Are Trump's Incentives About To Change

Submitted by Adventures in Capitalism

Three weeks ago, I did the unforgivable and waded into US politics. I apologize, but I am about to do so again. Fortunately for all of us, I’ll keep my thoughts specifically to the stock market.

Say what you will about Trump, he has had only one goal for the past three years; pump the hell out of the stock market. He tweets at Powell, he lies about trade truces and he cheers on the stock market. Any downtick will certainly be met by Trump’s stock promotion machine. The market has even overtaken his foreign policy as he recently softened his negotiating stance when the market had a few down days. For three years, investors have been confident in the Trump put. What if that all changes? What if for a brief moment in time, it is in his best interest to have the market crash?

Above are the updated betting lines from Predictit.org. I realize the overall dollars at risk are low and can be manipulated. However, I tend to agree with the betting lines. If anything, the low risk short is Biden—he’s a parody campaign at this point. Unless Warren seriously fumbles, she will be the Democratic candidate. As I noted three weeks ago, I don’t see how the market can be comfortable with this, as her policies are decidedly anti-equity markets. Sure, she’ll move a bit more centrist in the general election, but investors will still be terrified. If Argentina’s market could drop by half when Macri lost the primary, why can’t ours drop 20 or 30% if Warren is the candidate? Especially, with Warren leading in most polls against Trump.

Now, here’s the interesting wrinkle; what if a savage market decline favors Trump? Imagine the ability to get out on twitter and blame Warren for the market crashing? Imagine scaring working people that their IRAs will detonate? Imagine scaring retired people that they’ll have nothing left? I don’t care what your political leanings are, no one wants to lose a substantial portion of their net worth. Warning voters that they’ll crystallize a 30% loss may be amazingly persuasive in an election—especially after you remind people how successful you were in pushing the market higher as stock-pumper-in-chief.

The market wants to crash because the global economy is rolling over. Trump certainly doesn’t want to take the blame. In fact, he’s the master at shifting the blame to others. If the market starts crashing, why wouldn’t he blame Warren and then aggressively force it lower so voters feel real pain? I know I would. That’s how you win elections. Trump is a winner—consequences be damned. Are Trump’s incentives about to change?

The market sure isn’t prepared for such a narrative shift. Invest accordingly…