VIX was historically low around 12-13 instead just days ago.
Yes it did pop up to around 15 due to the new development that may impact on
the election, it is still not overly high suggesting much nervousness. So let’s think about it. We all know that this
is not a normal presidential election; maybe it could be called the most hated
election in the US history. Regardless which side you are with, we have to
agree on one thing, both candidates are hated by the other side, not to some
degree but extremely I’d say. It is not my business which one you will vote but
the election result will profoundly change the political paradigm in the US for
sure. As of now, the general market wisdom is that the Wall Street should be
happy to see a win of HC as it will mean business as usual with no uncertainty.
If Trump wins, it would be viewed as a major negative as he is not a
conventional politician and will bring a lot of uncertainties. That’s what the
market will hate. Now just days before
Nov 8 and we don’t see any fear in the market with total complacence, I guess
the market is universally expecting that HC will win, even factoring in the FBI
probe into the HC email scandal. No surprise so what is fearful. In other
words, the market has priced in the HC winning and is almost universally
standing on one side at the moment. Sounds familiar? Yes, at least to me. This
very much reminds me what we were seeing from the Brexit just a few months ago.
Prior to the vote, overwhelmingly (including yours sincerely) the expectation
was that UK would stay and Brexit would not happen. Then a big surprise hit the
market!
Given the extreme complacency, my contrarian part tells me
we may see something really surprising. Yes, the polls are consistently telling
that HC is more likely to be elected.
The thing is, as I said this is not a normal election and Trump is not a
normal politician. Don’t make a conclusion too fast based on the conventional
polls. For one thing, Trump is greatly loved by the grassroots, those living
deeply down the social stairs. How do I know? Well, you may want to review this
interview with JD Vance, who served four years in the US Marines and graduated
from Yale University Law School (http://www.theamericanconservative.com/dreher/trump-us-politics-poor-whites/).
Vance is in the elite circle now but he was a hillbilly from the poor 'white
trash' roots in Middletown, Ohio. He told his own story in the book “Hillbilly
Elegy”, the story of an entire 'tribe' of poor white people whose standard of
living peaked 30 years ago and has never come back again. One message Vance,
now a lawyer, is that government programs can do very little to affect things.
If no fundamental changes, the future of this large group of Americans (black
or white) looks bleak. Believe or not, Trump is viewed as representing this low
class group, which is by any measures not small. But this large group is likely
neglected by the polls done by the major media. And the real surprise may come
from them, voting for Trump, not HC that decides the result of the election.
I’m certainly not a prophet that I can predict the result.
But at least I know that it is prudent to be prepared for a storm, a huge storm
that may be brewing. So what the market will do if Trump surprisingly
wins? Brexit brought down the market by
5 or 10% I forgot. Trump’s win will be viewed as a much bigger “disaster” for
the market. I don’t know how much it will crash the market but I won’t be
surprised to see a 20-30% crash over a few weeks. When this kind of shock hits
the unprepared market, VIX could jump from low 10s to 50 or even higher within
days.
Considered you are warned and discard this message at your
own risk.
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