Giddy Up

Men sobbing as falling trading volumes for  equities and derivatives are having negative impact on hedge funds, high frequency operations, and exchanges.  But in a world where "up" does not necessarily mean you get a bonus, the performance of the underlying equity prices have had their best year since 2009.   The DJIA sits today just 6% off its all time high while volume for the benchmark average is down around 63% since mid 2009.   Rising equity prices and falling volume have been a feature as a result of a Fed policy directed at supporting financial assets.  It is only fitting that the best place to have been up to this point are the popular indexes which represent an area the general public and many managers has so rejected.

Tops and bottoms are made on huge volume and so the bears may have a particular problem since the S&P500 sits just under 10% off its all time highs.   There is a greater chance to test  those highs given their close proximity and any modest pickup in stock participation would spike values.

But this is an election year and there will be lots of opportunities to screw up the last quarter.   Expect a severe increase in volatility with a Romney victory as Fed leadership uncertainty along with a greater probability of an EU breakdown would create wild swings.  Add in the fiscal cliff impasse mixed in with a giddy Wall Street thinking Mitt means higher.  An Obama win would still have fiscal cliff problems but there would be no Fed issues and the EU would be less likely to implode.

Now imagine on election night in this too close to call election, the glowing lights from the towers of Wall Street as the collective Ivy League intellectual thunder have there hands hovering over the red and green market buttons.  For them, it is all good if Mitt wins although they would just as willing vote for Palin's second cousin if it meant more volatility and a good chance at a bonus.