anon: In close races, turnout can be much more important than the swing voters. So it makes sense to energize and excite your core constituency to get more of them to vote (given that they will be voting for you) than it is trying to somehow convince undecided voters to attend a political rally that they probably have little interest in anyways.

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Leftback
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November 7, 2016 at 9:06 PM ×

Selling vol from Friday's close into today was so easy, it was like taking Halloween candy from people who bought too much of it and then couldn't give it away…. LB shakes head…. we added almost 2% to the YTD performance on that swing.

Back to the Hammock. We missed the entry on a whole lot of other tasty punts, we had pointed out USDJPY and GDX (btw, very nice call on USDMXN, MM and others) but vol of vol turned out to be the "Tap in" (US: Lay up) Trade Du Jour. If there are some poll scares tomorrow, some of us might get a second bite at the cherry, but it's unlikely. Sleep well, punters, there will be more vol (and vol of vol) out there in the near future.

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Celeriac1972
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November 7, 2016 at 9:26 PM ×

Markets look to be firming up their views:

- A Clinton win
- A divided govt
- A 2016 rate hike
- Rising yields
- Oil stable(ish) with a 4-handle
- Growth stable(ish) at the low end
- A hard(ish) Brexit
- Euro banks to stumble on

Which are the weakest links?

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Bounder
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November 7, 2016 at 9:45 PM ×

Anon 7:52, you wrote: "I am asking why candidates travel to marginal locations but then address what appear to be committed supporters only?"

Local TV news. Trump or HRC coming to your local media market will invariably lead the local TV news and get front page coverage in the local newspapers (remember those?). So, why would you want anyone other than enthusiastic supporters in the picture? Also, the number of people in live attendance at a rally, even if most were undecided voters, is seldom significant.

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Anonymous
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November 8, 2016 at 1:22 AM ×

http://www.breitbart.com/2016-presidential-race/2016/11/07/vegas-oddsmaker-predicts-brexit-victory-trump/

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Anonymous
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November 8, 2016 at 1:29 AM ×

Breitbart- is that still run by Goebbels, or is it Molotov (or even Mazeltov)?

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Anonymous
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November 8, 2016 at 2:38 AM ×

Bingo! Anon1:29

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Anonymous
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November 8, 2016 at 2:41 AM ×

Was today's rally eerily similar to the rally that occurred in stocks, emerging markets, and commodities on the day of the Brexit vote?

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Anonymous
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November 8, 2016 at 4:49 AM ×

"A study of Twitter activity, which uses content analysis, shows that Trump has a consistently better ratio of positive to negative tweets than Clinton. That’s a warning to Clintonites: Brexit supporters dominated the social networks before the U.K. voted to leave the EU in June. An artificial-intelligence system that analyzes social network data built by Shajiv Rai predicts a victory for Trump. It accurately called the last three U.S. presidential elections."

http://www.bloombergquint.com/opinion/2016/10/31/why-bettors-take-a-flier-on-trump

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Anonymous
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November 8, 2016 at 4:57 AM ×

We from the EM countries used to blame evil foreign power to meddle with our policies and the US media mocked us for it. It is nice to see that the US is also blaming evil foreign power to meddle the US politics. Very refreshing!

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Anonymous
admin
November 8, 2016 at 7:17 AM ×

Yea Anon 4.57 - yea its hilarious now that the shoe is on the other foot. Red menace indeed.... when did we all fall into a time warp ?

At least EM citizens tend to be cynical, whereas US citizens/MSM (at least from the relevant side of the aisle) seem to swallow it whole. A few (ie G Greenwald) are fighting for some sanity but its a losing battle.

At least this episode proves all humans are silly, regardless of nationality.

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Anonymous
admin
November 8, 2016 at 10:17 AM ×

I admit that political rallies puzzle me, as well (of course, I have never been "undecided" to the point where someone showing up locally could influence my decision), but the bottom line is that they do increase a candidate's vote totals (or at least his polling numbers, which, before the actual election, are the best proxy for votes). Several studied have shown this. The country (and most likely, the entire world) is full of low-information voters.

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Anonymous
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November 8, 2016 at 2:17 PM ×

LB - what did you end up doing to get short vol on Friday?

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