A confession: I’m a long-time reader of the often wrong, but always entertaining, financial blog Zero Hedge.
Inspired by the movie Fight Club — sporting the iconic image of a topless Brad Pitt as its Twitter profile pic and posting articles under the pseudonym “Tyler Durden” — the authors of Zero Hedge don’t bother trying to hide their far-right libertarian agenda.
Just as the climatic moment of Fight Club involves a terrorist attack against big corporate banks, with bombs blowing up skyscrapers to the haunting Pixies’ tune “Where Is My Mind?”, the artful destruction of the global financial system seems to be the money shot Zero Hedge has aspired to both predict and provoke since late 2009 when the blog was founded.
Needless to say, anyone who made financial decisions based on what they read on Zero Hedge probably lost a lot money over the years.
That’s because Zero Hedge is far more bearish than most mainstream financial media and market analysts; for almost the entire duration of the great bull market that began at the post Great-Financial-Crisis bottom in March 2009, Zero Hedge filled the heads of its readers with urgent and totally inaccurate predictions about the imminent collapse of the dollar, the stock market, bonds, and other financial instruments and assets.
But something different about the connection between Zero Hedge and reality happened earlier this year when the novel coronavirus began spreading in China.
In mainstream financial news venues like CNBC, the talking heads who reported on the virus kept a pretty limited framing around it, generally comparing the impact to the 2003 SARS outbreak in China and assuming that it would hurt primarily the Chinese economy. Analysts whipped out charts from the prior outbreak and showed how the market, after a brief correction, continued to power higher once the threat of the virus had been contained. This was happening at the same time National Economic Advisor Larry Kudlow told his former colleagues at CNBC “we have contained this” and President Trump played down the virus, claiming without evidence that the number of patients in the United States “would soon be down to zero.”
Meanwhile, as one would expect, the content on Zero Hedge was painting a dramatically different and more apocalyptic picture.
Because the site trades in conspiracy theories, rumors, and gossip, this made it the perfect source for someone who wanted to understand what might really be happening in China at a time when no other mainstream news outlet seemed interested.
As I followed Zero Hedge’s blow-by-blow account of the spreading virus, my mind boggled at the severe lockdown measures China was implementing; at the rapid construction of entirely new hospitals to accommodate the flood of victims; at countless factories and ports-of-entry shutting down; at compelling allegations that suggested the number of dead in Wuhan was much, much higher than official sources were letting on.
Struggling to resolve my cognitive dissonance between the cool-headed mainstream analysis of coronavirus and the Zero Hedge version of reality, I shared a few of the most concerning articles with my wife.
A PhD-level health professional, she accused me of fear-mongering.
“What’s the big deal?” she said. “It’s just a cold going around the world.”
A cold going around the world?
I was stunned.
“Tens of millions of people are on lockdown in China,” I said. “This is clearly more than just a cold.”
By the middle of February, it was obvious to me and to many others — including Senators who dumped their stocks after attending a closed-door briefing on Capitol Hill — that the United States was totally unprepared for community spread of the novel coronavirus.
That it was nowhere near contained.
That it was far more dangerous than officials and medical professionals in America were admitting.
For once, I realized, Zero Hedge is going to be right. The destruction of the global financial system may very well be at hand.
And for a few weeks in February and March, to some people — including to Zero Hedge authors and loyal readers — the financial carnage unleashed on a world caught flat-footed by the novel coronavirus probably seemed as beautiful as the explosive climax of Fight Club.
But thanks to a combination of monetary stimulus from the Federal Reserve and other central banks, as well as fiscal stimulus from Congress and a steady drip of positive vaccine news, the market rebounded over the summer to erase all of its losses.
Now, all of the major U.S. indexes — the Dow Jones Industrial Average, the S&P 500, the NASDAQ, and the Russell 2000 — are sitting near their all-time highs. The first three hit their all-time highs on November 16, while the NASDAQ notched its highest level on September 2.
Looking at the markets, the economic future of the United States seems extremely bright.
But does this mean the coast is truly clear for investors?
Isn’t there an incredibly large risk — a risk that, with every passing day, becomes increasingly more likely to happen than not — that the markets are overlooking?
I really argued with myself about whether to write this article.
I sat down to write on Thursday, but didn’t do more than jot down a few ideas before feeling kind of gross.
When I’m at my best, I’ve got the jump on a new perspective. But I have to balance that against my disdain for spreading uninformed hysteria.
Then, on Friday, with both the Dow and the S&P ending the week lower for the first time since before the election, CNBC’s Jim Cramer led his popular Mad Money segment by breaking down two risks that he claimed were worrying Wall Street — first, the obvious: coronavirus (vaccine good, lack of rollout timeline bad) but then, the not-so-obvious: the election (Biden win good, Trump refusing to concede bad).
