Wall Street commentary during this election year has a distinct flavor of Soviet-style disinformation, at least to this point. The elephant in the room has been air-brushed out of the photo.
The vanishing pachyderm in that metaphor is the question of what Donald Trump will do to American democracy if he again becomes president. It should be clear to everyone by now that he would like to govern as a fascist. If you’re a Wall Street strategist, however, you can’t mention his, uh, authoritarian tendencies, his attempted coup, his indictments or his encouragement of violence. Too many big-money clients, or potential clients, support Trump, so best not to go there. Your bosses would fire you if you did.
So no one says a word. The silence is deafening. Strategists are happy to discuss Trump’s impact on trade and taxes, but not his potential effect on democracy. A Schwab strategy piece in March was headlined, “Don’t Bet Your Portfolio on Election Year Fears.” Ah, now I feel better. It’s all another sign, as Liz Cheney would say, that we may be “sleepwalking into dictatorship.”
I know: There’s something more than a little obscene in writing about the impact of Trump’s possible election victory on the stock market. There are more important things at stake here.
Still, money matters. If Trump wins and people manage their money well through that disaster, we will have more left to fund the resistance. I’ve developed a strategy: Anticipating the possibility of a 50 percent stock market decline, I’ve been selling one percent of my stocks every week. I now have 21 percent in cash and, if the election remains a toss-up, I plan to have 50 percent in cash by Election Day. (All my selling is in retirement accounts and I’m earning 5 percent while I wait.)
Why should you care what I’m doing? I was a market-beating money manager for 15 years. Since retiring nine years ago, I’ve continued to beat the market. What I can’t do, however, is predict the economy or time the stock market. No one can do that.
So, I’m kind of an expert here — except that I’m not, since there is no historical record to analyze how American capitalism would fare under autocratic rule. Nonetheless, I have some guesses.
I’m trying hard not to base my investment decisions on my political passions. Historically, that’s a terrible idea. While the stock market has performed far better under Democratic presidents (even if you eliminate Herbert Hoover), it has also done fine under some Republicans — Dwight Eisenhower, Ronald Reagan and, yes, Trump. The market rises over time no matter who’s in charge.
My financial worries about fascism are both general and specific. I fear that the warping or destruction of institutions (the actual, rather than fictional, “weaponization” of the Justice Department, the elimination or decimation of the FBI and other key government agencies) will startle slumbering domestic and international investors awake, causing them to reallocate assets to cheaper, and now perhaps safer, global markets. Imagine if the Trump administration, peeved that a major corporation refuses to pledge allegiance to the leader, enacts policies that slash the company’s profits. The company’s stock would crater, as would investor confidence.
Then, with his known tendency for retribution, Trump targets another company, and then another. It’s easy to imagine him acting like Chinese President Xi Jinping, laying waste to the share price of any company that displeases him. (Xi single-handedly made the Chinese stock market into a global pariah, driving it down by 50 percent since May 2015, which ranks among the worst-performing markets on the planet over that time.) Perhaps some foreign companies then complain about raised import duties, and they’ll be targeted as well. We might soon see a Night of the Long Knives, corporate-style.
Industrial policy could range from vengeful to capricious to corrupt. Some companies will run ad campaigns on Truth Social to get out of the corporate doghouse. That will be great for Trump’s bottom line, less so for America’s.
Around the world, appalled observers may reconsider their next planned U.S. investment. How can they be sure it will work out? What unforeseen costs might there be? What if the president of the United States turns on them too?
I’m leaving out Trump’s terrifying trade policy declarations (the impact of a 60 percent tariff on Chinese goods, or more, could be dire for inflation and the global economy, and global trade wars tend not to comfort investors) and his general lack of competence in, well, everything. Granted, his desire to reduce corporate taxes further, from 21 to 15 percent, would likely buoy the market temporarily, although it would balloon the deficit.
Both the movement of money away from U.S. equities and the slowdown of direct investment in the U.S. economy could depress the stock market for years, even after Trump leaves office. If he leaves office, that is.
OK, but why not wait until after the election to start selling stocks? Because surprises happen. What if there is a hung jury in the New York hush money case, and it becomes clear that Jack Smith won’t have enough time to bring the Jan. 6 federal charges, let alone the Mar-a-Lago documents case? What if Joe Biden has a serious health setback? What if the economy tanks before November? All those things would be bullish for Trump — but what if investors decide that, despite what muzzled strategists aren’t saying, they really aren’t sanguine about the prospect of a second Trump administration?
Of course, Trump might win the election and things might work out OK anyway. (They did last time — I mean, at least for the stock market, if not for the human population.) His wished-for war on democracy could fizzle out. Then I’ll put my cash right back into the market. Be mindful of one important thing, however: The smart people who could have warned you about the risks ahead had a powerful economic incentive not to.
