The Long Dead Trader That Predicts 2016

Financial brokers discussing stock market quotes, rear view
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Uh-oh, you’d better start paying attention. Donald Trump is trouncing his way to the Republican (GOP) nomination right now. Markets will react to this.

Not only is Trump trouncing the competition, he’s doing that despite the fact most of his own party don’t even like him. Some of them would even rather vote Democrat. That fact looks even harsher than the quips about his hair.

Just don’t call it a political campaign. Call it a political insurgency. That’s how strategist John Robb on his Global Guerillas blog describes Trump’s run for the White House.

Robb says an open source insurgency forms around a single idea. In this case, Robb attributes it to a tweet Trump made in late February that looked like this.

Source: Twitter

 

Robb sums up what this means.

This explains why:

  • Trump doesn’t take policy positions on the small issues most campaigns are built on. Those positions would only divide his insurgency.  
  • Trump will ONLY talk about corruption, hypocrisy, underhandedness etc. of the people opposing him.
  • Trump gains ground when he is attacked by the media, the corrupt, and special interests. These attacks demonstrate his devotion to the promise of his campaign.

Of course, our beat at Money Morning is the markets. The US has actually seen something like this this before.

120 years ago.

A populist politician and his ‘Cross of Gold’

His name was William Jennings Byran. Bryan electrified the Democratic convention with his famous Cross of Gold speech in 1896. After that speech he won the presidential nomination for the Democrats.

Some call it the most famous piece of oration in US political history.

In 1896 the US was in a depression. The boom bust cycle was in the deflation phase. Farmers had impossibly high debts they couldn’t repay. Labourers were out of work. Unemployment was above 10% for most of the decade after 1894. It was the worst depression in the US to that time.

Credit and gold were tight. Byran rejected the gold standard and the control of private banks over issuing American credit.

His speech at the Democratic convention ended on this poetic flourish:

You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.’

Bryan was an anti-establishment Populist who targeted monopolists, Wall Street and the bankers.

Now compare that to Matt Taibbi writing in Rolling Stone about a Trump rally:

He talks, for instance, about the anti-trust exemption enjoyed by insurance companies, an atrocity dating back more than half a century, to the McCarran-Ferguson Act of 1945.

‘This law, sponsored by one of the most notorious legislators in our history (Nevada Sen. Pat McCarran was thought to be the inspiration for the corrupt Sen. Pat Geary in The Godfather II), allows insurance companies to share information and collude to divvy up markets

Trump isn’t lying about any of this. Nor is he lying when he mentions that the big-pharma companies have such a stranglehold on both parties that they’ve managed to get the federal government to bar itself from negotiating Medicare prescription-drug prices in bulk.’

The strategy is working for Trump. The Age cited one Laura Ingraham, a conservative talk-radio host and political activist, who told the New York Times recently that ‘Millions want the party to go in a more populist direction.

I don’t tell you all this to give some history or political lesson. The market just might behave the same way in 2016 as it did in 1896…

The 1923 book still relevant today

The year 1896 wouldn’t have looked so far back in 1923 as it does now. 1923 was when trader WD Gann wrote his book The Truth of the Stock Tape.

Gann actually suggested traders make a point of studying Presidential election years. Here’s why: the uncertainty around who might win usually gives stocks the shakes for a few months.

He’s how Byran inadvertently took down US stocks, according to Gann.

An extreme decline occurred in July and August, 1896, which was known as the ‘Silver Panic.’ The whole country got scared and decided that Wm. J. Bryan was going to be elected and that his silver dream would become a reality.

Investors and traders sold stocks regardless of value and on August 8th, the average prices of industrial and railroad stocks reached a level which was the lowest from that day until the date of this writing.’

All Trump’s talk about tariffs, holding up immigration, taxes and drugs could really put Wall Street in a spin even if, like Byran, he doesn’t eventually win.

As we say over at Cycles, Trends and Forecasts, history repeats. That’s why study history as far as back as 120 years ago.

US stocks are going to be volatile in 2016. If you want to know to how navigate the dips and the rallies, and identify the buying opportunities, go here.

Regards,

Callum

Ed Note: This article was first published in Money Morning.

Callum Newman

Callum Newman

Callum Newman is the editor of The Daily Reckoning and Associate Editor of Cycles, Trends and Forecasts. He also hosts The Daily Reckoning Podcast. Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect. To have Callum’s thoughts and insights on the current state of the currency, commodities and stock markets delivered straight to your inbox, take out a free subscription to The Daily Reckoning here.
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