Adult Swim
I famously wrote in a Substack essay that I don’t vote. You can google it if you want; I’m not going to link to it because it has salty language. I am a conscientious objector, for a lot of reasons. I do think there are a lot of independents out there who equivocate and say that both candidates are equally bad. I disagree. I think one is worse, but lesser-of-two-evils voting has led us to this point. In any event, I am writing this on Monday night, and we will find out the election results soon… hopefully by the time you’re reading this.
I have traded my share of elections. I actually did not trade the one in 2016, the one that everyone remembers, where S&P 500 futures were limit down, then limit up, then up 25% over the next six months. I did trade Bush/Kerry in 2004. That one was fairly straightforward (get long dividend stocks). I honestly don’t have much of a plan going into this election. I mean, I have concepts of a plan. My plan is to follow the market wherever it goes.
There is one thing that people are getting wrong about all the election predictions. Trump is viewed as negative for bonds because he is a big spender in spite of being a Republican. That is not a very good assumption.
Trump 2.0 is likely to take a chainsaw to government, with the help of Elon Musk, much in the way that Javier Milei did in Argentina. I think that Trump is actually bullish for bonds and that interest rates will go lower if he wins. Kamala Harris, on the other hand, will result in 8% on the 10-year note by the end of her term. So, that is one out-of-consensus call for you. By the way, this is the opposite of the bond market playbook for 2016 when the bond market had the big bear steepener.
I also don’t think that Trump is necessarily bullish for stocks—and I don’t know why. Let me put it this way: The market never runs the same gag twice. Those who are betting on another stock market rip if he wins are likely to be sorely disappointed. Though I think it is a safe bet that stocks will go down if Kamala Harris wins, on the idea that taxes are likely to go higher.
I think stocks go down no matter what happens. Another out-of-consensus idea. We’ll see how this all plays out this week.
Thinking Long Term Fast
The challenge of trading an election is needing the ability to think very long term in a matter of seconds. You have to take the result of the election and interpret it as bullish or bearish for any asset class—in an instant. Not such an easy thing to do. Although I will say that you have more than seconds, and you have more than minutes, and you have more than hours—you have at least a day or two to figure it out.
For example, in 2016, stocks went up for months. If you were a day or two late, it did not make that much of a difference. The same will probably be true this time as well.
This much we know about Trump: He is pro-growth and anti-regulation, which are bullish for stocks. The problem is that is pretty much priced in already. He also likes tariffs, which are good for inflation, though that is a bit more slow-moving.
Kamala Harris wants something like price controls on food, which counterintuitively are highly inflationary, and her innumeracy will lead her to blow out the budget in ways that we cannot possibly imagine. The execution is the problem.
If you were to put on any of those trades on election night, you would almost certainly be stopped out—and those trades would go on to become massive winners. This is an adult swim—get out of the pool. If you’re not a professional trader, you have no business doing this, and when I say professional trader, I mean someone who has at least 10 years of experience trading on an institutional level.
This is going to be the most volatile election of my lifetime, not least because we are going into it as a virtual coin toss. Keep positions small, be nimble, and have discipline.
If you thought I was going to get into politics in this issue, you will be sorely disappointed. The guy I want to be president is running in a different country: Canada. Yes, I am talking about the illustrious Pierre Poilievre. Outside of Milei, there is no greater defender of free markets and small government in any developed country worldwide.
Neither Trump nor Harris will get my endorsement, but I’d take the M/V Coho from Port Angeles to Victoria to cast a vote for Pierre.
Jared Dillian, MFA
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