Trump Wins. Markets Panic. Why?

By The Banker | Blog Posts, Investing, Personal Finance, Wall Street
9 Nov 2016
  • Sumo

trump_victoryStock markets worldwide will drop significantly tomorrow, and throughout the rest of the week, as US and global investors recalibrate their expectations of the United States due to the little-anticipated Donald Trump victory in today’s Presidential election.

Stock Market

From an individual investor perspective, I suddenly have deep regrets about two pieces of 100% rock-solid advice I’ve given out about personal investing in the stock market. The first is that there’s no particular advantage to owning ETFs over mutual funds, since nobody should really need to trade their personal stock holdings in the middle of the day. ETFs allow you to trade at any time when markets are open, whereas mutual fund investors can only trade based on the day’s closing price. But I’ve never believed any individual investor should be in a such a hurry to sell that a mid-day trade is better than an end-of-day trade.

With the victory of Donald Trump, I’m really sad that I have to wait until the end of tomorrow to sell stocks, rather than mid-day.

Implicit in this comment is my second deep regret. My advice has always been the Winston Churchillian rock-solid “Never, never, never never sell.

But of course now I want to. It will take all my will-power to do nothing, as I watch stock market values plunge tomorrow.

******

tracy_chapman

In a seemingly unrelated vein, (but is it?) my favorite Tracy Chapman song “Why” goes like this:

“Why do the babies starve when there’s enough food to feed the world?

Why are the missiles called Peacekeepers, when they’re aimed to kill?

Why is a woman still not safe, when she’s in her home?

Love is Hate. War is Peace. No is Yes. We’re all free.”

No Gridlock

It’s both a cliche and a truism that Wall Street prefers gridlock in Washington. Gridlock is predictable. Gridlock is  stable. It prevents wild swings in policy. A divided Executive and Legislative branch tempers drastic or rapid change in regulations.

With a newly elected and strongly Republican House and Senate, and Donald Trump appearing to have a “mandate” for his bat-shit crazy ideas, whims, and personal vendettas, who is going to be the check and balance on the worst ideas from that side of the aisle? Like Trump’s fiscal spending plan, for example, estimated by a bipartisan budget group to add $5 Trillion to the federal deficit? Like Trump’s continual threats to unilaterally alter trade agreements or punish our most important trading partners like Mexico and China?

******

Tracy Chapman continues singing in my head:

“But somebody’s gonna have to answer

The time is coming soon

When the blind remove their blinders

And the speechless speak the truth.”

******

US Treasurys 

US Treasury bonds typically live in what the kids on the show Stranger Things would call The Upside Down. Meaning, if stocks go down, bonds go up. When stocks go up, bonds can go either sideways or down. And that’s what’s happening with a Trump victory tonight. A huge bond rally is happening right now, overnight, as I type this at midnight on Election night.

upside_down

But also, this rally in US Treasury is a totally bonkers reaction to a Trump victory, since Trump actually threatened to renegotiate US sovereign debts, if need be. No responsible financial or political US leader has ever made that threat. We’ve never defaulted, or threatened to default. Alexander Hamilton’s lasting contribution1 to our country’s strength is our rock solid credit, ever since 1789. Threatening US Treasury default is the kind of Third-World bush-league bullshit disruption that bond people don’t appreciate, and which I wrote last summer would have unknowable but possibly catastrophic consequences for our country, which actually is heavily indebted but treated like a safe bet in world markets. Until now.

Back to you, Tracy:

“But somebody’s gonna have to answer

The time is coming soon

Amidst all these questions and contradictions

There’re some who seek the truth.

Love is Hate

War is Peace

No is Yes

We’re all Free.”

Why?

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  1. Outside of inspiring Ron Chernow and Lin-Manuel Miranda’s book and show, respectively

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