Bloomberg Throws His Hat Into The Presidential Race - Winners And Losers

Michael Bloomberg
Net Worth: $58 billion
Age: 77 years old

Education: BS from Johns Hopkins, MBA from Harvard
Business: Owner & Founder of Bloomberg LP

Philanthropist: He has given $8.5 billion to charitable causes (so far)

Experience in Politics: 3-term Mayor of New York City

Political Bias: Moderate Democrat

Extraordinary credentials to run for President of the United States!

It's not hard to figure out who the biggest loser will be as a result of Michael Bloomberg's entry into the race for President: DONALD J. TRUMP!

With his unlimited pocketbook, Bloomberg will be firing broadsides at Trump every day and every night from now until election day, assuming Trump is able to survive impeachment and that he doesn't resign prematurely from office (which can't be ruled out). And despite loud cries from other Democrats running for President that Bloomberg is attempting to "buy the Presidency", the media will now follow Bloomberg's every move and every word until the Dems make their final choice at the Convention. This gives the former 3-term NY Mayor a national stage to criticize Trump. And it also gives Bloomberg a national stage to advocate for his favorite causes and also his favored political positions.

Former Vice President Joe Biden is the next biggest loser, of course, because Michael Bloomberg will now aggressively challenge Mr. Biden's centrist lane with Bloomberg's own superior centrist plans for growth, job creation, and the rebuilding of America's infrastructure.

Luckily for Mr. Bloomberg, Senator Elizabeth Warren and Senator Bernie Sanders have split the ultra left leaning arm of the Democratic Party. Both candidates are losers with Michael Bloomberg now in the race. Each of these two candidates will now come under intense scrutiny from Michael Bloomberg as being too liberal for the current electorate and therefore unlikely to win the Presidential election against Trump (or VP Mike Pence should Trump resign before election day).

While no one would argue that Michael Bloomberg would love to win the Democratic nomination for President and then go on to beat the Republican candidate for President in November 2020, I don't think that Michael Bloomberg actually thinks he can win either the nomination or the Presidency. My strong view is that the real reason why Michael Bloomberg has entered the race is NOT to win himself, but just to make sure that Donald Trump doesn't win!!

And who, therefore, is the biggest winner as a result of Michael Bloomberg's entry into Presidential Politics? The answer may surprise you. Senator Amy Klobuchar is the clear winner from Bloomberg's entry into the race for President. While I am confident that Bloomberg could win the general election against any Republican if nominated by his party, I see very little probability that Bloomberg will in fact be nominated by his party. By default, therefore, Klobuchar is "the last man standing" in the center lane. The distinguished Senator from Minnesota has ALL the right credentials to be President of the United States, and she is the ONLY reasonable moderate Democratic in the field who can win the nomination AND beat the Republican candidate on election day November 3, 2020. And if Senator Amy Klobuchar selects Senator Cory Booker as her Vice Presidential running mate, the November 2020 election will then be among the most one-sided victories for the Democratic Party in the modern era!

So how does all this shake out with regard to the U.S. stock market?

When the Dems win everything next November 2020 (President, Senate majority, House majority), the Federal corporate tax rate will be increased to near 30% from the current rate of 21%. That's all you really need to know, beside the fact that a major economic recession is on the near-term horizon. As soon as investors figure out that Donald Trump will NOT be President for a second term, U.S. stock prices will fall sharply as "after tax" profits completely collapse!!

And one last note about the U.S. stock market. Has anyone noticed that Apple stock is currently trading at +22.1% above its 200-day moving average line? The S&P 500 is trading at +6.7% above its 200-day moving average line. The Nasdaq Composite is trading at +7.5% above its 200-day MA and the Russell 2000 Index is trading at +5.2% above its 200-Day MA. Given Apple's $1.21 trillion market capitalization right now, any "reversion to the mean" near its 200-day moving average line would result in a dramatic decline in ALL the closely watched benchmark stock market averages because Apple is a component in all of them. Apple insiders are now selling their Apple shares on balance (smart money) and uninformed Wall Street analysts (less than smart money) are almost ALL universally bullish on Apple's stock price with buy ratings, outperform ratings, and overweight ratings on this massively over-bought, over-owned, and over-valued stock. Everyone talks about Apple's monstrous cash position at approximately $100 billion right now, but almost no one is talking about Apple's massive corporate debt at 1.19 x equity. As of September 30, 2019, Apple had $248 billion in liabilities, of which $91 billion was long term debt!

