Trump win is a disaster on a par with the financial crisis

Outlook:

The US presidential election has introduced an unaccustomed factor and traders are taking it as they would any other another potential Shock. In fact, it's quite a lot like the Brexit shock. In the presence of a big fear like Trump, payrolls loses its moxie. Is anyone watching? We had to search high and low to find the ADP report yesterday. Now we have to search for the payrolls forecast, which is around 175,000, close to the average so far this year of 178,000. Yawn. It is likely lower than the average of the last three months at 192,000. Again we have a forecast of average hourly earnings up 0.3% from the long-running 0.2%, and that would put the y/y at 2.6%, a boon for those who imagine inflation ahead.

But back to the real danger. The 538.com site has Clinton's chances at 66.2% from over 80% only a week ago, vs. Trump at 33.8%, from 12%. A new poll by the NYT/CBS finds eight in 10 voters "repulsed rather than excited" by the campaign. Both candidates are perceived as dishonest. "... the rising toxicity threatens the ultimate victor." Clinton still has the edge, with 45% support among likely voters vs. 42% for Trump.

Risk aversion from a potential Shock can be measured by the VIX. Market News reports "In terms of risk indicators, the CBOE's volatility index or VIX closed at 22.08, on the high side of the day's range of 18.84 to 22.57. Earlier, the VIX took out Tuesday's high of 20.43 and then the Sept. 12 high of 20.51 to post the highest level since June 27, when the index topped out at 26.72 in the wake of the Brexit vote a few days earlier.

"This was the highest VIX close since June 24, the day after Brexit, when the index closed at 25.76. Thursday's close above the mid-September high will target the June highs. As a reminder, sub-20 levels are deemed ‘risk friendly,' levels between 20 and 40 are deemed ‘risk neutral' and 40 or high levels ‘risk averse.' Since March, the VIX remained mostly in risk friendly territory other than 2 instances in June (Brexit) and September (Fed uncertainty). The VIX was last in risk averse territory (over 40) in August 2015, when the index hit a high of 53.29 on China jitters."

The FT refers to the S&P slide as a "Trump Dump" and notes the current slide is the longest losing streak since Oct 2008. You remember 2008, right? See the FT's table. In other words, a Trump win is a disaster on a par with the financial crisis. The F T reports another loss today "would put this sell-off in more rarefied company than it is already. There have been only 12 instances when the S&P 500 has fallen for more than eight sessions in a row, according to Financial Times analysis of daily Bloomberg data going back to 1928. The 2.9 per cent decline that began on October 25 is only the 14th time since 1928 that the S&P 500 has fallen by eight sessions (excluding losing streaks that lasted longer)."

We originally had a full-page rant prepared for today's Briefing listing eight reasons why Trump will lose. We moved it down to focus instead on the S&P because at the last minute, with any luck, the gen-eral public will perceive how dangerous Trump really is. Historical firsts count and should seep into the general public awareness. Hardcore Trump supporters won't care—"serves the elites right to take a loss"—but regular folks will wake up. It's not just waving nuclear war around in the air that makes Trump dangerous. It's also the judgment of financial types, who may be despised but whose judgement is respected nonetheless.

But numerous commentators are now joining the chorus that payrolls are not the top factor for the Fed's December plans anymore. It's Trump. Mr. Ip at the WSJ writes "The Federal Reserve has hinted it will raise rates in December. Whether it actually does hinges on who wins next Tuesday's presiden-tial election. Typically, the Fed is guided by the economic data; elections are just transitory nuisances with little significance for the outlook. But this is no typical election. Donald Trump, the Republican nominee, represents a dramatic break with economic orthodoxy with promises of protectionism and tax cuts but few details.

"No one knows whether Mr. Trump will in the end be good or bad for economic growth and inflation. But his election would dramatically raise uncertainty, and investors usually respond to uncertainty with a reduced appetite for risky assets. Thus, the stock market has tended to go down when Mr. Trump's odds of winning go up, as they have this week, and vice versa."

We expect a lesser spikiness in the FX market today because Trump trumps payrolls, but maybe not. It's an unprecedented combination of factors. Even a good number won't save the dollar and a bad number can only make it fall harder. Note that Canada also reports payrolls today. The CAD chart is messy. Stay away.

Bottom line: Clinton will win because Trump is unthinkable. The dollar and equity markets will recov-er robustly. Gold will fall. Here is our rant on why Trump will lose:

1. He lacks experience in government or public service. Voters know corporate leadership skills are not the same as governing skills. Besides, Trump's corporate skills are terrible—he cheated contractors, defrauded students at Trump University, and declared bankruptcy twice (which takes some serious mismanagement when the companies are casinos, for heaven's sake).

