Do your remember Donald Trump’s upset win over Hillary Clinton?
Of course you do. But do you remember the financial market fallout?
Business Insider laid it out nicely at the time:
US stock futures are plunging as well. As of 11:39 p.m. ET on Tuesday, Dow futures were down by 753 points — about 4.13%.
The Mexican peso is down by about 12.9%
Gold is up by 3.8% at $49.50 an ounce
Nikkei 225: -6.0%
The FTSE 100 lost just 2%. And recovered half that by the time Trump took to the lectern for his victory speech.
Back then, former Credit Suisse head of research Giles Keating looked at stockmarket performance in the aftermath of “major geopolitical events”. Here’s what he came up with:
The large majority of individual major events — ranging from the assassination of Archduke Ferdinand 100 years ago through to 9/11 and recent events in Iraq and Ukraine — impact major stock markets by around 10% or less, with the effect being fully reversed within a month or so.
This suggests that the most profitable strategy has usually been the contrarian one of buying into price falls caused by such incidents.
And he was certainly right about Trump’s election. Until recently, stocks boomed in the Trump era. All those Democrat voters who sold out the day Trump was elected have missed out.
But tomorrow, the US votes again. The so-called midterm elections are designed to undermine a president who is up to no good. Which is why very few presidents manage to hold a majority in Congress for more than two years.
Midterms are confusing. All 435 seats in the lower house of US parliament will be voted for. Only a third of the Senate’s seats are covered by the election. A huge amount of state and local elections are also being held, but they’re not relevant to you.
The Senate is close to a toss-up for the end result. The House of Representatives is likely to be taken by the Democrats. Based on polling, the highest number of seats are a close call since the 1994 mid-term election.
Of course, the same pollsters gave Clinton a 90% chance or winning in 2016. Some statisticians with a sense of humour are debating on Twitter about which will better predict the outcome of the midterms: a coin toss or just betting against what pollsters predict.
The thing is, the effect of the various outcomes is completely unclear too. What do a Republican or Democrat win mean for you and the stockmarket?
If the Republicans lose Congress, the effect would be to turn Trump into a lame duck on many of his initiatives. Sort of.
The trouble with this narrative is that Trump does not rely on his congressional influence for all of his policies. His trade war and foreign policy is driven along under his presidential powers. The US constitution gives its presidents enormous autonomous power.
So, no matter what happens in the elections, we could see trade wars continue, for example. Or real wars begin.
If the Republicans manage to hold on to the Senate, but lose the lower house, as many expect, it’s effectively a standoff. Laws that pass through the lower house won’t make it past the upper house. American politics will turn into a spectacle with little substance. Apart from whatever Trump gets up to with his presidential powers.
But what if the Republicans hold Congress completely? Then there will be a meltdown. Not in the stockmarket. On the political left.
Trump is toast… still… almost… soon
The American media have been busy telling their viewers about the “beginning of the end of the Trump presidency” for more than a year.
On Nassim Taleb’s Twitter account, there’s a rather brilliant video of various news presenters all declaring Trump to be a gonner. They all use exactly the same phrasing. They’ve been repeating it since the beginning of the presidency.
I’ve written many times about Trump’s strange ability to come out victorious. Even when he couldn’t possibly have known he’d be proven right in short order, he humiliates his detractors surprisingly consistently.
The media and intellectuals struggle deeply to understand Trump. He doesn’t speak like them. He doesn’t behave like them.
And yet, he’s the one doing trade deals with Japan, Korea, Mexico and Canada.
He’s the one bringing peace to North Korea.
He’s the one lowering black unemployment and unemployment generally to record lows.
It must be deeply disconcerting to anyone who thought they understood politics or economics.
The point is, it’s very easy to criticise Trump on image and style. He’s far worse than any president in history on either. A national embarrassment by any objective measure.
The political class and media care about image, not substance. That’s why they struggle so much with him. They can’t get their head around someone like him being politically successful. It should be impossible according to how they see the world.
But the voter cares more about upsetting the media and political class than their president’s image. And they care about the economy and other matters of substance too. They want to see results. And Trump has delivered plenty of those rather quickly.
Attempts to smear the image of Trump and his associates have also failed miserably. They don’t seem to tarnish Trump, and sometimes backfire.
Another accuser of Trump’s Supreme Court justice has admitted she lied about sexual assault.
The investigation into Trump’s ties to Russia has gone quiet. Instead, the Democratic Party in Georgia is being investigated for trying to hack into the voting system. And the probes into Trump have uncovered politically motivated spying on the Trump campaign authorised by Democrats. The cover-up has proven even more embarrassing for the Democrats than Trump’s scandals. Mostly because he doesn’t care.
Trump’s decision to send the military to the border to deal with the migrant caravan was roundly ridiculed recently. The US military isn’t allowed to act on the border, so he must be an idiot for sending it there.
But today, pictures of military personnel building Trump’s wall out of razor wire are all over the news. The military personnel he’s sent are active and delivering on Trump’s promises too.
Trump’s escapes from international treaties look horrifying to overly informed voters. Until you take a closer look and realise what’s actually in those treaties. They benefit others at the expense of the US. And Trump promised to put America first.
The inability of Democrats to dent the president is the most surprising thing about the Trump presidency. Are we in for a surprise tomorrow?
The biggest risk from the midterms
The real issue at the heart of tomorrow’s elections is simple. If the Democrats don’t win something, they’ll lose their marbles. The political left will go wild.
“Why Aren’t Democrats Walking Away With the Midterms?” is a New York Times headline. “President Trump has made 6,420 false or misleading claims over 649 days,” whines the Washington Post.
But the polls are close. Personally, I don’t struggle to see why.
In the race for governor of Florida, the Democratic candidate personified the nature of mainstream politics with this waffle: “I’m not calling Mr DeSantis a racist. I’m simply saying the racists believe he’s a racist.” Inspiring stuff, I know…
Things are so frenzied in the media that even just predicting a Trump victory is enough to get you into trouble.
The cartoonist who created Dilbert anticipated Trump’s victory before he even got the Republican nomination. He claims it is Trump’s persuasive techniques that make him so successful. But saying so is not permitted, Scott Adams told the Brunswick Group in an interview.:
Though Mr. Adams says he has no political party affiliation and describes himself as “politically left” of Bernie Sanders, his staunch defense of Trump’s persuasive skills has cost Adams some of his left-leaning following – and by his own estimates about 40 percent of his income as a speaker.
But all this is confined to the political market. Very little affects the financial market.
If Republicans hold on to Congress, as I expect, don’t believe the media’s uproar. As much as Remainers, Democrats and eurosceptics in Europe might want financial markets to go into meltdown because of “outrageous” politics, it rarely happens.
Holger Zschaepitz from Die Welt newspaper pointed out on his Twitter that “the S&P 500 has not declined in the 12mths following mid-term election since 1946”.
There is only one exception to this. Only one place where politics really can cause a financial market meltdown. The biggest in history. Find out where here.
Until next time,
Nick Hubble
Capital & Conflict
Category: Geopolitics