Here’s The Political Black Swan That Could Collapse
Confidence And Suck Markets Into A Black Hole
Fiscal cliff collides with a replay of the Bush v Gore 2000 fiasco. Not good.
We noted in an earlier post today Governor Romney has moved ahead of President Obama on the Real Clear Politics electoral map for the first time of this presidential campaign. The Governor has also opened a 7 point lead in the Gallup national tracking poll of likely voters.
We recognize that 19 days is an eternity in politics, but the underlying dynamics with states moving in and out of play and the tightening of polls in the battleground states has increased uncertainty, at least in our opinion, on who will be the next POTUS.
It appears to us that the momentum is in Governor Romney’s favor, but we do not have a good sense of the political dynamics on the ground in the states that really matter, such as Ohio, Nevada, and Colorado.
As traders we are always nervous and looking for potential disasters on the horizon. We are becoming increasingly concerned the way this election is shaping up. Imagine, for example, if Governor Romney wins the popular vote and President Obama takes the electoral college, or vice versa.
We see the President’s probability of winning the election on Intrade remaining above 6o percent while Governor Romney opens a fairly significant lead in the daily Gallup tracking poll (see below). WTF?
The Black Swan? The fiscal cliff collides with a replay of the Bush v Gore 2000 election fiasco. Total disaster.
The resulting political paralysis coming at such a critical time as the country edges toward the fiscal cliff would collapse confidence and suck markets into a black hole that nobody knows how they would look coming out the other side. Recall the nonlinear dynamics of 2007-08 financial collapse. Greece? Wiemar? Who the %#@& knows and let’s hope and pray we never do.
This isn’t our base case and the probability of such a scenario is relatively low. But, we believe it is such a high impact event that everyone, including and especially the politicos in Washington, should be aware, afraid, and have a contingency plan.
We’re always nervous but growing more so as November 6th approaches. Stay tuned.