Forget The Election Cycle, Its Policy Uncertainty That Counts

While anticipation of the election cycle's 'can't lose' perspective on markets is widespread, there is a somewhat more concerning cycle that accompanies it that we suspect will be much more critical this election year than in recent times. As Barclays notes, the 'policy uncertainty cycle' into presidential elections is very notable - especially in the 4-5 months immediately prior to the election. The reason this is concerning is simple - in recent years 'policy-uncertainty' has been extremely highly correlated to market-uncertainty (VIX, for example) suggesting that we are due for a rather large risk flare over the next few months. Believing in the omnipotent capabilities of central banks (or governments) to levitate markets in an election year is all well but if the path to that 'outperformance' includes a 20% dip, does anyone stay to benefit? With fiscal drags of $200bn to $650bn based on election-outcomes, it seems the policy-uncertainty cycle is not priced in at all.

The Policy-Uncertainty cycle is clear...

and policy-uncertainty is dramatically correlated to risk flares...

especially notable this year given the deep polarization and potential 'fiscal cliff'...

Source: Barclays

Comments

[fonzannoon]

There is no policy uncertainty. The debt ceiling will be eliminated. The tax cuts will be extended. The automatic spending cuts will be repealed. Regardless of party. Sean Egan will be made an offer that he can't refuse.

[Manthong]

The “articulate and bright and clean and a nice-looking guy” has served his purpose and really cannot do much more damage as all credibility is gone.

The assets are being put in place to stage the next political distraction.

The next cycle of economic destruction will come with the new articulate, clean and nice-looking guy  

All is going according to plan.

[Pladizow]

The only uncertainty is when will America implode?

[sickofthepunx]

yep.  staying in SDS till labor day and riding the rally to election day.

[pasttense]

It's hard to think of many policy differences between the candidates. The major one seems to the safety net for the poor (including Obamacare). While the Republicans keep talking about the sex related issues (abortion, gay rights), they never seriously actually try to  act on them as that would alienate part of their middle class constituency.

But on the core issues of massive budget deficits, big military, unsustainable Social Security/Medicare, bankster bailouts...they are very much on the same page.

[zero19451945]

I can't remember a time where I've read an article by one of these large banks where their predictions actually came true.

[Duke of Con Dao]

how can I forget the election cycle with good material like this: 

YouTube - MIDGET v. GIANT: You Didn't Build That, James Dean! says President Obama

[spanish inquisition]

OT - Found via Cryptogon with link to Cryptome - its pretty cool

The Gentleperson's Guide To Forum Spies

http://cryptome.org/2012/07/gent-forum-spies.htm

[magpie]

Thank you very much, but i don't need it. Everybody knows that i am a Hungarian/Vatican/Nazi/Hizbollah/Mormon/North Korean/Costa Rican Superspy already.

[Hype Alert]

"You didn't build that" wasn't a Freudian slip, it was a speech!

[Flakmeister]

This is all you need to know about the electoral process in the US...(emphasis mine)

-----

Lawrence Lessig, in Big Campaign Spending: Government by the 1% in the Atlantic,

A tiny number of Americans -- .26 percent -- give more than $200 to a congressional campaign. .05 percent give the maximum amount to any congressional candidate. .01 percent give more than $10,000 in any election cycle. And .000063 percent -- 196 Americans -- have given more than 80 percent of the super-PAC money spent in the presidential elections so far.

Repeat, 196 people have given more than 80 percent of the super-PAC money spent in the presidential elections so far.

From: http://www.smirkingchimp.com/thread/dave-johnson/44525/if-the-public-knew-corporate-media-helps-gop-sneak-in-plutocrat-agenda

[overmedicatedun...]

flak makes another gigantic discovery: rich people buy politicians  who knew. but you left out judges, cops and lawyers..flak go back to AGW..you know the sun is hot will be his next revelation...look who runs, pelosi, reed and the unk oreo in the white house.

[Flakmeister]

Hey, since you are incapable of grasping the fact that 196 people dominant presidential election spending and the attendent implications, it comes as no surprise that the sublteties of AGW completely elude you....

Your partisan bias is showing, if you were truly disgusted with the situation you would have added  Boehner, McConnelll and Walker to your list of people...  

Critical thinking is completely alien to  you, eh?

[Umh]

The practical difference between .05 and .000063 is essentially nothing in this case.

[RSloane]

Short the uncertainty, its certain.

[Burticus]

It's not the uncertainty about policy, but the certainty.

The Bushbama regime has been a seamless continuum of political, social and economic destruction and an Obamney regime will mean NO CHANGE.

It is this CERTAINTY of central banker control, with gubmint not only never doing the right thing, but always consistently doing the wrong thing, that keeps the ecomomy in depression.