Mike Zigmont Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business

since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

What a snooze. The market was flat and the capital flow was light (94%). Bonds and currencies were pretty quiet too. Oil and natural gas moved a lot but those were the results of specific catalysts for each market. Overseas markets were slightly soft so *

maybe

* our market trading flat is a relative win for the bulls. I’m stretching on that conclusion but what the hey, stock always go up, right?

Anywho, if there were a news item worth mentioning today, it would be the little bit (so far) of drama in the Senate concerning the tax reform. I have no idea how to handicap the horse-trading that’s at work behind the scenes though. Despite the nail-biting that’s appearing in the press, the market is unconcerned. It feels like markets are acting as though tax reform is a fait accompli. That strikes me as a little bit dangerous but we’ll see.

I think it’s silly to think that these big public votes are non-surprises for markets, e.g. it’s all priced in. The probabilities may be fairly priced but we’re talking about binary events. If the event comes in as expected, there’s no market impact… but if not, whoa Nelly!

I’ll always remember the rejection of original TARP (Sep 29, 2008). The reporting ahead of the vote was that Pelosi wouldn’t call a vote if she didn’t have the yeas. That was the market’s assumption. The voting commenced and the trading was smooth. CNBC re-broadcast the C-SPAN feed as the votes came in and about halfway through, the nays were a little too heavy… futures sagged a little. With about 10% of the vote remaining the nays were still running heavy and things got ugly. Once the nays were within one or two of officially rejecting the bill, futures plummeted. The S&P fell 8.8% that day. It opened, pre-vote, down 30 bips. It closed at the lows of the day.

Here’s my point. Even when votes are well publicized and Wall Street is paying close attention, one never knows how the vote is going to go. If the street strongly expects a vote to go one way, the opposite outcome is going trigger fireworks.

So is the market 90% confident in the passage of tax reform? 95%? 99%?

Whatever the number, the street is strongly tilted.

Color me nervous.

See you

tomorrow

-Mike