bonds Markets

‘So Many Things Could Go Wrong’

If it’s more evidence of the market’s growing conviction around a changing of the guard in D.C. you seek, you might have a look at the ruble.

While it’s plausible to suggest the Kremlin hasn’t managed to extract all of the geopolitical benefits Russia imagined may accrue from a Donald Trump presidency, a normalization of America’s ties with key European allies would be unequivocally negative for Vladimir Putin, for a variety of obvious reasons that I assume needn’t be enumerated here.

One way to visualize this is the reversal of a “Trump trade” from 2016 — buying the ruble and selling the Mexican peso.

As Bloomberg noted this week, nothing happens in a vacuum, so you can’t simply attribute every twist and turn in a currency pair to politics. Rates matter and, in this case, so do energy prices. Still, the Trump factor is clearly in play.

PredictIt sent a Democratic sweep mailer to “traders” on Friday (“traders” in this case just means people betting with the site). It reads as follows:

Post-debate and positive COVID-19 test, former Vice President Joe Biden continues to increase his polling lead over President Donald Trump.

And with the next debate — and for that matter, the final debate — in major doubt, the president and Republican party could be courting political disaster.

The markets are currently predicting a blue wave with the Senate (68¢) and House (90¢) both expected to go in the Democrats’ favor. The Electoral College map appears to be a landslide in the making with Biden projected to win 335 votes to Trump’s 203.

One concern (if that’s the right word) is that this situation could pull forward some of the volatility markets were expecting after the election. That is, if it becomes clear to The White House that a landslide is all but inevitable and that contesting the outcome will be commensurately less feasible as a means of staying in power, the president’s behavior could become even more erratic (assuming that’s possible) over the next several weeks.

Certainly, Trump’s rhetoric this week around fiscal stimulus qualified as “erratic.” The president went from calling off negotiations on Tuesday to backing an unspecified headline figure that he described as “bigger than frankly either the Democrats or Republicans are offering” by Friday, in a dizzying about-face that whipsawed markets. Ultimately stocks closed with the best weekly gain since late June/early July.

“Financial markets are beginning to converge towards the polls which in turn are moving closer towards a blue sweep,” Deutsche Bank’s Aleksandar Kocic said this week, noting that the result may be “less event premium associated with a contested election and/or disorderly transfer of power.”

And yet, the longer the president’s odds, the greater the chances of desperate maneuvers. We’ve seen some of that over the last few days, with Trump calling for William Barr to indict political rivals, something even this attorney general reportedly is not prepared to do, especially not with three weeks to go until the vote.

“President Trump is… at odds with Barr over the status of the Justice Department’s investigation into the origin of the Russia probe, with the president increasingly critical about a lack of arrests and Barr frustrated by Trump’s public pronouncements about the case, according to people familiar with the matter,” the Associated Press said Friday.

“Unless Bill Barr indicts these people for crimes… then we’ll get little satisfaction, unless I win,” Trump told Fox Thursday. “I say, Bill, we’ve got plenty, you don’t need anymore.”

And so on. You really don’t want to see that kind of thing in a democracy — the executive imploring the nation’s top law enforcement official to start arresting people in a bid to reverse declining poll numbers.

“While [a Democratic sweep] might imply less post-election risk, it increases the likelihood of a turbulent pre-election period,” Deutsche’s Kocic went on to say. He flagged risk premium getting front-loaded in rates earlier this week, with 1M options seeing a 20+bp premium on Monday, for example.

Kocic also listed everything that’s happened over the last week or so before gingerly noting that “there are so many things that could go wrong in the next month.”

In an interview with Mark Levin on Friday evening, Trump said the “real polls” show he’s leading Biden. The president plans to hold an event on the The White House lawn Saturday. It will include “hundreds” of people, according to The New York Times.


 

5 comments on “‘So Many Things Could Go Wrong’

  1. Nothing like the thought of Clinton and Obama being hauled in as part of a Stalinist purge to rally swing voters to Trump. /s

    • Joey says:

      I envision that many in Trump’s family and inner circle are, in fact, in danger of indictment in the coming years, if Trump is out of power. This is not Stalinist: they have likely broken many laws, while in office, and that’s not acceptable. But it’s problematic. Let’s imagine that Trump is soundly defeated, and that it becomes clear that the rest of the country won’t go along with claims of voter fraud. Trump will have to leave. But he will still be president until January 20. It might not be pretty. Outgoing KY governor Matt Bevins issued a rash of very unpopular pardons just prior to leaving office. What is Trump capable of? “If you don’t indict me when I leave office, I won’t pardon all of the Federal prisoners in the system.” Can you imagine having to impeach a lame-duck president?

      • runamok says:

        It is looking more like a crime family. Good that they were based out of NY, jurisdiction where prosecutors have decades of experiencing prosecuting such organizations.

        We should have the expectation that he will be an arsonist.

        If he is an arsonist, a second-order change could be that inauguration is moved up to a date prior to Christmas.

        Laws around presidential pardons changed. (We know he’s going to go nuts and abuse the heck out of pardons.)

        Another effect could be the purposeful weakening of the executive branch, the presidency. The office needs to be weakened, for among other reasons, to prevent an organized psychopath in the future from picking up where the unorganized….uh, uninterested, Trump leaves off.

  2. While concern over post election drama is noted above in comments, I note this week has been good on the front of prevention of violence. Arrests over planned kidnapping of Whitmer has caused right wing media channels to buzz. There are those advancing the reasonable thought that no militia supporting government party, person or agency is desirable or legal.

    There is a news feed today saying that Barret may in fact not be supportive of NRA position on gun rights. Which by the way suffers from fundamental logical flaws and/or lies.

    On the presidential virus case we still have not proof that his virus battle is near to and end. In fact coughing while on phone calls is a sign it is not at an end.

    Even psychopath Barr has declined to arrest political opponents, has the call gone too far? Or is congress finally able to gain a backbone? Heck even I could write an article of impeachment in the morning and it could be voted in the afternoon to remove asshole and psychopath from office while trial commenced.

    I see all signs that our country is on it’s path to normalization, which is by the way selling us short. We should be looking now to make ourselves a better example of ourselves.

    I saw a study today where , cough-cough, cash was given to homeless as an experiment. The results were net positive for government budgets due to positive behavior changes. More study is needed but if cash transfers to select homeless can result in more money for the income taxing authority that they give out, then our humanity (for those so endowed) requires us to wholeheartedly embrace such a program.

  3. jyl says:

    In early Sep, the volatility yield curve implied higher volatility in Nov, Dec. Jan, then declining gradually. On Oct 1, the curve implied higher vol in Nov. On Oct 5, the curve implied higher vol in Oct and Nov. This suggests outlook for Dec onward had moved to lower vol / more bullish, right?

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