Originally published by Chamber of Merchants
Today is a Hillary Market
Look at the stock market since Director Comey absolved Hillary from her email scandal on Sunday:
The markets and the Dollar have all rallied. In fact the CBOE Volatility Index which indicates the level of market fear has receded down to 18.71.
I would like to point out that in the VIX above, Brexit followed the exact same pattern.
Fear reached a VIX height of 21 -+ around June 13th, then everyone was convinced that Brexit would never happen.
It happened, in case I need to make that clear. Hence, the VIX skyrocketed as the voting outcome became clear.
This is a Hillary Market. There is no doubt about it.
What you’re seeing is a market that is anticipating a Hillary Victory and positioning itself accordingly.
The current live betting odds from RealClear politics has Hillary winning at a probability of 81.6 %
Donald Trump on the other hand has a winning probability of only 18%
Where am I going with this?
If Hillary does indeed pull through to be victorious, the market was already 81.6% confident of her victory.
It’s mostly already priced in.
There will be limited upside to her victory as the market gets ready for “more of the same”.
So what we’re looking at hear is a Hillary Market where there is a 4 in 5 chance certainty of a Clinton Victory.
There would also be limited downside to safe haven sell-off since they’re already mostly sold off.
What I mean by that is, the assumption is 81.6% that Hillary will win. Therefore safe haven assets are being priced accordingly. Gold currently sits around $1283 (which includes an amount of short selling which would get closed directly after the election results).
So well done to those that were betting on a Hillary victory. It looks like the money is pretty much in the bag.
For myself, my portfolio has lost its recent gains and once again the balance is nearing -40k.
With Hillary winning I expect the balance to return back to normal as the focus shifts to December rates hikes while short sellers close their betting positions. I would expect gold to enter the $1260’s $1270’s in the short term.
We can wrap it u… wait. what?
Oh. Yeah. We still have to get the election results.
You see, the market is so casual about a Hillary win that Donald Trump has been afforded a mere 18% chance in the betting world.
If Trump loses, his probability drops from 18% to 0% which will not make much of a difference in the market. It would not make any lasting impact on gold since even the dip into $1260’s $1270’s would be temporary.
However, a Trump victory will make an entire 80% difference to the Hillary market you view today.
The market has not made provision for a Trump victory. Up until Sunday, the market reflected a bit of both, but since it has swung in favour of Hillary given her FBI development, a Trump victory would now wreck the market with a major upside swing for gold.
I’m not a betting man, I’m a Merchant: I positioned myself in commodity producers with a view of the bigger fundament and economic picture. As the election madness continues the junior miners I hold continue to mine, continue to be profitable. Nothing has changed in that regard.
However, on the 18% chance that the market is wrong, and the market does get it wrong (oil, brexit, interest rates), then there will be an 80% improvement in the Merchant’s position in the short term. In the event Hillary wins there is an 18% downside which will pass fairly quickly as market certainty and confidence returns.
An 80% upside swing to the portfolio in the short term will certainly be welcome, however the 18% near probability of a further drawdown is a risk worth taking.
As I said previously, it’s volatile and not for the faint of heart.