The sharp rise in yields following the Trump victory inflicted a big loss in the value of the global bond universe with the dollar value of the universe of tradable bonds globally losing $1.2 trillion over the past week, while at the same, the value of global equities increased by $0.8 trillion; however the real fireworks were behind the scenes, where the fund in- and outflows within equity groups were truly unprecedented.
While the October payrolls report, due out at 8:30am on Friday, has taken on a secondary importance in light of the market's near certainty that the Fed will hike rates in December (absent a Trump victory and/or a market crash), analysts and traders will surely be concerned any prominent outlier prints that deviate too far from the consensus estimate of 175K. So, in preview of tomorrow's biggest economic update, here is a snapshot of what Wall Street expects.
"No matter what happens, there’s going to be volatility, because someone is wrong,” said Mark Connors, Credit Suisse’s global head of risk advisory in New York. “Even though we won’t have rate resolution, we will have the look of Congress and there will be some position changes given the positioning is very disparate -- very long and very short. That’s unstable."
In a letter to investors, Elliott Management execs warned that a rapid inflation is the $30 billion hedge fund's biggest concern in the current environment, and that such a spike would not only collapse bond prices, but potentially lead to a stock market crash.
While the statement itself contained 7 fewer words than in September, there were virtually no changes. The most notable change in the wording was the remove of the phrase: "Inflation is expected to remain low for the near term" and its replacement with "Inflation is expected to rise to 2 percent over the medium term." The FOMC also said that "The Committee judges that the case for an increase in the federal funds rate has continued to strengthen" strongly hinting that a December hike is now almost inevitable absent a market crash.
From here on out politics are only relevant at the extremes - major war, corruption scandal, martial law etc.Short of that, the fiat currency/fractional reserve banking world has such institutional momentum that it really won’t matter whether Trump is picking on bankers and building his wall or Clinton is protecting Wall Street and raising taxes. Debt will keep soaring as it has under every president since Reagan and jobs will disappear as machines replace people, thus bringing the end of the current system inexorably closer.
What are the implications from the shift toward passive investing? According to JPM there are two big ones: i) Markets become more brittle and systematically risky; ii) Crashes, when they happen, will be bigger and worse iii) Markets become less efficient
"I believe 2017--2021 will represent the end and reversal of that multi-decade trend - as the debt bubble bursts and bond markets begin to crash... Each phase was a desperate battle between centralized, governmental control of currency versus universal, hard-asset based currency. And each phase saw the acceleration and intensification of that battle take hold in the ‘7’ year."
For the moment, of course, the huge majority of the left is consumed with the impending election, and with the perceived imperative of defeating Trump by supporting Clinton as the "lesser evil" candidate. At first glance this seems eminently reasonable. But the certitude that has swept the country regarding the preferability of Clinton over Trump ought to give us pause. For those paying close attention, it is not necessarily clear which candidate is the lesser evil.