The markets are known for their ability to discount future events, however, current market events are of such a binomial nature and economic worries have large trading desks so scared that the market has nearly lost his ability...at least for now. The main culprit of this is the looming fiscal cliff, which if left unattended will mean that on December 31st the US economy will face a fiscal burden via tax increases and spending cuts in the region of 600bn US$ which translated into GDP growth is a staggering 4%. Given that growth rates in the USA will only amount to some 2+% in 2013.
There are a few mitigating circumstances that need to be considered: There is wealth effect from the equity rally and the housing market which amounts to a staggering 5tr US$ - however of this statistically only a few percentage points translate into actual spending (1.6% of GDP) and are just not enough to off-set the fiscal headwinds. In fact the USA would dip straight into recession if these headwinds are not controlled.
If Obama wins the odds are bad that he will be able to agree with the House and Senate before the deadline. Romney stands a much better chance of doing this. From a pure economic, US standpoint Romney's policies should drive equities higher within the first 60 days by around 4%, while the Obama result would probably help in the first instance as the uncertainty is priced out, but giving us an unclear picture thereafter due to the fiscal issues the country faces.
Given this market scenario our positions reflect the uncertainty and we are involved mainly in relative value positions which are isolated from delta movements and binomial outcomes. The only part where we have small exposure on pure delta plays is the jpy which we believe to fall over longer periods time.
Please note that we will be giving actual trades from time to time and that these are merely reflections of what we hold and are no attempt at solicitation nor anything more than information.
Disclaimer: This posting is for information purposes only and is not intended as an offer,recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation or warranty is made that this information is complete or accurate. Any views or opinions expressed do not necessarily represent those of Archbridge Capital AG. This information is not intended, tax or legal advice. You also acknowledge that the information should not be construed as a solicitation or offer by Archbridge Capital AG to buy or sell any securities or any other financial instruments or provide any investment advice or service. Unless otherwise stated, any pricing information given in this posting is indicative only, is subject to changes and does not constitute an offer to deal at any price quoted. You should be aware that returns can be volatile and you may lose all or a portion of your investment. Past performance of any investment or trading tool is not necessarily indicative of future performance or results.