The MacroTourist tries to steer clear of politics, especially US politics. For one, the ‘tourist is not even American, so I have no right to give my opinion about who America should elect. But more importantly, even if I held the right to vote, what good would another pompous jerk-on-the-internet’s opinion do anyway? The last thing this debate needs is another voice shouting into the sea of polarizing opinions (but just for the record, if I could vote, I wouldn’t vote for either candidate. Instead I would write in Camacho/”Not Sure”).
I am more interested in trying to determine the outcome of the election, and what it means for the markets.
After a series of serious missteps from the Donald, the markets have largely discounted any chance of Trump winning and have priced in a status quo Clinton victory. If Clinton prevails on November 8th, there will be zero surprise in the market.
Although I believe Clinton will most likely be victorious, the market is overly confident of this outcome. Given that it costs so little to bet on Trump doing better than expected, it makes sense to take a stab at positioning for the race being closer than generally expected.
Why do I feel this way? Again, I am making no judgments. I am just looking at what is happening and trying to make sense of it all. Although I understand the reasons why Hillary will most likely win, there is a large portion of the American population who are fed up of the elite establishment and desperately want to usher in a change. Hillary is not that change, and I suspect a fair amount of people might hold their nose and vote for Trump despite all his bad press.
I hate to say this, but that blow hard Michael Moore gave a great speech encapsulating this phenomenon.
I know a lot of people in Michigan who are planning to vote for Trump. They don’t necessarily like him that much. And they don’t necessarily agree with him. They are not racist or rednecks and they are actually pretty decent people. After talking to a number of them, I wanted to write this.
Donald Trump came to the Detroit Economic Club and stood there in front of a Ford Motor executive and said,
“If you close these factories as you are planning on doing in Detroit and move them to Mexico, I am going to put a 35% tariff on those cars when you send them back, and no one is going to buy them.”
It was an amazing thing to see. No politician, Republican or Democrat, had ever said anything like that to these executives. And it was music to the ears of the people of Michigan, Ohio, Pennsylvania and Wisconsin (the BREXIT states).
You live here in Ohio. You know what I am talking about. Whether Trump means it or not is kind of irrelevant because he is saying the [right] things to people who are hurting. And it’s why every beaten down nameless working stiff who used to be part of what was called the middle class loves Trump.
He is the human Molotov cocktail they have been waiting for. The human hand grenade that they can legally throw into the system that has stolen their lives from them.
And on November 8th, election day, although they lost their jobs, although they have been foreclosed on by the banks, next came the divorce and now the wife and kids are gone, the car has been repo’d, they haven’t had a real vacation in years, they are stuck with the shitty Obama care bronze plan where you can’t even get a fuckin’ percocet, they have essentially lost everything they had, except one thing…
One thing that doesn’t cost them a cent and is guaranteed to them by the American constitution. The right to vote.
They might be penniless. They might be homeless. They might be fucked over and fucked up - it doesn’t matter because it is equalized on that day. A millionaire has the same number of votes as a person without a job. One. And there is more of the former middle class than there are of the millionaire class.
So on November 8th, the dispossessed will walk into the voting booth, be given a ballot, close the curtain and take that lever, or felt pen, or touch screen, and put a big fuckin’ X in the box of the name of the man who has threatened to upend and over turn the very system that has ruined their lives. Donald J. Trump.
They see that the elites who ruined their lives hate Trump. Corporate American hates Trump. Wall Street hates Trump. The career politicians hate Trump. The media hates Trump (after they loved him, and created him, and now hate him). Thank you media, the enemy of my enemy is who I am voting for on November 8th.
Yes, you, on November 8th, Joe Blow, Steve Blow, Bob Blow, Billy Blow, Billy Bob Blow, all the Blow’s get to go and blow up the whole God damn system because it’s your right.
Trump’s election is going to be the biggest Fuck you ever recorded in human history.
Grant Williams from RealVision TV has spoken about how leading up to the British referendum, many individuals who were pro-BREXIT were afraid to voice their opinion. They didn’t want to be labeled a racist or an anti-EU bigot. Yet when the time came to vote, in the safety of the anonymous booth, they voted against the establishment. Trump is even more difficult to openly support than BREXIT, so it makes sense that his polling numbers are low.
Yet on November 8th, I think Michael Moore will be correct that way more people will want to stick their middle finger to the elites than is widely believed.
Even though this is a decent possibility, the markets are extremely sanguine about the whole situation.
Most market pundits are aware stock market volatility (as measured by the VIX) is ticking along at the lows:
I generally avoid trading VIX from the long side as your timing needs to be perfect otherwise the negative carry eats you alive. But for the first time in a long while, I think it makes sense to be long VIX.
What I like even more is to be long currency volatility. Have a look at this chart of the JP Morgan G7 currency volatility.
G7 currency vol is cheap given all the looming events.
But my favourite long volatility play is fixed income.
I know this seems like a cop out, but given the upcoming election and the December Fed meeting where they have telegraphed a rate hike, I think volatility on most asset classes is too low. Way too low.
The election is closer than the market believes. Don’t misunderstand me and think I am predicting a Trump victory. I am not. I am just noting that the market has gone to sleep assuming Clinton will win, and this is not nearly as locked up as widely believed. Buying cheap insurance makes sense. Heck getting long volatility here might even be a winning trade without the world’s biggest ‘F U.
Thanks for reading,