The ‘Totally Appropriate’ Tail Risk

It’s not likely that Americans, as a body politic, will come to any kind of “consensus” in the near future vis-à-vis the correct course for the country going forward.

The nation will remain divided, and almost hopelessly so. That’s a truly unfortunate state of affairs but, alas, it’s the country’s reality. And part of the reason why that’s America’s reality is precisely because large swaths of citizens have been conditioned to live in what I described Tuesday as an “alternative reality,” which is itself built upon Kellyanne Conway’s infamous “alternative facts.”

Rational people (and even some irrational people) are, of course, aware that most of the conspiratorial narratives emanating from the president and his allies long ago passed the threshold that separates the merely far-fetched from the preposterous.

There are media outlets and portals which dedicate every waking hour to filling in “details” and editorializing in such a way as to make the preposterous seem somehow less farcical. When that fails, they resort to “Whataboutism.”

Whataboutism is a tried-and-true propaganda technique. While effective when applied to big picture issues, it’s terribly ridiculous when couched in local terms. For example: If I steal your television while you’re at the grocery story, and then, when I’m caught, I defend my actions by reference to the fact that countless televisions are stolen each and every year, you’d laugh, assuming you could find humor in the situation.

That simple example is all you need to understand why Whataboutism is inherently illogical. The purported “connection” between the act being defended and the acts cited as a defense, isn’t actually a “connection.” The two offenses are similar — in the stolen television example, they’re identical —  but that’s where the link stops.

In addition, the circularity of the reasoning is fatal to the argument. If you cite an act that you say was wrong while trying to defend an act that you committed, but simultaneously claim that the two acts are similar, you have accidentally admitted to committing a wrong act by your own definition.

On Tuesday, Donald Trump rolled out Whataboutism to defend the actions of his supporters in the capital last week.

“If you look at what other people have said — politicians at a high level — about the riots during the summer — the horrible riots in Portland and Seattle and various other places — that was a real problem,” the president told frenzied reporters, who were champing at the bit for an opportunity to quiz Trump, as though there were hope of extracting something that might sound like remorse.

He’s right. Those riots were “a real problem.” But it’s not clear how that makes last Wednesday’s events any less problematic.

“It’s been analyzed,” Trump continued, referencing the speech which preceded last week’s violence on Capitol Hill, which left five dead.

He’s right again. It has been analyzed. And the “reviews,” as he’d put it in any other context, aren’t great.

But the president doesn’t see it that way. “People though what I said was totally appropriate,” he went on to tell the press, inaugurating what amounted to a new version of his “perfect phone call” defense from the Volodymyr Zelensky debacle.

Circling back — and this is why I think it’s worth highlighting Trump’s first in-person, public remarks since last week — it’s clear that he intends to “stick with it,” so to speak, after he leaves office.

What should concern everyone — including and, in some sense, especially, market participants — is that while the threat of liability will increase dramatically for the president after January 20, he won’t be constrained by any pretensions to presidential decorum.

Not that he was before, but later this month, he’ll be totally unbridled, free to traffic in an even more fantastical version of an already fact-free narrative that has buy-in from tens of millions of people.

You’d be completely justified in questioning the applicability of the old “markets hate uncertainty” adage in a world where asset prices are essentially administered by central banks.

Markets can “love” or “hate” whatever they want, but in a world where investors have no choice but to venture out the risk curve and down the quality ladder, and with the liquidity spigots wide open, any passionate dispositions will be overwhelmed by the necessity of staying in business, which means trying to find some yield. That, in turn, should keep risk assets bid irrespective of “uncertainty.”

However, there’s obviously no precedent for a scenario defined by something like a rolling insurgency in the US, and I think it’s entirely fair and rational to call that a “tail risk.” Indeed, I’d say that my characterization is gentle, in that “tail risk” probably understates the statistical probability of the outgoing president continuing to engage in bombastic rhetoric upon leaving office.

In that regard, his Tuesday remarks are well worth highlighting. In a testament to just how surreal the situation is, I almost hesitated to use the actual video clip, because it’s no longer clear whether it’s advisable (and you can take that however you like) to feature his likeness, let alone carry the audio of his remarks.