As we noted yesterday, in the latest escalation between Donald Trump and the "political" Fed, the republican candidate said that the Fed is "keeping the rates artificially low so the economy doesn't go down so that Obama can say that he did a good job. They're keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It's a very false economy. We have a bad economy, everybody understands that but it's a false economy. The only reason the rates are low is so that he can leave office and he can say, 'See I told you.'"
He then lashed out at Yellen, whom he accused of having a political mandate when conducting monetary policy: "So far, I think she's done a political job. You understand that."
On whether we can have a rate hike in September: "Well, the only thing that's strong is the artificial stock market. That's only strong because it's free money because the rates are so low. It's an artificial market. It's a bubble. So the only thing that's strong is the artificial market that they're created until January. It's so artificial because they have free money... It's all free money. When rates are low like this it's hard not to have a good stock market."
He concluded by saying that "at some point the rates are going to have to change." They will, but not on a downtick in the S&P500, and certainly not when the "data-dependent" Fed sees ISM data which confirms that the so-called recovery is once again rolling over.
Still, Trump's assessment was simple: the "bubble" which is the stock market, will eventually crash, which is why a month ago he urged his supporters to sell stocks, warning of "very scary scenarios" for investors, and accused the Fed of setting the stage for the next market crash.
Hillary Clinton was bound to respond, which she did moments ago when she said that "Trump's comments on Fed show he should not be president & that candidates should not comment on Fed actions." We wonder if they should not comment because the comments are spot on, or because they boost the likelihood of a market crash, which as we showed before, leads - with an 86% "success" rate - to the loss of the incumbent party candidate. As a reminder, since 1928, there have been 22 Presidential Elections. In 14 of them, the S&P 500 climbed during the three months preceding election day. The incumbent President or party won in 12 of those 14 instances. However, in 7 of the 8 elections where the S&P 500 fell over that three month period, the incumbent party lost.
And confirming that it is now all about the stock market, none other than Trump's most prominent non-political nemesis, Mark Cuban appeared on Fox News earlier today where he said that he has his "Trump hedge on", adding that "in the event Donald wins I have no doubt in my mind the market tanks.... If the polls look like there is a decent chance that Donald could win I'll put a huge hedge on that's over 100% of my equity position, and my bond positions as well, that protects me just in case he wins."
So to summarize: i) we are now in a bubble, but ii) don't admit that or the market will crash resulting in a Hillary loss, and iii) the market will crash once the political support for Obama is pulled by Yellen should Trump win, something Cuban is now hedging against, only he does so by pulling the "Brexit card" and hopes to spook investors-cum-voters not to vote for Trump unless they want their stocks wiped out.
In short, the narrative is now set where the only "good" outcome for markets is a Hillary victory, which sends stocks to a new all time, if "bubbly" and "artificial" high. Then again, let's recall how all prominent "experts" predicted that a Brexit vote would lead to an immediate recession for the UK. Meanwhile, we have all seen the amazing rebound in most UK sentiment indicators post Brexit, not to mention the unprecedented surge in UK stocks.