Cramer is pretty mainstream, so the fact that he was bringing up election risk at a point when the news media had already called the election for Biden really gave me pause.
Leading up to November 3rd, the biggest fear stalking Wall Street had been a contested election.
Over the past two weeks, the market has rallied fiercely on a clean win for Biden, the potential for gridlock in Washington with Republicans still hanging onto power in the Senate, and positive vaccine news.
Meanwhile, volatility — the measure of expected market turmoil in the future as reflected by the “fear gauge” known as the VIX — got crushed back to levels approaching the all-clear zone.
But what if — just like the inaccurate comparisons made by the mainstream media between the novel coronavirus and the 2003 SARS pandemic — the wrong historical model was used to evaluate whether 2020 was a contested election?
In discussing the risk of a contested election and its impact on the markets, the mainstream media including CNBC frequently looked at the 2000 contest between Democrat Al Gore and Republican George W. Bush. During the 36 days when the outcome of the election in Florida was thrown into doubt, the S&P 500 sank by around 8 percent and volatility spiked.
But just because election 2020 didn’t come down to the results of a single state like Florida doesn’t mean the election has been settled, and this risk seems to be working its way back into the market’s forward-looking calculus.
Although it’s pretty implausible, some observers have pointed out that this election is starting to look a bit like the contested election of 1876, when a stand-off between Rutherford B. Hayes and Samuel J. Tilden was literally resolved by an extra-legal handshake compromise.
Or what if — and this shouldn’t come as a surprise given the number of norms the President has already violated — we are looking at an abnormal scenario that we cannot price in because it’s never happened before?
What if Trump refuses to concede and never returns to the White House after celebrating Christmas in Florida like his disgraced former lawyer Michael Cohen recently predicted, but millions of angry and well-armed Americans have been so brainwashed by conservative fraud claims that they patently refuse to recognize the legitimacy of the federal government by the time Joe Biden takes the oath of office on the steps of the U.S. Capitol Building on January 20, 2021?
For the past few years there’s been a dramatic misalignment between history and the “Civil War II” narrative. You can’t rebel against Washington when your president controls Washington. This helps to explain the recent bizarre plot uncovered by the FBI in which right-wing extremists planned to kidnap Governor Gretchen Whitmer of Michigan. (If you can’t commit treason at the federal level because you like your president, treason at the state level would be the next best option.)
But assuming Biden does become president next year — and, barring some very unlikely surprise related to the state legislatures or the Supreme Court, he will — what is Trump’s next card to play?
His followers sent him to Washington to “drain the swamp” by political means, but if he returns to Mar-a-Lago in defeat then that’s a tacit acknowledgement political change was ineffective.
When political change becomes ineffective, angry and motivated citizens often resort to economic measures or even violence.
And this time, with Democrats in control of the White House and Trump issuing directives from Mar-a-Lago using the newly popular conservative Twitter knock-off known as Parler, there will be a much cleaner and resonant narrative to tell about the beginnings of Civil War II.
Despite the best attempts of liberals and Democrats to plug their ears and cover their eyes, the fact remains that a whopping 73.8 million Americans voted for Donald Trump in 2020. If just 1 percent of these Americans are induced to take economic, political, and/or violent action focused on resisting President Biden’s supposedly “stolen” presidency, Trump and his allies will have an army of nearly 740,000 loyal Red Hats at their command — and that’s just for starters.
If this all sounds far-fetched to you, it’s exactly the scenario that has suddenly appeared among the top three listed “tail risks” on a monthly survey of money managers conducted by Bank of America’s Chief Investment Officer, Michael Hartnett.
A recent Zero Hedge article entitled “For The First Time, Wall Street Admits That “Civil Unrest” Could Crash Markets” notes that the November edition of the bank’s Fund Manager Survey, which polled 216 money managers with $573 billion in assets under management, found that the #1 risk to portfolios was the novel coronavirus; #2 was a “tech bubble”; and #3 was “civil unrest.”
Significantly, as noted by Zero Hedge, while #1 and #2 were both listed as top risks in October, “civil unrest” did not appear on the list at all until after the election.
Is Trump’s refusal to concede and to work with the Democrats going to become the second Black Swan to hit Wall Street in under a year?
Political gridlock is good for the market, sure, but when the political process fails because of that gridlock and gives way to civil unrest and violence then that would seem to be the opposite of good.
