July 11, 2018 | The Nightmare Election Scenario

Say this for bulls, they are not going quietly into the night. With the trade war growing increasingly heated, the Dow Industrials were down a measly 219 points on Wednesday. The chart shown, of Dow index futures, leaves one wondering what the heck sellers are waiting for. Understandably, they ran out of steam overnight after DaBoyz engineered an instantaneous plunge to avoid sucking up unwanted contracts the whole way down. But thereafter, bears couldn’t muster even a small show of fear for the remainder of the day. The shameless sissies. There are a few possible explanations that come to mind, to wit: 1) those who are not yet panicking to exit stocks simply don’t understand the situation; 2) Wall Street believes Trump is about to tell China he was only kidding; or, 3) the sleazeballs who control the markets are deftly holding shares aloft until they’ve distributed as much stock as possible to widows, pensioners and the rest of the hoi-polloi.

And it’s not as though higher tariffs are the only thing investors have to worry about. I won’t repeat the list yet again, but each item continues to grow more menacing. Higher energy prices, for one. We’ve talked about the prospect of crude oil settling in above $80 a barrel, but more immediately, it is prices at the pump that should concern. They are creeping toward an average $3 across the U.S., up from $2.26 a year ago.

A Trump Reversal Is Undiscounted

The nightmare scenario would be for Trump to hang tough on tariffs for long enough to cause the stock market to collapse. Remember how shares roared higher in 2017, driven by perceptions that a Trump presidency would be as good for American business as it would ever get?  Now picture that rally in reverse when it dawns on investors that Republicans are about to lose control of the Senate, and maybe even the House, because plummeting stocks have turned a booming economy into a recession-bound one. With Trump hobbled for the remainder of his term, the very bullish sentiment that has driven the aging bull since the 2016 election would turn ugly. The resulting carnage on Wall Street would be something to behold, since we know that stocks tend to fall more steeply in a bear market than they rise in a bull market. This is the nightmare scenario, and it is hardly farfetched. With the Dow trading less than 8% off its all-time high in January, the prospect of a reversal in Trump’s political fortunes remains undiscounted.  Of course, it’s also possible the President will suddenly call off his dogs and make nice with China, Europe. Canada and Mexico. But I wouldn’t bet on it without great odds.

Rick Ackerman July 11th, 2018

Posted In: Rick's Picks

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