Yes, you need to brace your portfolio for a possible Trump win

By Brett Arends

It's likelier than you think. And J.D. Vance says it could be followed by a crisis.

I come bearing good news and bad news about the presidential election - though which is which depends on where you stand.

Good news or bad? A new report from a company that specializes in analyzing polls says Donald Trump is probably doing way better with voters than the polls would have you believe.

Good news or bad? Meanwhile Trump's running mate, and Ohio's junior U.S. senator, J.D. Vance, just warned that a Trump presidency - yes, really - could spark bond-market turmoil and potential chaos.

Put the two together and you have the news that there is a higher risk than you might imagine of Trump winning the election and his victory being followed by a crisis in the U.S. government bonds market.

How you think about that depends to some extent on your politics, and on whether you are currently short - or betting against - U.S. Treasury bonds. For example if you are a MAGA Republican, and you work for a hedge fund that can profit from stock- and bond-market volatility, this news is like Christmas coming early.

Let's start with the first item. Focaldata, a company that analyzes market research and polls, reports that current presidential-election tracking polls are probably overestimating Vice President Kamala Harris's actual lead by a hefty 2.4 percentage points.

"In both the 2016 and 2020 presidential elections, pollsters underestimated Donald Trump's performance," Focaldata writes. Compared with Election Day polling averages from 538, the news site that specializes in polls, "the Democratic candidate's national lead over Trump was 3.9 points lower than the polls predicted in 2020 and 1.8 points lower in 2016."

In other words, as mentioned here before, Trump usually beats his poll numbers in the privacy of the voting booth. I always assumed this was because some people didn't want to tell pollsters they were going to vote for Trump - "shy" voters, in polling parlance. But Focaldata says it is also because Trump voters are more likely to vote. For instance older people, a group that leans conservative, are much likelier to vote than young people are. And crucially, it adds, younger people are more likely to tell pollsters they are going to vote and then not turn up on Election Day.

Factoring in "self-reported likelihood to vote - alongside other demographics like age, race, education and political interest" - reduces Harris's advantage "by an average of 2.4 percentage points in our latest wave of swing state polls," Focaldata concludes.

Harris's lead in the latest 538 moving average of national polls? Er ... 2.6%.

And that narrows to just 1.3% in the key Pennsylvania race. Trump actually leads Harris by 1.4 points in Georgia and 1.3 points in Arizona, both states he lost to Democrat Joe Biden, with vice presidential running mate Harris, in 2020.

What's most interesting is that at this point Harris should surely be doing better than this. If you want to read a takedown of the Trump campaign, check out Karl Rove's commentary at our sister publication, the Wall Street Journal.

It reminds me of August 2016, when Hillary Clinton should have been 20 points clear and yet wasn't. We know how that turned out.

The professional bookies currently give Harris the edge, though it's not even 55-45.

Meanwhile, this Focaldata report dropped into my lap just as Trump's running mate, Vance, publicly warned of big economic and financial risks if the ticket on which he's in the No. 2 slot won in November.

As I've been following politics for a long, long time, I'm used to politicians warning of a potential crisis if the other guy wins. But Vance's tactic is a new one for me. Maybe Vance is appealing to the MAGA movement's testosterone - like asking if you're man enough to vote for Trump and can handle a financial apocalypse?

Remember Arnold Schwarzenegger challenging President George W. Bush voters at the 2004 Republican national convention, "Don't be economic girlie men!"

Vance, talking to the former Fox News personality Tucker Carlson, recalled the financial crisis that hit Great Britain two years ago, sinking Prime Minister Liz Truss in a matter of weeks. "It would be devastating to the president if you had this bond-market death spiral," Vance said.

Well, yes, that wouldn't be good for most of us.

Another comparison might be 1992, when financiers led by George Soros forced Britain out of Europe's Exchange Rate Mechanism through a concerted run on the pound.

Conspiracy theories usually belong in a wooden shed somewhere near the Canadian border, and we can almost certainly dismiss the idea that there might be a coordinated international bond-market conspiracy. Even if you think global financiers would relish bringing down Trump, they love making money more, which is why financial conspiracies are so hard to maintain.

In the case of Britain in 1992, and Truss in 2022, markets were dealing with a small economy in an inherently untenable position.

The only way America could be at risk would be if someone decided to pour gasoline on the raging national-debt fire - for example, by cutting another $5.3 trillion from taxes over the next 10 years, and then trying to make up the losses with massive tariffs.

It would be particularly ominous if that person were so bad at math that he even went bankrupt running a casino - multiple times.

But how you view all this, as I say, depends on where you're sitting. A MAGA hedge-fund manager won't just make a fortune in any bond-market turmoil, but he or she will pay almost no tax on their gains, either. And if the stuff hits the fan, they will have plenty of money to spend on, say, an escape to New Zealand.

Good times!

-Brett Arends

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09-28-24 1114ET

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