T-6 Days: Election Myths, Financial Realities

In a way, the lead picture hints at a mix of financial margin calls and the usual suspects. Possibly, more than a hint. This is the third in a limited series of eight daily commentaries to get behind the US election headlines and explore what really might be happening. Yesterday, we took a look at what voters potentially really really cared about. But, we also touched on other election stakeholders - you might even call them the "usual suspects". We wrote about motive quite a bit yesterday and that comes into play today in dealing with a few election myths. So, let's get started with our "usual suspects"......

Surrogates & Cheerleaders: Exhibit A is Elon Musk and his recent claim "Early votes in Pennsylvania now show Republicans doing 435k better than Democrats vs the same date in 2020". Musk's motivation is no secret - he wants a Trump win, and a place in the White House ministerial cabinet. Nothing wrong with that. But.... his claim above is pure nonsense. ZERO votes have been counted (or are known) in Pennsylvania or anywhere else in the country.

Media Analysis: The commentariat are classic examples of individuals with "no skin in the game". There is no accountability for inaccuracy, or worse. Their motive is eyeballs, attention and excitement. So, just like Musk above, the media is keen right now to draw conclusions about turnout/early voting by the registered voters and their Democrat or Republican party affiliation. Unfortunately, many analyses are drawing on comparisons with the 2020 election. Our first article pointed out that Democrat early voting turnout will be lower relative to 2020 and Republican early turnout will be higher. Again, motive explains. Democrats voted (by mail) overwhelmingly early in 2020 based on pandemic fears. Republicans voted (in person) on the day as recommended by the Trump campaign but who have now reversed that call for 2024. So, to be very clear, ridiculous comparisons with 2020 by Musk and others are of no analytical value. If really curious, you might ask why no mention of 2022 mid-term elections? More on that in a later article.

Professional Polling: I was struck by commentary in recent days that individual polls are now coalescing around very similar winning margins for X or Y. That's a "tell" in the financial data world. I have spent decades watching Wall Street analysts 'tweak' the consensus forecasts for companies' future earnings ie they don't take any career risk with an outlier forecast. Better to sit within the job security of a marginal difference with your professional peers. But there's a problem. Professional polling is on the cusp of a "Dodo" extinction event. They're heading for a "Grand Slam" of counting screw ups; in 2016 they undercounted Trump voters, in 2020 they over-counted Biden voters and in the 2022 mid-terms they completely over-counted the Republican 'red wave'. Their motive this time is group/species survival but allows for no possibility of an outlier 'asteroid'....

I could mention the betting platforms and an intriguing breaking news story from Fortune on 'wash' trades/bets at Polymarket but think it suffices to say the likes of Kalshi, PredictIt, Polymarket and even Robinhood coming late to the gambling party have ZERO predictive value in the financial world. One of the better macro financial commentators of the last 20 years is Barry Ritholtz and this was his succinct take this week....

There are several key reasons for failure: Unlike the stock market, the incentives here are not big enough to attract a critical mass of capital. Polymarket is the latest prediction market to find some media attention, but its total dollar volume is equal to a few minutes of trading Nvidia or Apple.The other issue is that these market participants don’t look much like US voters.

Bluntly, these guys are little league players and not even voters. In fact, I've worked on trading floors at single firms with bigger sports betting "books" than these punters. However, in the major league of asset allocation at the trillion dollar institutions with stewardship over the savings of billions of people, we should recognise the following heavyweight 'tells' in financial markets.

*Big European companies with significant US export (potential Trump tariffs) exposure have been underperforming since April this year ie fund managers have been buying less of these companies than other sectors.

*It's not just European companies. See a recent headline from Yahoo Finance: "Trump's Rising Election Odds Sends Emerging Markets Into Tailspin, Causes Biggest Stock Drop In 10 Months."

*In the US one could read the next financial 'tell' two ways but overall it feels like a bet on a business/debt-friendly Trump win. Debt(bonds) of the riskiest company borrowers, aka high yield bond instruments, are trading with the lowest credit 'spreads" since the credit crisis (GFC) in 2008-2009.

*Cryptocurrencies could also be considered a Trump win 'tell' given his more explicit support for easier cryptocurrency regulation. So, when you see the Bitcoin price hit $74k and the Blackrock Bitcoin fund (ETF) reach $30 billion of assets in record time they could be taken as Trump positives.

*Trump's own publicly quoted/traded financial vehicle is TruthSocial/Trump Media (ticker $DJT) whose share price has rocketed upwards by 190% in the past month alone. Rip up the text books - watch giddy people happy to buy $DJT at 6,000 x its annual revenues. However, it is real money, and significant - the value of $DJT shares bought and sold daily are now in the billions of dollars. In fact, Trump Media has a bigger market value than Musk's Twitter/X platform right now. Whooodathunk.

There are other big data points right now. Oil prices are hitting 3 year lows. Consumer confidence is at its best since 2021 and inflation continues to fall. There's also a possibility a Trump win is overlapping with traders' positioning in a 'soft landing' scenario for the global economy. My own personal sense of things is that market traders and fund managers are replicating the strategies of many Big Tech execs. At the very minimum take out some financial insurance/trades so you don't look stupid if Trump wins. As always, motive is key....job security is a financial reality too.