politics Trump

The US Election May Be Decided By June. But Would Trump Leave If He Lost?

The tail risk to end all tail risks?

For a president who worked very hard to make himself synonymous with the US economy and also with the stock market, recessions and bear markets are non-starters. Or at least they should be.

But Donald Trump has learned that his base is willing to accept pretty much any narrative he decides to conjure when it comes to explaining bad data or stock market declines. There’s always a scapegoat. Until the pandemic hit, Jerome Powell, China, and Democrats took turns shouldering the blame for any and all adverse economic developments and market swoons.

Trump wasn’t always wrong. The Fed did over-tighten, for example.

As SocGen’s Solomon Tadesse wrote nearly two years ago, if one measured from the lows in the shadow rate, the amount of Fed tightening delivered by the time Powell finally pivoted exceeded that seen during previous cycles by a fairly wide margin. In short, the Fed hit the ceiling at around 5.5% of de facto tightening (i.e., when you account for the unwind of QE).


But just as often as not, the president was tilting at windmills when blaming others for every twist and turn in the economy and every downward blip on the Dow.

The fact is, the uncertainty created by the trade war led directly to a dearth of business investment, which partially offset robust consumer spending, needlessly weighing on output with little in the way to show for it in terms of concessions from China. Consider that business investment had already fallen for three consecutive quarters headed into the pandemic.

Sometimes, when stocks fell, Trump would simply stop talking about the market, eschewing the opportunity to assign blame for fear of drawing attention to declines.

Headed into the election, Trump is facing a situation that one might be inclined to say “could only happen to Trump”.

Just a little over a month after regaling the world’s most important economists, policymakers and financiers gathered in Davos with the tale of how he “created a boom the likes of which the world has never seen before”, the US economy careened into a recession (wait for it), the likes of which the world has never seen before.

The man who promised to deliver quarterly GDP prints of between 3% and 4%, watched helplessly as the economy shrank 4.8% in the first quarter, and will be similarly impotent when Q2 shows the MAGA “miracle” disappearing into the black hole of a contraction expected to clock in at between -20% and -40%.

The man who pitched himself as America’s economic savior, and who once lampooned the idea that the economy would ever shrink during any quarter, is looking at a contraction so large that it really doesn’t even make sense to plot it on a chart.

Similarly, the man who became famous for tweeting “JOBS, JOBS, JOBS!” nearly every payrolls Friday for three years, is now the proud owner of a nine-week rolling jobless claims spike so large that if you didn’t know what happened, and were forced to take a guess, pretty much the only possible explanations would be widespread pestilence or some kind of coordinated, multi-city terrorist attack.

The difference between this highly unfortunate turn of events and previous boondoggles is that this time, most of the blame cannot be placed with Trump.

Yes, you can argue that had Sino-US relations not been frayed by two years of bickering over trade, coordination around the virus might have been easier. And, obviously, there are those who are convinced that any other administration would have handled the US outbreak more adeptly, saving thousands of lives in the process (I’m not convinced of that myself, by the way, even as I’ll be the first to say that Donald Trump is among the very last people you would ever want to preside over a pandemic response).

But the fact is, both parties are clearly predisposed to blaming China first, as that’s a relatively riskless strategy, and the more antagonistic Beijing becomes in Hong Kong, the stronger the case will be for painting China with the “bad actor” brush in the months ahead of the election.

All of that said, Trump can (and will) be judged on the success (or failure) of the reopening push. That’s self-evident to a certain extent, but some analysts suggest the election will be won or lost in the next several weeks.

“We believe that despite a lot of other noise, the election will be primarily a referendum on Trump’s handling of the pandemic, but more specifically, Trump’s handling of the reopening’, NatWest’s US strategists write, in a note aptly entitled “Will the US election be decided by June?”

They make the same point that I (somewhat begrudgingly) make above – namely that while nobody is going to forget Trump’s predictable missteps in handling the outbreak, if the reopening goes well, some voters will look past the myriad stumbles as the inevitable byproduct of mixing a vain, inexperienced leader with what might as well have been an asteroid strike.

“If the summer re-opening is successful, debate over the effectiveness of President Trump’s handling of the COVID-19 response in March and April can be looked past, with people back to work and the 4Q20 and 2021 economic outlook on a path to recovery”, NatWest writes, adding that “this would be a real problem for the Democrats, all the more so because Biden has nearly disappeared from the scene, dominated by Trump on TV and on social media at a time when traditional campaigning is severely limited by the pandemic”.

On Tuesday, Trump found himself in a spat with Twitter over the company’s decision to encourage users to “get the facts” on two of his tweets, which contained misleading information and unsubstantiated claims about mail-in voting.

