The market just discovered its black swan

[Pascal]

The black swan seems to have been a duck as the market now fears that Donald will not be able to swim... or that the establishment will not be happy to see an ugly duckling coming down into its pond.

This move is more than the fear of a rate hike (Gold is also up.) It is fear regarding uncertainty... even if Hillary is elected.



Pascal

38378

[PeterR]

my model is:

Hot money is selling the fear of Hillary loosing.

Value investors wait for certainty to invest after the election.
This will be a buying force somewhere down here.
Some might front-run this (before the election).

The potential small hike in december, should not be bearish for stocks, because of down pressure on bonds.

[Pascal]

Hi Peter,


This might indeed be a possible scenario.
My theory is that markets are mainly moving on algos and algos follow liquidity. When there is no liquidity anymore, then no-bid and markets go down, even if there is only little selling. This is what we have today: the 20DMF does not show much selling, but base liquidity is drying out as the Cumulative Tick tends to show.

You are right to point that a small rate increase would not be bad and could even attract carry-trade money... only if rates on excess reserves are not raised too.

The second source of money could come from a stimulus package that a new administration could propose in 2017. I believe that the 20DMF will detect a positive money flow as soon as such discussions of a stimulus package start to be heard.

But this is for 2017. In the meantime, we have to deal with the everyday election drama.
For now, markets are still weak.

Pascal

38399