Well, the big day is finally here, and at least phase one of our long national nightmare is coming to a close. The FBI non-event, the late shift in polls, and early voting results would all appear to suggest a Clinton victory for the presidency. That being said, the majority of votes have not been cast yet, so the result is quite far from a foregone conclusion. Dewey, after all, did not defeat Truman.
Moreover, there are other features of the election that still have the chance to shape policy for the next few years. The Senate is essentially a toss-up; given the upper house's role in confirming presidential appointments (and their erratic track record in doing so), a Senate controlled by the opposite party as the White House could conceivably deny the Supreme Court its full complement of judges for years.
Some degree of gridlock looks the most likely outcome, and frankly (given the paucity of quality of so many elected officials) probably the best case outcome as well. That being said, yesterday's uber-rally has now priced outcomes close to the best case in a number of assets, at least according to the MM poll (which of course is far from infallible.)
Still, as the chart below indicates, the SPX has now priced a 97% chance of a Clinton victory, based on your collective guesses for year-end pricing based on the outcome. The DXY is similarly priced. There's a bit more juice in the MXN and Fed funds, but not a lot.
Again, it bears repeating that these forecasts are fall from foolproof, so it's not quite as easy as selling SPX and getting 30-1 odds on a Trump victory. Given the ongoing uncertainty and the hangover from the Brexit vote, it seems likely that a relief rally could extend further.
Still, the message from the summer episode is that at some point it's worth taking the other side because the expected value just gets too high. Hard as it is to believe, we could rapidly approach that point at some time today before the official vote counts roll in.
Bonne chance!
Moreover, there are other features of the election that still have the chance to shape policy for the next few years. The Senate is essentially a toss-up; given the upper house's role in confirming presidential appointments (and their erratic track record in doing so), a Senate controlled by the opposite party as the White House could conceivably deny the Supreme Court its full complement of judges for years.
Some degree of gridlock looks the most likely outcome, and frankly (given the paucity of quality of so many elected officials) probably the best case outcome as well. That being said, yesterday's uber-rally has now priced outcomes close to the best case in a number of assets, at least according to the MM poll (which of course is far from infallible.)
Still, as the chart below indicates, the SPX has now priced a 97% chance of a Clinton victory, based on your collective guesses for year-end pricing based on the outcome. The DXY is similarly priced. There's a bit more juice in the MXN and Fed funds, but not a lot.
Still, the message from the summer episode is that at some point it's worth taking the other side because the expected value just gets too high. Hard as it is to believe, we could rapidly approach that point at some time today before the official vote counts roll in.
Bonne chance!
16 comments
Click here for comments2148 sounds like the ideal entry for an election short but i am shorting 2129 early in a typical 'pay to play' fashion
ReplyIn the event of a Clinton victory, it would confound a few Democrats and market participants if the market were to weaken from end today/tomorrow.
ReplyUnder the rule of the market, that it is there to make mugs of the maximum number of people, it must happen.
Here is my official prediction (I am serious):
ReplyTrump wins Florida (absolutely crucial), North Carolina, and Ohio (and Maine's second Congressional Distirct) putting him at 260 Electoral votes. Despite being ahead in Nevada, I think Trump loses there (it has become a place Republicans underperform, and looks permanently lost to them at the present time). But I do think he will end up winning... Colorado (for the TIE). Hillary wins the popular vote, and there are several more weeks of chaos, until the House Republicans drag Trump across the finish line next January.
So just knowing the results of those two states (Colorado and Florida) will probably give enough information to determine the winner. Trump could pull in New Hampshire as well, to avoid the tie scenario, but that wouldn't be the perfect ending to this election season, would it? :)
In a similar vein to anon 10.36am, I think this "race" will be close enough that it may take a while to work out who actually gets to live in Pennsylvania Avenue.
ReplyThat uncertainty will probably be a little unfriendly to markets in the short term.
As I walked through Amherst yesterday the homeless guy on the sidewalk earned his dollar w
Replyith the best satire the day. Holding his cardboard signage high he proudly proclaimed 'at least I'm not Trump'.
To the Anons predicting a stalemate... wasnt there a Evan McMullin scenario ? if that happens hahahahhahahah
ReplyStalemate or contested election is very unlikely. When has last time it happened before Bush/Gore? 1876 when they rigged election? Have to go back to 1888 when winner of popular vote did not win before Bush/Gore.
ReplyPubs win house. Senate is a toss up, with slight edge to pubs. Odds clearly favor a Clinton win.
E mail and Clinton Foundation stuff is not dead. I think a Clinton impeachment/resignation is more likely than contested/toss up election.
In any event, Clinton starts out with scandals day one. Press, which has given her kid glove treatment because of hatred of Trump, starts to report things. Obamacare goes from bad to worse. Frozen government with unpopular President.
If Trump somehow wins, pubs in house (with help from dems) block his every move. Some Obama executive orders get repealed, but in general little gets done. Market recovers after sell off.
Either sound like recipe for bull market. 12year old HFM gets rich.
"Have to go back to 1888 when winner of popular vote did not win before Bush/Gore."
ReplyFor president, yes, but one only needs to go all the way back to 2012 when the Congressional results are included:
48.8% - Democrats
47.6% - Republicans
201 seats - Democrats
234 seats - Republicans
Okay, that is not exactly the same thing, but the Republicans do have a structural advantage in the electoral college in the moment (cleaning up in most of the low-population states). I think that if Trump comes within one percent of Hillary nationally (not-far fetched at all), then he wins.
@Flowthrough, the outcomes seem roughly right: Clinton ~320 EV, 50/50 Senate, R House.
ReplyIf emails or foundation are not over, then not only are FBI rank and file politicized, but all of DOJ and IRS. The former happened, but the latter has not. Seems unlikely to change.
What market response to expect once the dust settles is the question. Another relief rally seems plausible, but you wonder how much room there is after yesterday.
There is probably room for one or two more days of this relief rally, based on the VIX (and the hangover from memories of Brexit), although we can't expect that to be totally crushed, not with the Dec FOMC meeting still ahead of us. LB prefers to remain hammock-bound today and for the rest of the week and see what unfolds. This Hammock Time is a luxury afforded by a very successful few weeks - no need to chase return when you don't have to.
ReplyThe only surprise tonight is that there won't be one. Flowthrough has it right, we think.
Make macro great again?
ReplyLooking at VIX price action and getting flashbacks of brexit night...
ReplyI am so disgusted with the media in this country. I graduated from a top 20 university, but I can no longer stand the disgusting divide that is being drawn between non college educated voters and "college educated" voters. There are many who do not have degrees in this country who run companies and hire millions of others in jobs they have created by knowing how to get things done, and in spite of daunting government headwinds. There are millions of "college educated" voters who are barely literate. Regardless of what happens next, the main stream media has lost.
ReplyPity Nico got stopped out of his shorts on that 2 day rally before this crash...
ReplyLooks over. NYT says ninety-five percent chance Trump will win (and Clinton IS still favored to win the popular vote).
ReplyAccording to the 2015 census 88.5% of Hispanic voters do NOT have college degrees, and 77.5% of black voters do NOT have college degrees. Whites do have a larger percentage of college degrees, but why is college education apparently only an issue for white voters in this election?
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