Election Day

Today Americans vote for their next President and the polls suggest that it’s “neck and neck,” to close to call, hence most market commentators will wait until tomorrow, when the results “should” be in, before waxing lyrical on the market impact.

So why would I want to comment today, unless I’m nuts?

Well, I don’t think that I’m nuts, but a cynic and a sceptic, yes indeed, particularly when on the subject of Politicians, American or otherwise. But the real reason why I wanted to comment today is that tomorrow, the 7th November 2012, could be a very volatile day for financial assets and not just because of an American election result.

  • Yes the US election will decide if the debtors or the creditors win. The former, led by Obama, will try to maintain entitlement spending and see QE-infinity continuing until the debt bubble collapses, whilst the creditors, led by Romney, will seek to retain the real value of their wealth via restrained spending, including entitlement spending. Should Romney win, the threat to the printing press are real and one look at the last threat to it, in the Spring of 2010 when QE1 ended and improved economic data suggested no more, stocks saw a 15% drop in a month.
  • But what if there is a delayed result as the legion of lawyers are called in to contest a marginal result, a la Bush 2000 “Hail the Thief.” That dragged on for a month before a result was announced causing great uncertainty for financial assets. Add to the mix the unseemly rush that is required to fend off the fiscal cliff between now and January and it gives food for thought.
  • The 7th November is an important date for Greece, as the increasingly isolated Prime Minister Samaras faces a crucial vote on the Troika demanded reforms. New Democracy, the Greek coalition’s junior partner has already stated that it will not support the PM whilst a growing number of the 33 Pasok MPs are in open rebellion, posing a serious threat to the required agreement for EU loans. Add to the mix that German (the ones footing the lion’s share of any loan to Greece) Industrial Production data is also due for release on the 7th and the consensus forecasts look to be on the rosy side, particularly looking at the German car industry of late. If ever there was a time for either the Greeks to reject austerity, leaving Germany to either save Greece or agree on her leaving the euro-zone, this could be it.

As to how the result of any of these events will effect US stocks over the very short term, your guess is as good as mine. That said, one look at America’s finest, the S&P 500 Index, shows that whilst the two blue trend lines continue to support the post March 2009 to date rally, volume, along with other indicators not shown, are showing a negative divergence, as evidenced by the black trend lines. Usually this results in a falling market and often a sharp fall.

So there we have it, an awful lot of important news is due out on the 7th November and hence you may see just why I wished to air it. Nutty or not.

 

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