From the Slope of Hope: Near the end of the book The Big Short, there is a scene in which two of the principal characters are sitting outside in downtown Manhattan during the throes of the financial crisis. The entire financial world is in absolute pandemonium, but as they look around them............nothing. Birds are singing. Children are playing. People are walking around, getting their errands done. A guy passes by on a bicycle. Nothing is different than it ever was.
That's always been one of my favorite parts of the book, because the contrast between what those guys were experiencing (being completely and utterly enveloped in global chaos) and what was going on in the normal world is applicable in so many facets of life.
I begin this post with that anecdote because, with but a single week left until we have elected a new President, it seems everyone is convinced that Things Will Be So Different once the deed is done.
To my way of thinking, a single word will capture the state of the nation depending on the outcome. If Clinton is elected (which, in spite of all the problems pressing against her, still seems more likely than not to happen), the word will be 'anger". If Trump is elected, the word will be "shock". Those are very different outcomes.
Clinton supporters, I'm sure, would counter that the word should instead be "relief', since they will declare the world has collectively dodged a bullet in the form of Donald Trump, and now we can all get back to the way things should be. Well, yes, I'm sure relief (and to those who think gender is such a BFD when it comes to elected positions, "jubilation") would be the word expressed by her supporters, but within days, I suspect a portion of them, and the entirety of everyone else, will be angry. And that anger, in the days, weeks, and months that follow, will likely swell. You know how the most virulent anti-smokers are those who quit smoking? It'll be the same for those who voted for her and then realize how pissed-off they are at her.
The reason for this, I'd like to suggest, is that people will believe she "got away with it." The $200 million in speaking "fees." All the dirty political tricks. Screwing Bernie out of his nomination. All the dirty laundry from her husband's term, such as pardoning Marc Rich (to say nothing of blue dresses). All the lies about the email server. Hell, all the lies in general. I'm sure we're all losing track of the lies by this point. So the gestalt will be this woman (yay! A woman president! Clinically speaking, at least) has cheated her way to the top.
What will the response be to that anger? Oh, lots of things, I imagine. Popularity rankings that range from low to vanishingly low. Impeachment proceedings. Special prosecutors. Stonewalling. Gridlock. All in all, a goddamned miserable time in the oval office. We may well even see her chucked out of the office and have goofy-looking Tim Kaine suddenly be the leader of the free world.
Then, on the other hand, Trump might win. As of last Thursday, this seemed like a laughable impossibility. Judging from the behavior of the financial markets lately, the likelihood has increased from No F_cking Way to Well Maybe.Since I live in the Bay Area, this entire geographic zone is at risk of seismic activity from all the jaws that would hit the ground if Trump were elected POTUS. Believe me, the bone-deep smug assurance that Clinton will absolutely win, no matter what, exists end to end in the SF Bay Area.
What would happen following a Trump victory is much harder for me to conjure. If he wins and both houses of Congress are Republican, well, gridlock may well be over. As of this writing, the betting odds seem to give him only a 26% chance of winning, so it would be - - as I said - - a shock if he won (particularly here in the Hillary-worshiping Bay Area).
As for the markets, even though the pattern is quite complex, the chart below, posted at the SocialTrade web site, may provide some insight. First, here's the chart (whose pattern was posted a few weeks ago), and the price action has been following it to the letter:
So let's assume for a minute that we don't know the outcome of the election, but we know that the above pattern is how prices are going to play out. One scenario that would fit this neatly would be:
(1) Increasingly strong odds of a Trump victory, pushing the S&P down to around 2000, near the Brexit low
(2) Then, on Election Night, a Clinton victory, which would be followed by a relief (there's that word again) rally as everyone cheers on "normalcy", pushing the S&P to a recovery of about 2100, similar to where we are right now.
(3) And then, once the fireworks in NYC (which she's already arranged) are done being shot off, and the cheers about how great it is to have a Woman President have died down, then all holy hell starts breaking lose, and the "anger" I mentioned begins to express itself in the form of a vengeful Congress (to say nothing of the nearly 50% of the country that had voted for Trump), and the S&P 500 would go into a free-fall, approaching levels similar to what we saw at the start of 2016, with the cash index around 1850 (in other words, a drop of more than 10% in a relatively short amount of time).
If none of this pans out, you are welcome to have the money back you paid to read this post. With so much uncertainty ahead, however, I thought these possibilities were worth sharing. In the end, though, it's going to be a lot like that scene from The Big Short. Next Tuesday night is going to seem like such a big, huge, world-changing deal. But when you walk outside on Wednesday morning and look around............nothing will have changed, with one notable exception: about half the country is going to be really pissed off.