One Trader Questions The Post-Election Rebound In Complacency

If one strategy report said it, hundreds have - now that the uncertainty of the election is over we can get back down to business as usual.

However, as former fund manager and FX trader Richard Breslow argues:

"I’m not sure what that will mean. Exactly why should the discordant factors that have made this such a trying year for so many traders suddenly have disappeared?"

I only mention this because, there are a lot of new and self-proclaimed sharpened market forecasts floating around that are meant to be our guideposts for the rest of the year. Suddenly a newfound certainty has once again asserted itself. They mostly sound reasonable. Yet I can’t help wondering if we shouldn’t consider whether we are in fact hearing a Siren song.

If we now have certainty, why is it so easy to see both sides of the coin everywhere you look?

China has a growth and leverage problem. But at least they haven’t given up on regularly trying additional measures to loosen financial conditions. They did it again this week by announcing new measures to ease access to capital for private companies.

They aren’t allowing themselves to be deterred from the lack of success from previous measures. In fact they acknowledge that this has been the case. Will the umpteenth time be the charm? What will be the outcome of the Trump/Xi meeting at the G-20 -- and will it produce any believable progress in the aftermath? You had better pick a side if you want to bet large on this burgeoning Asian asset rally.

I was beginning to feel optimistic, so naturally yesterday Harvard Economics and Public Policy Professor Ken Rogoff published an article in the Guardian titled, “A Chinese Recession Is Inevitable-Don’t Think it Won’t Affect You.”

Is the dollar going up or down? U.S. issues aside, it won’t do it without a lot of help either way from the euro. But that currency is locked in a nasty range that has allowed just enough false breakouts as to serially catch traders off-sides. There aren’t many dollar bulls about. It’s strange that the market keeps thinking the ECB will be more hawkish than priced and the Fed less so.

Mean reversion needn’t happen on cue. Especially with headlines like this morning’s, “European Commission sees mounting Italian Risks”, “EU Under threat From ‘A Farage in Every Country,’ Michel Barnier Warns” And Spiegel Online echoed the increasingly common call that Chancellor Angela Merkel hasn’t gone far enough by only relinquishing her role as head of the CDU.

Latin America is a great place to be invested if you like holding a tiger by the tail. Just look at the disparity of exchange-rate forecasts for these currencies and you will realize it’s hard to make a lot of blanket generalizations.

Incidentally, the S&P 500 has bounced hard, right to an important technical pivot. What it does from here could greatly affect the prism through which traders view the investing environment. Say what you will, technicals have been asserting a powerful influence on things. Probably because no one seems to be able to craft a really compelling, and lasting, fundamental narrative.

With great risk can come great reward. There’s no doubt there are a lot of opportunities out there. But there is a palpable lack of any tolerance for losses, or frustration, among traders. The one trade we all agree on is that heightened volatility is here to stay.

That may be the first assumption worth questioning. Central banks would no doubt love for markets to go quiet. Which would suggest one trading strategy. A lot of other actors could make that not happen and that argues for a completely different one.

In fact, as Bloomberg Macro Strategist Mark Cudmore concludes, it's worth emphasizing, in light of the powerful asset surges in the wake of the midterm election results, the results shouldn’t be a game-changer and it seems foolhardy to ignore that the Fed meeting today has the potential to reverse some of the latest moves.

It will doubtless remind investors that monetary policy is becoming less supportive as we get later in the economic cycle.

And one of the largest catalysts for asset volatility this year, the U.S.-China trade war, hasn’t suddenly faded, let alone disappeared, as a result of the election.