Conservatives have long-expected that a serious attempt to crash the stock markets would be made sometime during the lead-up to the election of 2020. If the crash happens close enough to the election, Mr. Trump’s voters – nervously watching the shrinkage of their investment-accounts – might be frightened enough to vote for the Democrats’ candidate. Or, at the very least, they might be discouraged enough to stay home and not bother voting.
The past two weeks have seen the confluence of two market-dampening events:
- A media-orchestrated scare-campaign regarding the Corona virus; and
- An oil price-war waged between Russia and Saudi Arabia.
Hoping to harm the president politically, media organs hostile to Mr. Trump have ambitiously pumped hysteria about the mysterious new virus which emerged out of Wuhan, China, late in 2019. At this writing, 134,498 cases and 4,970 deaths have been reported, worldwide. The USA has had 1,658 cases and 40 deaths. President Trump’s January order to bar travelers out of China from entering the USA has diminished spread of the virus here.
The Russo-Saudi price war, which might (or might not) have been launched to coincide with investor-nervousness over the virus, has driven the price of oil down from $50 to $30 per-barrel – a drop of 40% in just a few weeks. Analysts are not in unanimous agreement about whether one (or both) of the two countries wants to harm the USA’s shale-oil industry, but the price-war is undeniably doing so. Hydraulic retrieval of shale-oil is more costly than simply pumping oil out of the ground, so shale-companies cannot operate profitably at a $30 price. Continuation at that level could drive those producers out of business.
Temporary drops in the stock markets might not be enough to damage the president, since markets always rebound, eventually. With eight months remaining before the election, there is plenty of time for investors to regain their confidence, buy back in, and re-establish equilibrium in securities-markets.
Some investors might not realize that great movements of the stock markets are often led by parties who might be called the “great bull-bears” of the market. These are investors – or groups of investors – who hold such large positions that what they do can actually move the markets. Ever-alert to situations which might work to their purposes, these mega-investors watch for external events that could spook investors – for instance, a new virus that could become a “pandemic.”
As public anxiety builds over some emergency or conflict – possibly stoked by political agents – the bull-bears suddenly coordinate a sellout of large positions. Their sell-orders are great enough to drop the market significantly. Millions of smaller investors see that slide and decide to sell out in order to salvage what they have. Their sell-orders drop the market farther, causing more investors to sell and sometimes turning the rush into a panic.
An additional dynamic in a falling stock market is a tactic known as “selling short.” Investors confident that the market will continue to fall sell issues which they don’t yet own, in the expectation that they will later be able to buy – at a lower price – the shares they need to complete the sale. For instance, if they sell a share of stock they don’t yet own for $100, but can later buy it on the market for $80 to complete their earlier sale, they stand to make $20 on the deal. (Only high rollers, who know the market far better than you or I, can do this without losing their shirts.) Large-scale short-selling naturally works to push the market farther down.
Eventually, the panic abates, as all panics eventually do. The market bottoms out, and some measure of calm returns. Perhaps the war-scare (or virus-scare) goes away. As they sense that the bottom has been reached, the bull-bears buy back in at the much lower prices. When they do, the market begins to move up, causing smaller investors to buy back in. As stocks gain back lost ground, more and more investors will climb back on the bus.
But the roller-coaster ride might not be over. It can last for weeks, or even months – sometimes years, depending on external situations. The great bull-bears might repeat the sellout-crash-buyback tactic several times, until investors finally refuse to be spooked into following a large sellout. Each time the big guys can cause a crash and then ride it back up, they make millions. Savvy investors, who own stock in solid companies, will stand pat through these swings. They know this is how the market works. The declining numbers can look scary on paper (or on the computer-screen), but it’s not a loss until you’ve sold. Eventually, the diving market will pull up and regain altitude.
These familiar ups and downs of investment markets are hard to time, and might not be enough to harm a sitting president, unless markets should still be in a deep trough at election-time. What Democrats really need to unseat Mr. Trump would be a crash of not just the stock market – which is bound to recover, eventually – but of the entire economy.
Ever since the collapse of the Mueller-investigation and the wreck of the impeachment, Democrat pooh-bahs have known that their only hope for defeating Mr. Trump lay in either causing an economic slowdown, or exploiting a slowdown caused by external events. They needed a miracle. And now, just in time, that miracle might have appeared.
To this observer it looks like provocateurs in media and the “deep state” have now succeeded in spooking some sectors of the country’s business into closing for indefinite periods. Democrats have rushed forward with proposed legislation to pump government-money into the economy to keep things afloat, but this would be a futile – even counter-productive – measure. Actual business activity – not government money – is what keeps the economy humming. And a robust economy is what makes the stock markets soar.
If commerce slows, and actually stops, because alarmist virus-reporting has spooked people into hiding out in their homes, the economy will grind to a halt. Workers will be laid off; small businesses will fail; orders for appliances and cars will drop off; and housing markets will dry up for lack of buyers. Unemployment will soar.
All this will allow newly-energized Democrats to run around the country proclaiming that Great Depression II has arrived – just as they had always predicted it would, with Donald Trump at the helm. Frightened by the overnight loss of trillions in a crashing stock market, voters will head to the polls to render judgment on the president they had trusted to bring lasting prosperity.
The “ace” in Mr. Trump’s re-election hand has always been a booming economy that has raised employment to unheard-of levels. But if that card is not in his hand when Election Day arrives, his prospects for a second term might be in jeopardy.
It could all come down to voters being smart enough to recognize that the scare-campaign which spooked the economy into recession was manufactured to hurt Mr. Trump. The Corona virus is real enough, but its effect on the USA has been small, contrasted with annual deaths from the flu1.
In 1957 an outbreak of the Asian flu2 killed 70,000 Americans, including a high school classmate of mine. His death shocked all of us, but there was no move to close the school, set up quarantine wards, or stop commerce in the town. In those days we all conducted ourselves as carefully as possible, but we went on with life.
When voters step into that voting-booth they will have to decide if they really (really!) believe that befuddled old Joe or Bernie the Commie will magically make things better. (Good luck on that.)
So let’s all take deep breaths, calm down, observe good hygiene, stay away from large crowds, and get on with work and life. And if you’re invested in the market, please try to resist the urge to run over the cliff like a bunch of lemmings. We’re smarter than that. We’re Americans.
- The Center for Disease Control reports that in the USA 36,000 deaths typically result from the flu each year. In the 2017-’18 season there were 80,000 deaths in the USA.
- The 1957 Asian flu killed between 1 million and 2 million people, worldwide.