It’s funny, sort of — after four years we might know more about a person who has come under such intense scrutiny as President Trump, but for anyone who has been paying attention there really isn’t anything to know about our con-artist president beyond what was known in 2015 when he announced his candidacy.
Last year, Michel Cohen predicted that Trump would not leave office peacefully if he lost the election. And weeks ago, everyone from Bernie Sanders to Broadway star Lin Manuel Miranda laid out exactly what would happen on election night starting with the President’s premature declaration of victory all the way through the current legal actions he and his team are filing to delay, confuse, and confound the American public.
What makes Trump so predictable is his lack of subtly. He really does exactly what you expect him to. There is no grand strategy other than whatever he believes will ensure his own triumph, and there is no ethical, institutional, social, or legal norm he will refuse to violate in order to save his own skin.
As we have seen time and time again, in order to triumph against his perceived adversaries and his own demons, Trump will throw anyone and anything under the bus — his staff, his family, his friends, his country. And if it’s not obvious to financial managers by now, it should be: Trump will even throw the U.S. stock market under the bus if he thinks it can work to his benefit.
“But Donald Trump cares about the stock market more than any other President in history,” you might say. “That’s how he measures his success.”
Well, it was — until he lost the election.
Now that Trump has lost the election, the stock market is just another prop for his own ego that he can discard when and where it suits him.
Now that he’s facing political defeat, Trump has little incentive to pump the market higher.
He’s much more likely to say and do things that could crash the market and then turn the crash into a talking point about how the crashing market proves that Democrats committed massive electoral fraud. Hell, Trump might even decide that he can cover some of his sizable debt by shorting the market right before he crashes it on the way out the door.
Don’t get me wrong — I’m not saying we are definitely 100 percent heading for another crash, nor am I able to say whether such a collapse would come next week or next month.
What I’m saying is that all the major U.S. indexes are hovering near all-time highs, which means that investors and traders are pricing in a smooth presidential transition and vaccine rollout with no civil unrest as far as the eye can see. This view is not supported by anything other than pure hope and optimism, and indeed the facts on the ground are directly in conflict with what Wall Street seems to be predicting.
Consider also that the two risks Jim Cramer identified on Friday’s Mad Money episode — vaccine rollout and election certainty — are very intertwined.
The Biden Administration’s ability to smoothly rollout the coronavirus vaccine depends entirely on a smooth transition of power that is not currently happening, and this doesn’t even consider the challenges inherent in the recent politicization of public health with lockdowns and mask mandates etc. Many Trump supporters may also be opposed to taking the coronavirus vaccine, and many who would have taken it under a Trump Administration may refuse to take it under a Biden Administration.
The right wing is currently abusing the mainstream media for its practice of calling the presidential election based on state reporting when there exists a separate legal and political process to determine the winner of the presidency that is written into the U.S. Constitution. This is true, but as with pretty much every argument involving a document written over 200 years ago, it’s totally fatuous and offensive to carry on as though the Founding Fathers would gaze upon our modern society with its satellites and fiber-optic cables and Facebook memes and assault weapons and give a solid thumbs up to everything they wrote.
In trying to delay the inevitable by filing frivolous lawsuits and spreading ridiculous conspiracy theories, Trump and his allies are denying the American public something that the mainstream media has stepped in to provide where the Constitution could not — certainty, which is good for the stock market and good for the American people.
Even more dangerously, they are using the confusion of the interregnum to establish an alternative narrative about the 2020 election for tens of millions of Red Hat zealots, a narrative that will ensure that our country is even more divided, and even closer to civil unrest, when Biden enters the Oval Office in January 2021.
It’s important, though painful, to remember that the 1860 election of Abraham Lincoln as President was one of the major factors, if not the single most important factor, that caused the southern states to issue their ordnances of succession and kick off the first Civil War.
Biden is no Lincoln, but with his ascendency to the White House the rest of the narrative suddenly rhymes well enough that the call to “rise up” and fight could strike a very emotional and primal note in the souls of many Republicans, conservatives, and Trump voters who are angry and disenfranchised and impoverished.
Just like there was plenty of information about the likely impact of the novel coronavirus in the weeks preceding the February-March 2020 market crash for anyone who cared to look beyond the cool-headed mainstream analysis, there is plenty of stuff out there — on Zero Hedge and elsewhere — that clearly shows the MAGA movement is not contained, is more dangerous than generally acknowledged, and has no effective vaccine in development.
It may well be that future historians look back on this volatile period in American history, marveling at the double-dip market crashes of 2020 and/or 2020-2021, and say: first came a virus of the body, then came a virus of the mind.
I hope I end up being wrong, but every day that goes by without a concession from Trump makes me even more certain I won’t be.