September 30, 2020 | The Choice

“So,” she said, “what did your little rabble think of the debate?”

Dorothy rarely cares what happens on this pathetic site, for which I am uncommonly thankful. But sometimes she asks. I cannot lie to the woman, since she (like most long-term partners), has brain-piercing powers. Deception is futile.

“They hated it,” I said. And a barometer of that was the flow of comments Tuesday night after the slugfest in Cleveland turned from presidential to puerile. They ceased. The Trumpers lost their voice. The lefties stayed silent. There was not enough pride for anyone to lift a finger and type.

It was interesting that as the event rolled, stock futures took a dive – down hundreds of points. Mr. Market looked at what was unfolding and concluded, (a) Trump was blowing it, (b) Biden was unremarkable, (c) the election will be probably close and (d) if Biden wins, Trump will not leave easily, quietly, peacefully or at all and (e) the ensuing chaos could take months to sort out.

Of course, that gloom was erased hours later when it appeared Republicans and Democrats were finally close to agreeing on a $1.5 trillion Covid relief package and the latest jobs numbers showed more economic revival. Up she went – a trough-to-peak trip, for a while, of 800 points. What a ride.

The best strategy (again) is to have a balanced portfolio and seriously resist the urge to diddle with it, especially because of politics. The next few weeks will be completely stupid, followed by a period of utter insanity. In the end, the market only cares about two things – the economy and what the central bank’s doing. The president is a sideshow.

Of course the debate was a debasing embarrassment. You know that. Trump’s strategy was to bully, badger, interrupt and taunt Biden so much that he’d become disoriented and overwhelmed. That would prove the 77-year-old career pol had lost it. Unfit to government. Best-before date expired.

But that didn’t happen, so the president just looked like a nasty, egocentric, insulting and unpresidential person. After setting expectations for Biden so low, it was Trump who had the most to lose. And he did. It’s hard to understand now why there would be two more of these awful debates scheduled. What more is there to add?

It’s interesting to note that some Wall Street analysts say if the Democrats win that the tech guys – the FAANG stocks – will do well. If the Republicans triumph, then it’s value stocks which will benefit. So (naturally) why not own both with an ETF than embraces the entire market?

Also interesting Tuesday night was the moment when futures turned negative. That came as Trump raised doubts, again, that he’d accept the results of the election. There’s nothing new about his allegations (unfounded, according to the head of the FBI) that mail-in ballots will ‘rig’ the vote in favour of Biden, but every time he makes them the market responds.

This adds another element of risk and uncertainty to the recession, unemployment, the virus and corporate earnings. . “What we’ve seen from the debate is the reinforcement that if Biden wins, Trump is not going to accept that,” Bloomberg reported. “People positioned for an ugly contest afterwards have been validated.” And this fund manager comment: “The debate just added to the confusion about how the election will run.”

Says my corporate analyst buddy Jason Castelli:

“The option market is pricing in greater volatility not only in November, but December as well. This is atypical during the election cycle as implied volatility typically declines once the election is done. In order words, the market is expecting the election results to drag on for weeks after November 3…. Regardless of who wins there will be protests and potentially some social unrest, so expect this as your base case.”

Meanwhile listen to the tone that veteran New York Times columnist Thomas Friedman has adopted. After Tuesday night’s debate and Trump’s words, it could be 1863 all over again (he says):

Trump’s motives could not be more transparent. If he does not win the Electoral College, he’ll muddy the results so that the outcome can be decided only by the Supreme Court or the House of Representatives (where each state delegation gets one vote). Trump has advantages in both right now, which he has boasted about for the past week.

I can’t say this any more clearly: Our democracy is in terrible danger — more danger than it has been since the Civil War, more danger than after Pearl Harbor, more danger than during the Cuban missile crisis and more danger than during Watergate.

Okay, so why did the Dow end up gaining ground (300 points) the day after? Well, because Trump doesn’t really matter as much as he think he does. Nor does Joe Biden. More consequential are the employment figures, the progress of vaccines, central bank bond-buying and oodles of extra government cash unleashed into the economy.

Oh yeah, and this. If there must be an ugly election, Mr. Market says, please let it be decisive.

Garth Turner September 30th, 2020

Posted In: The Greater Fool

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