Presidential Election Crisis & Stock Market Crisis of Confidence

The next big macroeconomic event to happen is the US Presidential Election, which got me thinking, “what happened in previous elections?”

The last two major crashes, the DOTCOM Crash 2000-2004 and the Financial Crisis 2007-2009, both occurred during a presidential election.

The DOTCOM crash was underway for eight weeks when George W. Bush took over the presidency. The ensuing carnage wiped out four years of gains. This equated to a 41.64% drop during George Ws’ first three years.

Presidential Elections & Economic Crisis Analysis
Presidential Elections & Economic Crisis Analysis

The Financial Crisis was already well underway when Obama took over in November 2008. The total crash wiped out 52% of the value of the S&P50024% of that loss occurred under Obama’s reign. In total, the Financial Crisis wiped out eight years of gains.

The Corona Crash started during the last seven months of Trump’s term and is ready to be inherited by Biden or continued to be managed by Trump, depending on the outcome of the election.

Crisis of Confidence.

Crashes and crises happen when confidence in a market is lost. Confidence is the difference between a functioning market and an economic disaster. Trump and the Federal Reserve have amazingly restored confidence in this market, despite the disastrous ongoing economic events.

Presidents Crisis & Confidence

The next election will be set in the middle of a crisis, a crisis that has not played out its full course.

The questions you have to ask yourself when betting on the market coming up to November are:

  • Which President, if any, will maintain the confidence in this current bubble market?
  • Which President, if any, can maintain the confidence in this market long enough so that the Fed can gently deflate the bubble over time?

The question is not what you think the answer is; the question is, “What do you think the market participants believe?”

Confidence Tricks

If the next President and the Fed cannot perpetuate these confidence tricks, we might expect 4 or 8 years of market gains to be wiped out.

This is not a political commentary or a prediction; it is observations based on the market’s action during elections and crises.

Outlook: While this rally has been great and profitable for many, the coincidence of All-time Market Highs, Economic Carnage, and the Current Market Euphoria suggests to me a Bubble Waiting To Burst. Outlook at this time – Neutral, in November Short.

Update: 23/09/2020

Comment: Well, it certainly looks like this idea is starting to take shape.

Here is another observation. In the past 25 years, if there has been a crisis ongoing during the election year, there has been a change of PresidentPresident.

Make no mistake; we are in a crisis.

Corona is out of control in the US.

The economic recovery will last longer than expected.
There are race riots and protests demonstrating clear inequality.

The electorate probably believes the best person to manage this situation is Biden.

A change of PresidentPresident is on the cards.

A change of PresidentPresident means more regulation of Wall St.
More equality
Better management of the Virus.

A more realistic outlook from unfettered capitalism.

Perhaps the market’s confidence is starting to break.

Batton down the hatches.


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