Mainstream Consensus
Julian Emanuel, equity and derivatives strategist at UBS, said the market has been pricing improved earnings but also the expectations of better growth due to tax reform, stimulus and other pro-growth policy. He says political risk is not all that uncommon in the U.S., but now market expectations are high that there will be action.
Investors had been pricing in an 80 to 85 percent chance of some tax reform this year, but that has fallen. “We now think they’re pricing the likelihood of tax reform is on the order of 55 to 65 percent and they think it could be late 2017 or early 2018”
Much of the USD bull run was predicated on the promises regarding taxation reform. Recent bearish momentum against the USD was widely held to be ‘correction’/’retracement’, rather than reflecting a change in the underlying conditions. One would thus expect failure of the emergence, or even delay of tax reform to produce a rebalancing of USD exposure to the downside.
Outside black-swan risk
Two ‘fringe’ twitter commentators have risen to the attention of US political observers of late. Whilst they are at best still considered extremely controversial bordering on lunatic fringe, they have correctly and accurately called a variety of significant developments, indicating that they have at least some semi-reliable sources.
Their most recent assertion is extremely out of the box, but that is why it should be considered under the black swan category: very low conventional-wisdom probability chance, but highly significant event.
Note: the existence of a sealed indictment against Trump doesn’t mean what many anti-Trump people might hope, given that impeachment is a political process, not a legal one. However, if their other claims about RICO cases against Pence and Ryan also prove to have legs, then the political climate will certainly be very different from the current one. Weak evidence to support this is that Claude Taylor’s source did inform him of the presence of both the Grand Juries and the subsequent FBI subpoenas a week before the mainstream media picked up on the story. Also worth noting is that impeachment proceedings themselves won’t necessarily result in impeachment in any case, but what we’re interested in here is the initial market shock to the emergence of news like this in mainstream channels, not the partisan aspects.
Again, I’m not claiming that any of this is likely, that’s the entire point of it being a black-swan risk!!
submitted by /u/alotmorealots
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May 14, 2017 at 10:13PM
from /u/alotmorealots
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