But even if social media cracks down on Trump’s penchant for (and I don’t know any other way to put this), lying to voters, he won’t be deterred. He may take some kind of action against Twitter (he suggested as much on Tuesday evening), but there’s a sense in which all publicity is good publicity, especially when Biden is getting none at all.

However, NatWest goes on to point out that the reopening push cuts both ways. To wit:

Reopening prematurely or unsuccessfully is equally risky for Trump. One of Trump’s greatest strength, voters’ views that he is better than Biden to handle the economy, will be at risk with an unsuccessful or rocky reopening. A recent CNN poll noted “54%, say they trust the President to better handle the nation’s economy, while 42% say they prefer Biden.” So if the reopening is mishandled and more widespread lockdowns are re-initiated, and we see not a “swoosh” based recovery but a W-recovery (or for the virus, a second hump of cases/deaths), President Trump may lose his advantage on this critical metric. Our base case is that there will be periodic outbreaks, and we think that should be assumed even in a successful reopening.

There’s nothing there that’s particularly groundbreaking, but when you throw in the fact that some key states for Trump were particularly hard-hit economically, you end up with a situation where what happens in the next 45 to 60 days could make or break the vote.

For their part, NatWest suggests that if there’s a serious second wave and an accompanying lockdown, it might be game over for Trump. Here’s one additional excerpt:

If either (a) workers that think they are on temporary layoff find themselves on permanent layoff, (b) we open and then close again which likely results in the same thing, or (c) the nature of the reopening is so slow that growth doesn’t bounce as we all think, then economic failure even in just these several states, not just nationally, can put Trump at risk. Chart 3 below shows the severity of job loss and fiscal shock in various states; observe that the swing states of Pennsylvania, Michigan, and Ohio are all expected to face severe pain, to varying degrees. And psychologically, we are not sure the American people being asked to lockdown a second time on a widespread basis will go over very well.

The worst-case scenario is a reopening and then another lockdown. So far, that doesn’t appear likely, but we’re not far along enough in the reopening process to draw any definitive conclusions.

Note that NatWest warns on the possibility that “workers who think they are on temporary layoff find themselves on permanent layoff”. This is a crucial point and I discussed it at length in “Temporary Precarity“. I think we’d all be foolish to believe that every, single person who identifies as “temporarily” jobless will be rehired.

Finally, I’d be remiss not to raise a subject I’ve broached previously, to varying degrees of reader receptiveness.

I do not think it is a foregone conclusion that Trump leaves office if he loses a close election. No sell-side analyst is going to write that, but it should be on your radar, even if you think it’s a ridiculous thing to fret over. I also do not think it is necessarily guaranteed that there will be an election in November if it coincides with a meaningful second wave of the virus and Trump is behind in the polls.

Remember, Trump claimed massive voter fraud even after he won in 2016. He has never dropped that claim. Given how litigious Trump is, and considering the exigent circumstances that may end up surrounding the vote, it is not out of the realm of possibilities that the president simply refuses to leave office. It’s also not at all clear what could be done in that scenario.

I think, as intelligent people who are keen on making predictions about the future of markets and the political outcomes that affect asset prices, we would all be naive not to at least consider that as a possible tail risk.

After all, if somebody had told you in January that the nine-week rolling total of initial jobless claims would be 39 million by mid-May, you’d have thought that crazy. And now here we are.


24 comments on “The US Election May Be Decided By June. But Would Trump Leave If He Lost?

  1. joesailboat says:

    First things first. The income taxes.

    • D Price says:

      It is the Income Taxes and the subsequent threat of jail that would cause him to do some crazy gambit like camp out in the white house. How long would he stay if Uber were banned from delivering Big Macs?

  2. Darren Combs says:

    One only has to look at the myriad things he has said on the topic to get the sense he won’t leave even if he loses an election. You could also use his main defense in the impeachment: because it was in HIS interest it was in the nation’s interest for him to get re-elected.

  3. Sheldan says:

    “I do not think it is a foregone conclusion that Trump leaves office if he loses a close election….I also do not think it is necessarily guaranteed that there will be an election in November if it coincides with a meaningful second wave of the virus and Trump is behind in the polls.”

    We discuss these dire possibilities at least weekly in our household. Can someone with influence in DC channel the Founding Brothers to help us avoid such a crisis?

    • It’s odd that more people aren’t concerned about this. Anybody who has followed Trump’s career knows how prone to litigation he is, and he never dropped the claim that millions of people voted illegally in the last election. He’s been pounding the table on voter fraud for the entirety of his presidency, and he’s being doing it even more lately. I mean, W didn’t accept the results of an election, why would anyone think that Trump would? I’m not saying he’s going to board himself up in the Oval, but it is entirely possible that he sues, and sues, and sues, and sues, and either refuses to leave until the litigation is resolved or, if that proves untenable for whatever reason, makes the whole thing an absolute nightmare for the country and for the GOP.

