How will the US Election Affect Markets at Home? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 3 November 2012
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
Chances are you've read about the upcoming US election. On November 6th, the US will vote on their next president, and also elect the next set Congressional members. Given the closeness in the polls, we don't have much idea of who is going to win. But there is one part of the election we are confident will have a large impact on the markets.

The US is facing a so-called 'fiscal cliff'. This means that unless a budget deal is agreed by the end of the year, a large number of automatic tax increases and spending cuts will kick in. Without a deal, there would be a significant negative impact on the stock markets globally, including markets at home. According to some estimates, global markets would stand to fall around 20% were no deal to take place by the end of the year.

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Where the US election comes into play is that the outcome will have a significant impact on the likelihood of avoiding this fiscal cliff. The scenario that would lead to a bad outcome is if one party wins the presidency, while the other party keeps control of both houses of congress. Such a scenario will make it very difficult for the government to pass a deal and avoid the fiscal cliff.

In August last year, we had a similar type of crisis in the US that was impacting global markets. The government was having difficulty passing through legislation to increase the debt ceiling and avoid default. In the last minute, they did avoid default, but the impact on markets was significant nonetheless. Throughout August, most stock markets around the world experienced large falls.

Something similar to what happened last August could easily happen again due to this fiscal cliff. The outcome of the US election will tell us how likely it is that a deal is passed to avoid this. Even if a deal is passed, if it simply a last minute compromise that kicks the can down the road, the markets will negatively impacted. In a few days, we'll find out who wins, and we can say more about the likely impact on the markets.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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1 Responses to "How will the US Election Affect Markets at Home?"

Sthithapragnja

Nov 4, 2012

EQ.MASTER TEAM

With all humility fortified with ignorance in abundance,I venture to observe as under:
After reading the article,I am prompted to quote(with telling effect?) an adage as under:

" Whether (i) a PLANTAIN TREE falls on the FENCE, or (ii) FENCE falls on the PLANTAIN tree, in both the eventualities, the DAMAGE happens to the PLANTAIN tree only and not to the FENCE??
Similarly whether Candidate " A " or Candidate " B " , gets elected,
IT IS the people WHIO HAVE TO suffer ??

I HASTEN TO CONCLUDE !!

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