Could Donald Trump cause a market collapse? This could really happen

Donald Trump Photo illustration by Salon/Getty Images

Wall Street commentary during this election year has a distinct taste of Soviet-style disinformation, at least so far. The elephant in the room has been erased from the picture.

The endangered pachyderm in this metaphor is the question of what Donald Trump will do to American democracy if he becomes president again. It should now be clear to everyone that he would like to govern as a fascist. However, if you are a Wall Street strategist, you cannot mention his authoritarian tendencies, attempted coup, indictments, or incitement of violence. Too many big customers, or potential customers, support Trump, so it's best not to go. Your bosses would fire you if you did.

So no one says a word. The silence is deafening. Strategists are happy to discuss Trump's impact on trade and taxes, but not his potential impact on democracy. A Schwab strategy article published in March was titled Don't Bet Your Wallet on Election Year Fears. Ah, now I feel better. It's another sign, as Liz Cheney would say, that we may be descending into dictatorship.

I know: There's something more than a little obscene about writing about the impact of a possible Trump election victory on the stock market. There are bigger issues here.

However, money matters. If Trump wins and people manage their money well during this disaster, we will have more left to finance the resistance. I developed a strategy: anticipating the possibility of a 50 percent stock market decline, I sell 1 percent of my shares each week. I now have 21 percent in cash and, if the election remains uncertain, I plan to have 50 percent in cash by Election Day. (All my sales are to retirement accounts and I earn 5% while I wait.)

Why should you care what I do? I have been a successful fund manager in the market for 15 years. Since retiring nine years ago, I have continued to beat the market. What I can't do, however, is predict the economy or time the stock market. Nobody can do that.

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So, I'm sort of an expert here, except I'm not, since there is no historical record to analyze how American capitalism would behave under autocratic rule. However, I have a few guesses.

I try not to base my investment decisions on my political passions. Historically, this is a very bad idea. Although the stock market has performed much better under Democratic presidents (even if you eliminate Herbert Hoover), it has also performed well under Republicans Dwight Eisenhower, Ronald Reagan and, yes, Trump. The market increases over time, regardless of who is responsible.

My financial concerns regarding fascism are both general and specific. I fear that the distortion or destruction of institutions (the real, rather than fictional, militarization of the Justice Department, the elimination or decimation of the FBI and other key government agencies) will awaken sleeping domestic and international investors, forcing them to reallocate their assets. towards cheaper, and now perhaps more secure, global markets. Imagine if the Trump administration, angered that a major corporation refused to pledge allegiance to the leader, adopted policies that cut into company profits. The company's stock would plummet, as would investor confidence.

Then, with his known tendency for retaliation, Trump targets another company, and then another. It's easy to imagine him acting like Chinese President Xi Jinping, wasting the stock price of any company he displeases. (Xi has single-handedly made China's stock market a global pariah, sending it down 50% since May 2015, ranking it among the worst-performing markets on the planet during that period.) Perhaps some Foreign companies then complain about the increase in imports. functions, and they will also be targeted. We may soon see a Night of the Long Knives, corporate style.

Industrial policy can be vengeful, capricious or corrupt. Some companies will run advertising campaigns on Truth Social to get out of the corporate nest. This will be great for Trump's bottom line, but less so for the Americas.

Around the world, dismayed observers may reconsider their next planned investment in the United States. How can they be sure it will work? What unexpected costs might there be? What if the President of the United States attacked them too?

I leave aside Trump's terrifying trade policy statements (the impact of a 60% tariff on Chinese goods, or higher, could be disastrous for inflation and the global economy, and trade wars tend to be of little comfort to investors) and its general lack of trade policy competence. well, everything. To be sure, his push to cut corporate taxes further, from 21 to 15 percent, would likely support the market temporarily, even if it would inflate the deficit.

The movement of money from U.S. stocks and a slowdown in direct investment in the U.S. economy could depress the stock market for years, even after Trump leaves office. If he leaves office, of course.

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OK, but why not wait until after the election to start selling stocks? Because surprises happen. What if there is a hung jury in the New York hush money case, and it becomes clear that Jack Smith won't have enough time to bring the January 6 federal charges, let alone of the Mar-a-Lago documents affair? What if Joe Biden had a serious health problem? What if the economy collapses before November? All of these things would be bullish on Trump, but what if investors decided that, despite what the muzzled strategists say, they really aren't optimistic about the prospect of a second Trump administration?

Of course, Trump could win the election and things could go well anyway. (They did it last time, I mean, at least for the stock market, if not for the human population.) His desired war on democracy may fail. Then I will put my money back into the market. But keep in mind one important thing: smart people who could have warned you of the coming risks had a strong economic incentive not to do so.

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