I think I‘ve scared myself today. I have long thought that my bets for Trump to win were plays on probability where I was looking to get out of the trade on the approach to the result as things turn out to be closer than first thought. But today, for the first terrifying time, I am thinking that he will actually win. Now I know I am not an electoral college expert, nor a five38 stats-genius, but the way Clinton has handled herself since the FBI decided to open her files has been less than stateswoman like.
This may not seem like much to base my prediction on but for me to be particularly unimpressed, to the point of thinking I want neither of them to win, I should imagine that the Republicans who have switched to Clinton may well flip back for the same ‘they are as bad as each other’ reasons. Basically, those who have decided to vote Trump despite all his extreme err.. extremity, are not going to be swayed to leave by much else. On the other hand, those who are behind Clinton seeing her as a trustworthy pair of hands will be more inclined to switch their way. Voting Trump may appear insane to the intelligentsia but the base of the intellectual pyramid is a lot wider than the top. And, as I have said before, a lot of clever people are relying on a lot of stupid people not being stupid, which is stupid.
When Trump says or does something stupid the noise volume of objection and horror is deafening, which gives the impression that the majority have shifted. But the noise tends to come from those who have decided not to vote for him anyway and are doing their best to detract. The shock and horror noise does not give that clear an indication as to how voting intentions have actually changed. I know that the similarities to Brexit are being debated with respect to poll underestimation, narrative following and herding, to the point that it is fashionable to dismiss it, but I do believe there are huge similarities. If asked which way you are going to vote there is a bias to appear caring, and hence a bias to the Democrats, creating an artificial swing in polls. It’s different in the booth.
But probably the most frightening similarity and, indeed, most important indicator is 'the letter'. It appears to be de rigueur for all polls now to be accompanied by a blessing for one side or the other from, rather than a religious body, a conclave of economists. The latest proclamation is finally here
Prominent Economists, Including Eight Nobel Laureates: ‘Do Not Vote for Donald Trump’
Some 370 economists sign a letter slamming Trump for promoting 'magical thinking and conspiracy theories'
Well that’s it then. Trump is going to win.
As we learned from Brexit (here), a letter of warning to voters from the cardinals of economics is the best possible news EVER for whoever or whatever they are warning against. It's the black smoke to to those they support and the white smoke, champagne and party hats for those they decry. I am sorry economists, you may well be absolutely right in the long run, but the population gets too big a kick toking on the weed of Trump to care about warnings from Dr. Economics that it's bad for them. It's why people buy overpriced diet products, pay £750 for an i-Thing, buy popcorn in cinemas or small bottles of water for £1.50. It makes no economic sense at all, but they do it. And this is what happened with Brexit.
Even if economists are to be listened to, does that mean they will be followed? If we stripped down the election to, say, a call on whether you want the stock market to stay the same or dump 20% the outcome is very dependent upon if you own stock or not and what your opinion is of people who do own stock. I would imagine that the non-stock owning poor may well outweigh the stock holding rich and vote for a dump just for some schadenfreude equality leveling. Twitter seems to agree.
And are economists really the right people to use? When did an economics Nobel Laureate ever cut the mustard with your average Trump voter? Now, get a letter together from a bunch of Nascar champions and you might be on to something, but an economist's letter is doomed to failure.
So I am left more concerned than ever that a Brexit-like cold realisation that the unthinkable is thinkable is about to cause a schism in the markets. That WTF moment. We had glimpses of it today and some key Trump-o-meters were on the move. Odds in the bookies for a Trump win have moved up from 15% to around 25%, which isn’t much really, but it's the rest of the financial markets where I am looking for the trade. USDMXN has been pretty much at ground zero and started to move last Friday, but as the collapse widens other assets should start to get sucked down the sinkhole. US equities, oil, USDJPY, the usual safe haven trade of USD trades are on the move.
This leaves me with four choices
1- I run after and jump on the trade train that has already pulled out of the station hoping it doesn’t reverse back in,
2- I wait, hopefully, for the train to reverse back in before jumping on.
3- I realise the train has pulled out so instead leave some ridiculously low bids in some stalwart stocks much further down the line waiting for the algorithmic trade programs to wet their pants, cause a massive selloff and then look for the dust to settle and everything to recover in the medium term.
4 - I look for an asset that is tethered to the train by a coiled rope that will soon snap taught catapulting said asset after the leaving train.
Options 3 and 4 are the most tempting and can be used in tandem.
But What? The VIX really doesn't look that expensive and I'd prefer to buy puts than buy VIX as VIX will probably settle down after the event though the underlying price is a lot lower (see GBPUSD volatility post-Brexit). I am also looking at Bonds. The bête noire of this season’s asset show. No one really likes bonds at the moment, but give the equity market a big enough shove and there is going to be some interesting safe haven seeking going on. USTs are already on the move but where I am most interested is in Gilts. everyone and their dog knows that inflation’s coming to the UK, global yields are going up, and of course that GBP is a basket case. So on that basis, they are probably the best buy out there if we get a Trump dump.