      • Bill Maher has been asking the what if he doesn’t leave question for the last couple of years. See Maher’s recent interviews with Eric Holder and Michael Moore for the popo drags him out scenario.

        • D Price says:

          I think Maher is gaslighting us, playing both sides for a fool. He wants to appear the smartest person in the room, but this narrative is extremely dangerous and gives the errant fool more power than he would otherwise have by being homeless in the White House.

    • John3D says:

      Any attempt by Trump to stay requires the backing of Barr and McConnell. The scenario also raises questions about every other race. If Trump can stay in office in defeat then why not the local dog catcher? It’s hard to imagine American democracy as we know it continuing without free and fair elections and the peaceful transition of power. Anyone out there have an inside track on getting Canadian citizenship?

      • D Price says:

        IT requires much more than Barr or McConnel. The new president would have command of the Secret Service and the Military. He would also be able to develop a crazy man narrative cut off social media and otherwise act to counterpunch by making Trump out to be the old paper tiger fool he is.

  4. joesailboat says:

    N.Y.C. trustfund kids are above the law till proven otherwise. He was not kidding about Fifth Ave.
    Honorable Senators and Religionists will never understand that total lack of regard till proven otherwise.

  5. Anonymous says:

    Seems like chads will fly come November.

    Before that, blanket pardons. We’ll find out if a President can pardon himself.

  6. PaulMiller says:

    The person sworn into office on Jan 20, 2021 will be the U.S. President, irrespective of the inhabitant of the White House on that day. As fucked up as our society has become, we at least understand an election: it’s the way our mayors, governors, and some judges are placed into office. Not one incumbent has ever remained after a defeat.

    • D Price says:

      Yes homeless and camping out in the whitehouse does not make one President of the United States. Once another president is sworn in his airplane becomes Air Force One whether it is a puddle jumper or a Southwest jet. Secret Service will be compelled to protect the sworn in President. So what if a few right wing radicals volunteer to protect him in the White House. They will not have access to the security machinery there or the support of the State, they can stay there for all I care.

  7. gdhalpha says:

    Assuming there is a greater push and general acceptance of voting by mail, the big concern is Trump’s push to defund the US Postal Service. It seems the funding of the USPS is on shakey ground already. How do you vote by mail if there is no USPS?

  8. John3D says:

    One can argue that a cornerstone of the strength of the US economy and stock market is the rule of law. If that goes away, investing in US businesses is no more secure than investing in Russia, China and other markets where the rule of law on any given day is what the dear leader says it is.

  9. Bas says:

    More than a tail risk in my view. I think it’s likely Trump will only leave when it’s clear he will be physically removed.

    • D Price says:

      Probably a fate worse than tanks for Trump would be just to ignore him. Cut off from Twitter, ridiculed on TV as the reality show President, he might leave as soon as possible.

  10. RStantz says:

    If Trump loses there will be a transfer of power, perhaps not as peaceful as we are accustomed but a transfer all the same. Of greater concern is the integrity of the election –if there is to be widespread fraud it will be perpetrated by Republicans disenfranchising otherwise eligible voters (sending out directions to the wrong polling place, faulty machines, phony poll taxes and outright ballot tampering are just a few of the “dirty tricks” the GOP will resort to) and widespread misinformation with a healthy assist from Trump’s Russian friends. Those tactics along with gerrymandering and the demography of the country and the state representation principle enshrined in the Constitution leading to a GOP heavy Senate will blunt any democratic advance –even if it does not manage to save Trump himself. Of course there is always the “postpone the election” Hail Mary which has about a good a chance as refusing to accept a negative result.

    • Stephen in Canada says:

      “…Of greater concern is the integrity of the election –if there is to be widespread fraud it will be perpetrated by Republicans…. ” Now THAT is the first major issue to address… Surely!

  11. And if he loses the election and is no longer president there’s nothing stopping, say, New York from issuing an arrest warrant for tax fraud and having him arrested and returned to New York.

  12. Bill W. says:

    The most dangerous period for the Republic will be the stretch of days between Election Day and the voting of the Electoral College. Trump will try, by hook or crook, to manipulate or illegitimize the process. Assuming he fails, the denouement may be his resignation, followed by a Pence pardon and a flight to Mar A Lardo.

  13. Mr. Lucky says:

    There is still Martial Law in his tool kit. Only if the military refuses the order would this risk be blunted.

    One thing I don’t see mentioned here, to my surprise, is that if the POUTUS does “lose and refuse” — oh God, what a slogan — the financial markets may well tank beyond all comprehension. If they do he’s out. The real bosses will make sure of it.

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