Postscript (late Sunday, December 8th): Given the unexpected strength of the latest U.S. Unemployment Report this past Friday, it seems to me that the Federal Reserve will now lean "hawkish" at this week's FOMC meeting. Since stock investors seem overly complacent right now regarding domestic monetary policy following three straight cuts in interest rates, a hawkish Fed report this week may very well come as a major shock to many investors who are now clearly over-weighted in equities. The U.S. stock market has the feel to me right now that is similar to where we were in late January 2018 when volatility exploded and share prices quickly dropped 10%.

Presidential Politics and the U.S. Financial Markets

After several weeks of riveting testimony, it is fairly clear now that the House of Representatives will vote to impeach President Trump. The timing of this vote is less clear, but a prediction centering on year-end 2019 seems reasonable.

When the House of Representatives finally votes for impeachment, a Senate trial would then be scheduled to decide whether President Trump should be removed from office. While anything could happen between now and then, the odds strongly favor a prediction which indicates that less than 67 Senators will vote to convict the President of "treason, bribery, or high crimes and misdemeanors". This means that President Trump could then serve out his first term and could be potentially reelected for a second term following the November 2020 National elections.

The above two paragraphs state the obvious to me. What may be less obvious is the strong possibility that Trump's impeachment has deeply hurt him politically and that Trump now faces LONG ODDS and an uphill battle for his reelection. If National polls continue to show Trump's approval rating in the high 30's to low 40's, Trump may decide NOT to risk losing in the next election, but may instead resign from office with PRESIDENT PENCE'S pardon for himself and his family. I strongly believe that if Trump stays in the race and loses the Presidential election next November, he may very well be arrested on the day after he leaves office (in January 2021) to face multiple felony charges already in the queue (i.e. "Individual One" in the Cohen case). In my view, Trump desperately needs a pardon from ALL potential Federal criminal charges or potentially face the rest of his life in prison.

How does all this political speculation impact financial asset prices?

Unfortunately for stock investors, no matter how the next 12 months plays out, the results will be the same in the U.S. financial markets. As a direct result of Trump's early resignation from office or his eventual certain loss in the actual November 2020 election, the U.S. stock market will decline sharply which will then trigger the beginning of a significant economic recession which will then trigger a sharp rise in Treasury securities prices (the best safe haven). As a direct result of Trump's massive corporate income tax cut (from 35% to just 21%) ahead of the 2018 tax year, revenue to the U.S. Treasury from U.S. corporations was down 31% in 2018 as compared to the previous year. One of the first actions from the newly elected Democratic President early in 2021 will be to roll back Trump's tax cut and raise the corporate income tax rate to AT LEAST 30% (or higher). 

Timing of course is everything for traders and investors in the securities markets. Most major U.S. stock indexes appear impervious to any negative news right now. Not even the lack of progress on U.S./China trade negotiations hurts stock prices for very long. Third quarter corporate profits results looked unspectacular, which means that there must be other forces are at work keeping share prices near record levels. Ongoing corporate share buybacks are certainly a major factor supporting stocks right now, and discreet purchases of U.S. stocks by foreign central banks is probably also a key variable contributing to higher share prices (the Swiss National (central) Bank bought $10 billion worth of U.S. stocks in Q-3 and now owns $100 billion worth of U.S. stocks on its bloated balance sheet).

What will be the catalyst that triggers a downside reversal in U.S. share prices and then sustained selling in the inevitable bear market that follows?

As bad as the news is for Trump almost every day now with respect to impeachment hearings in the House of Representatives, I think there is even worse news to come. John Bolton hasn't testified yet, and I believe that HE WANTS TO TESTIFY and that his testimony will be devastating for Trump. U.S. stock market investors will finally cave into the reality that the Democrats will win back the office of the President and they will also win back a key majority in the Senate. Please keep in mind that if the Democrats win the Presidential election next November, all they need to do is win back three (3) Republican seats in the Senate to gain an effective majority (at 50 Democrats vs 50 Republicans; a Democratic Vice President would then break all ties on potential legislation). Of course, Democrats in the House of Representatives will certainly maintain their current majority following the November 2020 elections.

Bottom line: There is almost no scenario where the bull market in U.S. stock prices continues in 2020. The odds are probably near 100% that at least a 20% correction will unfold in 2020, and traders and investors should not be surprised to witness a 33% correction (or more)! In the early stage of this expected correction, there will be almost nowhere to hide. Only Treasury securities look safe to me right now. Gold, silver, and precious metals stock prices may actually decline during the early stages of this next bear market before finally representing excellent value ahead of the final washout of the overall stock market late next year.