Anything that makes us focus less on disastrous consequences -- at least to the eye of the beholder -- and more on the matters at hand, is a win for the bulls, no matter how ephemeral that might be.
For years, I have been talking about the notion that you have to get past whatever Big Bad Event there is out there, something lurking, some uncertainty, and that will bring in the buyers.
My Big Bad Event theory is certainly in play: The sideline folks look like they are coming in and doing some buying of all sorts -- with the exception of oil, the commodity I am voting most likely not to succeed, for the moment.
Now, though, I think that I am behind the times. I need to layer on the fabled black swan analogue to my story line. There are so many hedge funds making so many diffuse bets that need to be settled right now -- and that, too, is bullish.
What's black swan about an election? It's the "far out" theses that basically call into question the ability of the government to function in any normative way.
Let me give you some bets that have to get unwound and settled today in a bullish direction. First, because the polls were so wrong in 2016, there was a lot of money being bet they would be wrong this time around. That meant either the Democrats sweep both houses or the Republicans get a roaring majority in both houses.
Under the first scenario, a Democratic sweep, we would have to believe that the most powerful leader in the Democratic Party would be Elizabeth Warren, as she is the only new face that is definitely running for president. Elizabeth Warren is most closely allied with the Populist anti-bank strain of the Democratic Party. So, naturally, those who believed in the big Democratic upset have to unwind a very big bet that had been made against the banks. You would, under these circumstances, buy the stock of Wells Fargo (WFC) , which is the stock proxy for Warren Buffett's fortunes.
You could also have bet, in a Democratic sweep, that there would be more calls for health care reform by the Democrats, which would make that be the endless topic of discussion for the next two years. Now it won't be. So there will be less scrutiny of anything health care, versus what those who feared/thought a Democratic sweep was in the cards.
And those who believed there could be a strong Republican sweep? There's the obvious issue that is now tabled: bigger tax cuts, or tax cut 2.0, or whatever you want to call it. That can't occur. But judging by the vicious decline in the Volatility Index, I think you could say that another, more sub rosa bet, comes off the table: the notion of the Trumpian dictatorship.
When the very rich talk, get on the golf course or go to the club -- Republican or Democrat -- they fear that Trump could be unbound from any sort of protocol. They have visions of the suspension of habeas corpus dancing in their heads.
A very big percentage of the wealthiest always have one foot out of the proverbial door, desiring nothing but to get their cash out of whatever area is too hot, and I believe there are enough money managers who cater to these souls that there will be money flowing in a pro-equity direction.
Or, to put it another way, let's say you are hedge fund and your clientele is the super-wealthy. You would have had to put on some bets that would skyrocket in the event of a feared totalitarian Trump tally. The easiest way to play the fear card? Owning S&P puts. That's right, a bet on a Republican sweep would scare the rich more than a Democratic sweep because of the erratic nature of this presidency. You could have looked like a hero this morning to your clients if we got a big sweep and the rule of law came into question.
For these folks, the rule of law, so to speak, is back in play, with a check-and-balance democracy revived.
I think it is this cohort, not the one which believes in anything pro or anti-business, that has the biggest bets to unwind.
Which is why we can have an up day, or even series of days, if the Fed doesn't yap about how it needs five hikes instead of four.
How will it unwind? Come to the webinar with famed chartist Marc Chaikin Wednesday morning at 11:00 a.m. ET, when I will have more formative thoughts on the outcome!
Tune in Wednesday at 11 a.m. ET as Jim Cramer hosts famed technical and quantitative analyst Marc Chaikin for a free one-hour Webinar on how to invest for the rest of 2018 and beyond. Click here to register.
