Effects of political scandals, crisis on the Markets.

If you look back through US history during the times where there has been a crisis in public confidence in the Government, Gold has rallied while Bonds and Stocks declined. Political uncertainty is never good for domestic markets of any nation.

The Princeton US 30yr Bond Index ( the most comprehensive as it’s perpetual and extends to the first time where bond cash data was recorded)  shows the steep decline beginning in January 1973 as the Watergate scandal began to grow in importance. The decline continued until Richard Nixon resigned in August 1974. From the 1972 high of 142.03, the August 1974 low was established at 86.29 during the week of the 26th. The Watergate low of August 1974 held until it was penetrated during July of 1978 during the financial crisis years under President Carter.

PEI US 30 Yr Bond Index
Gold as a hedge

Gold’s response to Watergate was similar to that of the bond market until the legalisation of Gold. Speculation that Gold would be in huge demand caused it to  rally in December 1974 then it fell sharply when Nixon resigned. With the dollar on the decline, Gold outperformed the S&P 500 and was used more as a hedge against the currency devaluation since it is a non-national commodity with international value.lead-up to the previous impeachments have been worse for markets than the actual process. There is little doubt that the Watergate affair helped to create a bearish trend for the dollar and US assets.

During the Carter Crisis the Bond market and made all time lows1981-1982. Heading into the 1980’s the stock market rallied during the Carter Crisis. Capital became concerned about government and a flight to quality began. This resulted in capital fleeing the bond markets and moving directly into the share market.

 

S&P 500

However when impeachment proceedings began with Clinton in October 1998 to his acquittal on Feb 12 1999 the S&P climbed from about 960 to 1230. Over this 5 month period the S&P 500 climbed slightly in the first 2 weeks of July 1998 but fell rapidly by 19.4%, The initial decline in price was recovered totally by November that year. A gain in value.

Political uncertainty

Currently there is political uncertainty such as  rumblings of Trump being impeached, the possibility of an impeding all-out trade war between China and the US and Angela Merkel’s leadership is in  crisis.  Political turmoil must be viewed from an international perspective as well.  There are no guarantees that the markets would take a big hit with Trump. When Clinton was impeached the markets gained in value. The lead-up to the previous impeachments have been worse for markets than the actual process. The current scenario is not exactly the same. The timeline of events over the past eight days. Trump fired FBI Director Comey on Tuesday on Wednesday he met with Russian diplomats, on Thursday he announced why he fired Comey and Friday he tweeted that he has taped conversations. US stock futures have declined under this controversy.

Bitcoin correlation

I’ts interesting how Bitcoin happens to be at yearly support and we are seeing some green off this area. Technical analysis suggests we are in for a rally and uncertain world politics may attract investors into the cryptocurrency market.

Maybe Bitcoin will be seen as  a hedge during times of  political scandals

BTCUSD time frames

On the lower time frames we have a change in trend. Mean reversion to the redline 7980 to 8000 is a strong possibility if price stays above 6555.

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