Thursday, October 4, 2012

Presidential Debate Trading Thoughts

As I watched the debate last night, I became more and more convinced about how one or the other candidate's win will impact the market. Forget the immediate effect, it lasts a trading session or two and wears off. The long-lasting effect, starting on Nov. 7 is the one I am discussing here.

Many traders (and I used to be in that camp, but no longer) assume that Romney is good for financial markets and Obama is not, based on the usual notion of republican pro-business political stance. But one has to look at other facts. Obama has presided over more than 100% rally in stock market. No matter how much you think he is against the business community, his policies did not stop the market from rallying hard. This brings the most important thought of mine: Obama's win will mean that Printer-in-chief Bernanke stays to serve out his full term. I think that if Romney wins, Bernanke will have to go. Even if Romney decides to keep him, radical republican party members will insist on his departure.

Does the market have the same notion? I absolutely think so. Most of the rally has depended on QEInfinity. Without Bernanke at the helm of Fed, the market is in huge danger. That is another undeniable fact.

So to sum up: Obama = Bernanke = Stock Market Rally. Romney Win = No Bernanke = No Stock Market Rally.

With this in mind one has to ask a question: why, when it looks like Romney had the upper hand in last night's debate, is the market rallying today? (At least in the beginning of the trading session, as I type...) Is it because of Obama's continuing lead in polls, despite the outcome of the debate? He is also still in a huge lead on Intrade.

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