The next big macroeconomic event to happen is the US Presidential Election, and that got me thinking, "what happened in previous elections?"
The last two major crashes, the DOTCOM Crash 2000-2004 and the Financial Crisis 2007-2009, both occurred during a presidential election.
The DOTCOM crash was underway for eight weeks when George W. Bush took over the presidency. The ensuing carnage wiped out four years of gains. This equated to a 41.64% drop during George Ws' first three years.
The Financial Crisis was already well underway when Obama took over in November 2008. The total crash wiped out 52% of the value of the S&P500 , 24% of that loss occurred under Obama's reign. In total, the Financial Crisis wiped out 8 years of gains.
The Corona Crash started during the last seven months of Trump's term and is ready to be inherited by Biden or continued to be managed by Trump, depending on the outcome of the election.
Crisis of Confidence.
Crashes and crises happen when confidence in a market is lost. Confidence is the difference between a functioning market and an economic disaster. Trump and the have amazingly restored confidence in this market, despite the disastrous ongoing economic events.
Presidents Crisis & Confidence
The next election will be set in the middle of a crisis, a crisis that has not played out its full course.
The questions you have to ask yourself when betting on the market coming up to November are:
- Which President, if any, will maintain the confidence in this current bubble market?
- Which President, if any, can maintain the confidence in this market long enough so that the Fed can gently deflate the bubble over time?
If the next President and the Fed cannot perpetuate these confidence tricks, we might expect 4 or 8 years of market gains to be wiped out.
This is not a political commentary or a prediction; it is observations based on the market's action during elections and crises.
Outlook: While this rally has been great and profitable for many, the coincidence of All-time Market Highs, Economic Carnage, and the Current Market Euphoria, suggest to me a Bubble Waiting To Burst. Outlook at this time - Neutral, in November Short.
Here is another observation. In the past 25 year, if there has been a crisis ongoing during the election year, there has been a change of president.
Make no mistake we are in a crisis.
Corona is out of control in the US.
The economic recovery will last longer than expected.
There are race riots and protests demonstating clear inequality.
The electorate probably believe the best person to manage this situation is Biden.
A change of president is on the cards.
A change of president means more regulation of Wall St.
Better management of the Virus.
A more realistic outlook from unfettered capitalism.
Perhaps the markets confidence is starting to break.
Batton down the hatches.
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