Markets politics volatility

Paper Tigers

As markets look warily ahead to the most consequential US election in modern history, it's worth remembering that the worst case scenario tends not to play out. Rarely is the worst case scenario the most likely outcome. More often than not, it's a tail risk, and Donald Trump's balderdash notwithstanding, that's probably still the most realistic way to think about the unthinkable. Or at least I hope so. Because America has no real "break glass in case of emergency" plan in the event an enterprising president unilaterally decides to declare himself leader for life -- no plan that the public knows about, anyway. One imagines there's a "folder" locked away in some basement somewhere, but then again, you'd have thought that about pandemics too, and obviously there was no such folder (or if there was, the plan wasn't a very good one). "Close students of election law and procedure are warning that conditions are ripe for a constitutional crisis that would leave the nation without an authoritative result", Barton Gellman writes, in a lengthy piece for The Atlantic. "We have no fail-safe against that calamity", he cautions, of the unthinkable becoming reality. In market parlance, one
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10 comments on “Paper Tigers

  1. derek says:

    I keep hoping this will be similar to the Y2K panic and blow right through.

    But to only focus on Mr. trump may be a mistake. I am more concerned about his “base” rising up.

    • dayjob says:

      Ha, I was just out on a walk thinking about the Y2K comparison too. I’d still put the odds of a serious crisis at less than 10%, but considering the stakes, it’s still enough that we should be very concerned. Should we get through this without a crisis and with a democratic sweep, we need to seriously consider what safeguards need to be implemented now that we know we can’t rely on institutional norms any more.

      If government is split, it’ll be the status quo until the deadlock is broken. If Trump should emerge victorious (sans crisis), god help us all. I can’t imagine what shenanigans he might get up to in a second term…

  2. runamok says:

    Hope is no strategy; but, I hope for a landslide so as to ameliorate these risks. (emoji of fingers crossed inserted here)

  3. Sheldan says:

    What would vol have looked like in the Bush-Gore election if the market had foreseen the horrid “hanging chad” episode in Florida, with it’s dire consequences via an uncompromising Supreme Court? Since those fateful days we’ve had war and turmoil throughout the Middle East, with repercussions beyond for many years.

    Tail risk that can be measured and foreseen is not really risky, is it?

  4. Ria says:

    A Democratic win would probably result in new winners and losers. Likely a steeper yield curve and a rotation into a cyclical tilt portfolio. Corporate after tax profits would probably rise- even with the higher corporate taxes. With a steeper yield curve, we are likely to see a P/E compression so that the stock market may not go up as much as one might suspect in a recovery.

  5. Jeff Klein says:

    Nicely crafted, and worth the price of admission.
    As a father and Grandfather, I fear for the future.
    Not because of the obvious, but the tail risk

  6. John3D says:

    There’s still a finger to be put upon the election scales and that is corporate america. We know who supplies the real cash and influence to get our leaders elected. I can’t think a world of chaos or worse is in their interest. I know most don’t want to endure Trump’s wrath, but there must be subtle ways for them to tip the scales after all most policy so far has been for them.

  7. derek says:

    Tonight’s comments tonight offer no hope. Quite the opposite.

    But few of us want to countenance what may be happening. Perhaps it CAN happen here.

    May God help us.

  8. John3D says:

    It’s getting to the point where I need some serious answers to four questions.

    If the USA is seen as a high risk market, where does the money go? Is there any legit scenario where Trump wins? If there’s a rigged/contested election and Trump tries to stay in power, are there enough motivated citizens to stop it? If Trump stays in power by some means is there anything to stop an economic collapse where the population is dying off from some combination of a mutant virus the government can’t or won’t control and citizens shooting one another in the streets and where some of our allies are thinking it couldn’t happen to a nicer country.

    If anyone feels they have a good handle on this stuff, I’d be grateful for some insight. One month ago I wasn’t even considering these questions. Now it looks like the market could be getting an injection of nitro shortly and I don’t want to be slaughtered when the driver loses control.

    • Tom Swift says:

      Well you could use the CNN Money Fear&Greed Index.
      The current border control measures and resident visa numbers are screwing with the trends on where the money ( people) are REALLY going.

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