Surviving the next few weeks

*US election commentary by Cashwerkz Director, Craig Swanger

Irrespective of the ultimate winner, we are in for some very volatile weeks ahead if Trump challenges a Biden win.  Markets always overreact to immediate news but don’t react enough to longer-term implications, because markets hate uncertainty and immediate news is certain.  Equity markets should be expected to correct by as much as 5-10% if the result is too close to call and likely to come down to legal battles, made worse by the likely social unrest. 

These are unprecedented times for markets – they have no “models” to work off, nor any experience to call on.  Expect volatility.  Expect a flight to safety (equities falling, gold and bonds rising) and bouts of euphoria when markets feel the certainty of a victor is near (equities rally, credit spreads fall, AUD rises).  But that is all in the domain of the day trader.  For real investors, there will be opportunities to take a position if the market overreacts, but otherwise stay the course or if you feel the urge to protect your assets, look at defensive positions in high-quality corporate bonds (just avoid at-risk sectors such as US healthcare, travel and Sino-US trade). 

Surviving today and an amateur’s political prediction

In the land that gave the world Billy Graham, Scientology and the Kardashians, it is hardly surprising that there is a huge population willing to follow Trump like a cult leader.  The spirit of freedom that runs through every part of the US culture cannot be underestimated, and Trump inspires those that feel that their freedoms are being taken away. 

Love him or hate him, that is his (only?) genius.  And that is a big risk today.  Once again, we have to wait and see what those first few votes will tell us.  Sometime after 11 am AEDT (Syd/Melb time) today US polls will close in several states, crucially including most of Florida and the whole of Georgia, two of the bellwether states.  When the results of each district come through, probably some of the Florida districts, we will see whether the polls were right and a Biden victory is likely, or whether once again the “shy Trump voter” fooled us all.  I’ll be right where I was four years – glued to this screen!

My guess: Biden 280, Trump 258.  Of the at-risk states, Trump takes Florida, Georgia, Iowa, North Carolina and Arizona.  Biden takes Pennsylvania, Wisconsin, Minnesota, Michigan and Nevada.  If Biden takes Florida, its all over.  If Trump takes Pennsylvania, it’s all on. 

Polls predicting: Biden 351, Trump 187.  Betting markets: Biden 291, Trump 247.  Anonymous pollsters (removes “shy Trump voter” factor): Trump 285, Biden 253.    

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