Hedging the political and economic trade-off

After the record setting highs of the US markets last week, the futures look to be closing the gap to start this week on a positive note as well. This has the VIX index back near multi year lows. Couple this with a light week in terms of US economic news and you have the markets at the whims of politics. With more news sure to come out from the repeal of Obamacare, and talks of an ambitious tax plan to follow, it will be interesting to get the market's likelihood of a meaningful deal.

​The lack of greater economic news will provide a clearer link to the talks of a revised tax deal and the removal of Obamacare legislation to how much the market is still pricing assets to a deal. Political exhaustion will come at some point, but as seen in the VIX it looks like strong economic news may take over as a driver in the near term. one thing that investors can be sure of is that low volatility makes bets on larger swings in asset prices less expensive to hedge against. Not a bad idea given the conditions.

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