2. Trump lies. He lies about 20 times a day and as many as 37 times a day, according to one re-port. The first lie, utterly unfounded, was the Obama was not born in Hawaii. The latest lie is that you can call your local election board and change your vote. You can't.
   
   Called out on his lies, he calls fact-checkers "scum." He lies about Clinton, he lies about immigrants (Mexican rapists, Muslim terrorists, black killer thugs). He lies about having read the Bible. He refuses to release his tax return, which would show his net worth (deduced from royalties, among other items) to be a lot less than the $10 billion he claims. He lies about donating to charities when no evidence of any contributions can be found after 2009. He donated to a veterans organization only months later and after being called out on it. He invents conspiracies, using lies—the election is rigged, for example.

3. Trump lacks the education and training to run a country. He asserts that attending a military school gives him authentic military credentials, which is ridiculous on the face of it. His erstwhile friend Mark Cuban says Trump never bothers to learn anything. He doesn't read but rather gets his in-formation from TV. He says he knows more about ISIS than the generals and called the current crop of generals "rubble." He denies that Putin invaded the Ukraine, a simple enough fact. He wants to reform or leave NATO without understanding what it actually does or what it means to other members. He praises dictators like Putin and Hussein and seems to think the US president can do dictatorial things, like jailing a political opponent. He thinks the threat of nuclear war is a good thing for the president to wave around. He clearly does not understand the Constitution given all the violations of it he proposes.

4. Trump is a bully. One bullying tactic is insulting name-calling. He has insulted every group ex-cept his own base at one time or another. We had "Little Marco" and "Low-energy Jeb" during the campaign, not to mention "Miss Piggy" and "Crooked Hillary." The first name-calling was "illegitimate Barack," although he didn't put it that way. Reasonable people worry about what a Presi-dent Trump would name the Germans, or Japanese--or the North Koreans.
   
   Trump's other bully tactic is lawsuits—4000 of them, according to USAToday, including 75 active cas-es right now, one of which involves Trump deleting emails, irony of ironies. Lawsuits pertain to harass-ment, sexual discrimination, fraud, unpaid bills, racist comments, defamation, and cases involving Trump University. He has threatened to sue the women (up to 17 now) who charge him with groping and the New York Times (for reporting twice-checked facts). This level of litigiousness is ridiculous and unseemly. Regular people do not charge into lawsuits but rather avoid them like the plague.

5. Trump boasted about being able to grope women because he's a star. He walked in on naked contestants at the beauty pageants he owns. That Trump is a groper is not really in dispute. The only question is whether the voter sees groping as inherently disqualifying.

6. Trump's core voter base is a minority. It consists chiefly of the angry, uneducated white male who lives in a rural area and may belong to a white supremacist group like the KKK, whose newspaper in only one of two that supports Trump (while all the national and big-city newspapers support Clinton, including traditionally Republic outlets like the Wall Street Journal). This cohort feels it has been dis-enfranchised and oppressed by other groups of voters, like women, blacks and Hispanics. This voter is in a distinct minority today. It is also ill-informed and unwilling to learn, responding to Trump from the "reptilian" part of our brain (fight or flight). The modern human brains has evolved to include a cere-bral cortex that allows reasoning to override base instincts.

7. Trump would wreck the economy and the financial markets. He doesn't actually have a coher-ent economic plan, just a series of sound-bites. Worries that he would cut taxes and raise the national debt by spending on infrastructure may or may not be misplaced, because Congress has to be consulted, but we already know from the near-panic in financial markets during the last week before the election that fixed income, equity and FX traders see Trump as a clear and present danger.

8. Trump is not a "conservative" in any sense of the word. He said one way to deal with the na-tional debt is to default, as he does in his business. But the US has plenty of fiscal conservatives, many of them Dems, who see that he has no plan to manage the deficit or the debt. He is widening the rift between the country-club Republicans (like Romney) and the white lower classes who want to keep the current government hand-outs and know nothing about debt or deficits, and don't want to learn.

The US voter can be snookered into voting for unqualified candidates who are a lightbulb or two short of a chandelier. Consider Sarah Palin and Michelle Bachman. Or Dennis Hastert. Rolling Stone, among other publications, offers a list of appalling members from time to time. Bill Maher has a feature on his HBO TV show on the worst Congressmen that is well and truly shocking.

But the US also has a large majority of citizens who don't like lying bullies who are obviously intellec-tually and temperamentally unsuited for the office, and who, most of all, don't obey the social rules of common decency. The single thing that may sink Trump among the most voters is his comment that he would date his own daughter. Ick. As we wrote earlier, Clinton may smell but Trump stinks.