Trump in Trouble

We are in the choppy topping period of the market.  The feel good up days don't last for long, and then the gloomy down days come and those also are reversed quickly.  We are stuck in a range, and it probably lasts until the phase 4 fiscal stimulus bill is passed, which looks like late July.  A battle of earnings fundamentals vs. liquidity. 

Investors are not buying because they think there will be a V shaped recovery.  They are buying because they believe the Fed will backstop the market along with the Treasury looking to pump more fiscal stimulus into the economy to help re-elect Trump.  And those Trump re-election hopes are getting slimmer with each passing day. 

Trump re-election hopes are turning into a dumpster fire.  It is laughable to think he has some grand plan to get re-elected, as some have conjectured.  Occam's razor applies here.  The simplest and most direct explanation is most likely to be correct here, which is that Trump really isn't that smart, has poor political instincts, and just acts the way he always has, and got lucky in 2016.  The guy hasn't changed since he's been been known to the public.  And he's not going to suddenly change in the next 4 months and become more electable.  And even if he tried, the opinion on him is pretty much solidified, either you like him or you hate him. 

Fame goes a long way in politics, it is what got Trump elected over Hillary in 2016.  Going up against an unpopular female candidate was critical, as there is clearly a bias against a female president in the U.S.  If Trump had to face Obama in 2012, he would have lost.  But according to many, especially on Wall St., until the last few weeks, the overriding belief was that Trump was almost unbeatable in 2020 because of his handling of the "economy".  Well, those economic arguments are going straight to the garbage can.

You can blame the coronavirus, but a crisis like that is handmade to boost popularity among leaders.  Globally and in the US, politicians got big boosts in popularity after the pandemic, including Trump.  But Trump's bump up in the polling numbers was small compared to others, and its faded fast. 

When it comes to the pandemic, he has a much tougher job than any European or Asian political leader.  Americans are less obedient than Europeans, who are much less obedient than Asians.

When it comes to valuing personal freedom, the US is high on the list.  In a spectrum of importance of personal freedom among citizens, it would be something like this:  US >> Europe >> Asia.  That's why you have so many oppose wearing masks in the US even as the coronavirus cases remain high.  The Europeans are less opposed to wearing masks, and at the opposite end of the spectrum, the Asians absolutely feel like it is a necessity to wear them even though the new virus case numbers are quite small. 

So predictably, even a less densely populated country like the US compared to European and Asian countries are seeing an explosion of new cases.  When half the population doesn't believe in wearing masks and feel its a violation of their freedom, then the consequences are more cases and more deaths. 

Apparently, throwing a huge amount of money at the coronavirus doesn't make it go away.  You actually have to have a population willing to contribute to the virus not spreading.  And clearly, that's not the US population. 

That is probably why you will continue to see Covid worries in the market until an effective vaccine has finally been mass produced, which is looking like it won't happen for another 12 months.  

Paradoxically, the surge in new virus cases in the US could be a blessing in disguise for the stock market.  It probably guarantees a bigger phase 4 stimulus package in July.  And really, the stock market could care less about a few hundred thousand extra deaths or the high unemployment rate as long as the stimulus gravy train keeps coming.  

That's why you aren't seeing a bigger dip in the market even as the virus doesn't go away and surges in the southern US.  Its because of the stimulus hopes which are alive and well.  

What the market does care about is who is in the White House for the next 4 years.  And if its Biden, then post tax earnings are likely to go down substantially. 

The post phase 4 stimulus timing should line up perfectly with the pre-election market angst that should be quite high as Biden is crushing Trump in the polls.  If these poll numbers remain into November, Biden is potentially looking at getting over 400 electoral votes, more than double Trump, in a landslide victory.  

Republican strongholds Georgia and Texas are now polling slightly in favor of Biden, and the battleground states like Florida are polling heavily in favor of Biden.  This is a huge warning sign for the market, as a Biden presidency will likely raise corporate taxes and increase taxes on the rich, a double whammy for the stock market.  But those worries are in the back burner, usually markets wait until about 3 months before the election to start focusing on it.  So that would be August. 

I have covered my SPX short position in the overnight market.  The game plan is to just ride this wave for a few more weeks, at which point I will just stay short for a much bigger move.  Right now, its not a time to look for the big move lower.  Only when the final big positive catalyst is behind us (phase 4 stimulus), will I feel more comfortable holding a long term short.