E Markets: Horses For Courses

The Bulletin sees this housing upturn as relatively advanced – i.e. getting old – and that price gains are stronger than historical averages.  However, they see the investment cycle as less worrying and the flows for housing driven by the relative outperformance against other asset classes like bonds, deposits and equities. 

Different horses for different courses– UK betting wisdom. 

Indeed it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time.…” - Winston Churchill House of Commons, 11 November 1947. 

We all want the best person for the job, but many in the world are questioning whether democracy achieves this goal for government. As Churchill famously noted, consider the alternatives. This is the US Election Day and many are betting on political gridlock to support markets.  We had a foreshadowing of how markets may be crushed with the Melbourne Cup today in Australia. Rain mattered to the bookies and so it does for voters. Quant models didn’t win either– they had the winner in 13th place. So too, the market risk today is in the consensus on the US election being wrong. Interesting to note that Marmelo, the horse that came in third was the right call by the bookies and quants – but unlike the track, elections don’t have third place payouts. US mid-term elections are normally not about the US President but Trump has campaigned to make it so.

The power of controlling the media agenda maybe sufficient to explain the lack of faith most traders feel in this risk today and their mistrust in polls and bookies. Odds are that the US House goes to the Democrats and the US Senate to the Republicans.  

Most everyone sees risks in other outcomes with infrastructure spending, another tax cut, impeachment hearings and more on the agenda. Of course, there is real news out ahead of the US vote with stronger German factory orders, better than flash PMI from Europe (but real Italian weakness), an RBA on hold, Swedish IP weaker and EU PPI higher. Add into this that politics globally continues to matter to markets today perhaps even more than the US:

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