This has been one of the quietest October months I have ever seen in the financial markets. Traders normally try to do one last push to meet their budget after coming back from summer holidays before the banks wind down for year end to close their books.
A simple explanation is that big risk events are happening into Nov and Dec. Most markets are trading within a very tight range now. The exception : equity markets in general as investors try to trim their portfolio and increase their cash weighting.
Everyone can’t wait for the US Presidential elections to end next Tuesday. The soap opera worthy excitement and the multiple twist and turns are just killing everyone. Poll results continue to flip flop as new revelations hit the markets. Everyone seems to agree that if Trump wins, the world would suffer.
Michael Moore put it so well in his latest film “Trumpland”. His fervent supporters are trying to send a “Fuck you!” message to the whole establishment to protest against the system. But if Trump really wins, they may wake up to a massive hangover after that, full of regret when the full impact of the false promises hit home, like what happened in Brexit.
Then the US Fed may also hike interest rates in the Dec FOMC meeting. The year-end liquidity situation may be bad as banks are now already withdrawing from market making activities due to stricter capital policies like Basel 3. Coupled with the bleak economic situation worldwide, traders are not expecting to be rewarded with a fat bonus anytime soon by being a hero and taking large bets.
The 2 events mentioned above are like digital options (either a 0 or 1 outcome) where it is too difficult for economists to even try to predict accurately. Different end results will swing markets violently to either side. Most investors, myself included, have been slowly reducing our equity holdings to increase our cash portion. Volatile markets may create buy opportunities later. We are all like the rabbit in the middle of the road that is frozen in its tracks and staring at an oncoming truck heading directly towards it…
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