It’s shocking that the stock market waited so long to acknowledge the possibility the Republicans could lose BIG on Tuesday. While that might provide temporary relief for millions who suffer from Trump Derangement Syndrome, wait till they see what it does to the U.S. economy. Picture the ballistic rally in stocks that followed Trump’s 2024 victory in reverse. Friday’s carnage could turn out to have been the start of it, the catalyst for a deep recession that has been delayed for years by the AI bubble. And a bubble it is, with enough gaseous, hyperleveraged borrowing supporting it that the inevitable implosion will make the Dot-Com Crash of 2000-2002 look like tea and crumpets.
For all of you Collapsitarians, here’s a 1929 template for the near future, courtesy of our old friend (and occasional political nemesis) Gary Liebowitz: The 1929 crash, he writes, began with a two-day selloff on October 28-29 totaling 25%. The dead-cat bounce that followed showed blitzkrieg ferocity, setting records for speed and height, Gary recounts, but it was over in just two days. The next two weeks saw lower lows, he notes, amounting to a 47% drop.
Worse than Covid
Just so. And although stocks didn’t quite fall apart on Friday, the intense selling that occurred should have spooked any investor mindful of the traders’ almanac. Nor should the fearful breathe a sigh of relief merely because there are no more trading days left in October. This week’s election could produce a result that will unsettle investors more than any event since Covid. That was arguably a hoax, and the all-encompassing, Fauci-mandated shutdowns brought the economy to a temporary standstill. But a strong showing by the politically deranged Democrats on Tuesday could presage a leadership crisis that would have a longer lasting and deeper impact on the nation’s health.
How about AOC as President, for instance? Even the faintest possibility of this should have sufficed to unfurl the yellow flag on Wall Street and derail the stock market. Instead, with help from their clueless cheerleaders in the news media, Wall Street pros have been quietly distributing stocks in an atmosphere of complacency. They will run out of time, however, if the Democrats flip control of Capitol Hill on Tuesday. Forget about rubes, pensioners and widows coming to the rescue; if the selling we saw on Friday gains momentum, even the insatiable greed of private equity will not slow it down.
One more observation: If Republicans lose control of both Congressional houses, an epic bear market is coming. However, don’t be lulled or encouraged if the stock market appears to hover or even rally in the days after the election. This quiet deception will be the muted sound of Calpers, Fidelity, BlackRock et al. battening the hatches just ahead of a tsunami that will swamp investors with irresistible force, ushering in an era of deflation and unimaginable hardship.