BUSINESS REFLECTION: Loaded For Bear: Equity markets have not priced in Trump’s next coup attempt

Global equity markets have had a fairly frothy year, and they have been on steroids in the US, where the major indices scaled record peaks this month.

What is not being priced is a looming attempt to steal an election in the world’s largest economy – an unthinkable scenario just a few years ago – and market watchers cannot claim that, when it happens, it was somehow a surprise.

US President Donald Trump has been transparently signalling that he will not accept a result in the US midterm elections on Tuesday, 3 November that reflects what all of the polls say: that the Democrats are almost certainly set to retake a majority in the House of Representatives, with the Senate also in play.

That is, in true fascist style, he will not accept the will of the people if his Republican Party gets washed away in the expected blue tsunami.

Trump still maintains the Big Lie that the 2020 election he lost to Joe Biden was rigged, and he is not prepared for the investigations and scrutiny that a Democratic Congress will bring to his corrupt and incompetent administration during his final two years in office.

Trump has been attempting to undermine the election results in advance or to exert control over the process on a range of fronts.

At his behest, states such as Texas embarked on a gerrymandering exercise to blatantly favour Republicans. While states typically redraw congressional maps once a decade based on census data, this mid-decade redistricting was an unprecedented breach of modern political norms.

This in turn triggered what has been described as an “arms race” between the parties. California sought voter approval through a referendum before it embarked on its own map changes, which are widely believed to have neutralised the Republican gains in Texas.

Trump has also continued his crusade against mail-in voting, citing, without evidence, that it provides a way for the Democratic Party to cheat. He even offered a bribe of $5,000 to every adult US citizen if the Republicans retain their hold on Congress.

These are all examples of political skulduggery aimed at influencing an election result. They are not outright attempts to steal an election.

But that is clearly on the table.

Ominous term

Ominously, the US Department of Justice (DOJ) has filed lawsuits in almost every state to gain access to voter files.

“The likely intent behind the DOJ’s pressure campaigns, litigation, and other tactics to demand data comes into focus in the context of a DOJ stacked with election deniers and under the sway of a president whose playbook includes baselessly claiming fraud to explain – or attempt to overturn – election results he dislikes,” notes the non-partisan Protect Democracy project.

And then last Thursday – just 12 days before the election – the DOJ asked a court to preemptively block Alaska’s election results in a Senate race if Republican Senator Dan Sullivan loses.

That is simply sinister: crying foul before the election takes place and setting up a legal measure to subvert it if your preferred candidate does not win.

“If the Democrat, Mary Peltola, wins in Alaska, the election was rigged, and the result would be overturned, but if the Republican wins, never mind, all is good. Remember when the Russians were the ones trying to interfere with our elections?” quipped US talk show host Jimmy Kimmel.

Trump has also not ruled out declaring a state of emergency around the midterms.

“I don’t rule anything out or in. We’ll see,” he told Time magazine.

He said in the same interview that “a lot of people” think he should use the Insurrection Act, a 19th-century law that allows the US president to deploy the military to quell a domestic insurrection.

A “lot of people” actually don't think that, but some influential figures in Trump’s Maga movement such as the far-right television host Wayne Allyn Root have made the suggestion.

Spoor in plain sight

The spoor in this trail stands out like a T. rex footprint: Trump will not accept an election vote that dilutes the power of the Republican Party that he controls like a cult leader, and he will stop at nothing to steal the midterms.

The reasons for the unfolding Republican election disaster are gin clear: surging gas (petrol) prices and accelerating inflation in the wake of Trump’s ill-conceived war of choice against Iran, suspicions about what lies in the unreleased Epstein files, the transparent corruption and self-enrichment of this administration, and the sheer brutality of the immigration crackdown.

On 6 January 2021, the world saw first-hand Trump’s attempt to steal a presidential election he lost when he incited the violent mob that stormed the US Capitol building in Washington, DC. The subsequent blanket pardon of those cultists set a dangerous precedent: you can get away with violence if it is done under the banner of Trump.

Like Napoleon’s dogs in George Orwell’s Animal Farm, his followers stand ready to spill blood for their master.

Election theft is par for the course in many failed states and democracies, from Russia to Zimbabwe. But this is not just any run-of-the-mill banana republic: this is the world’s largest economy, and political turmoil there will shake markets around the world.

Yet fund and asset managers seem blithely unconcerned about this almost certain hijacking of a major US election – an effort that could spell the end of the US’s imperfect and 250-year-old experiment in democracy and trigger widespread protests that Trump will crack down on in a vicious cycle of violence, chaos and instability.

And markets like stability and certainty.

Much of the US stock performance has been ginned up by the hype around AI, and perhaps this speaks to the oligarchs that have prostrated themselves before the Orange Ogre.

Some of the guys with the serious money, including the odious Elon Musk, have a lot to potentially lose if the Republicans cannot maintain control of Congress – fat government contracts come to mind – and so maybe equities markets are now dancing at least in part to their tune.

But other markets have been pricing in the rising risks associated with this preposterous presidency.

US bond yields are up about 100 basis points over the past 12 months to around 5.0%, and that is not just because the country’s national debt has been surging at an alarming pace under Trump’s watch.

The bond market is also a barometer of broad political risk, and it is sending signals that equity markets seem to be missing.

Revealingly, here in Mzansi, the party that will most likely reject the results of the municipal elections on Wednesday, 4 November is Jacob Zuma’s MK party – and Zuma and Trump have a lot in common, including their use of political power to loot.

But if the MK party does cry foul, few will care, and markets will not take any notice.

What happens in the US next week will send shock waves around the world. Expect markets to be rattled – but the warning signs have been there all along. DM