Speaker 1: Bloomberg Audio Studios, podcasts, radio news. The election is only
Speaker 1: about a week away, and while most major polls, including
Speaker 1: the latest Bloomberg Morning Console poll, show Vice President Harris
Speaker 1: and former President Trump are running neck and neck, Wall
Speaker 1: Street has become increasingly convinced Trump is going to win,
Speaker 1: and that conviction is manifesting itself in what's come to
Speaker 1: be called the Trump.
Speaker 2: Trade, the Trump trade, as some have been calling it,
Speaker 2: the so called Trump trade.
Speaker 1: We see those games from the Trump trades, who are
Speaker 1: the winners and who are the loser? Investors are effectively
Speaker 1: betting on a Trump win in the stock market, in
Speaker 1: the bond market, in currencies, in crypto Bloomberg Opinions, John
Speaker 1: Author says he's never seen anything like it. Wall Street
Speaker 1: paying such close attention to a presidential election. He compared
Speaker 1: to what's happening now to his first election he covered
Speaker 1: in the US, that was Dole versus Clinton in nineteen
Speaker 1: ninety seven.
Speaker 2: I actually spoke to somebody in one of the large
Speaker 2: firms two days later who said, did Clinton win? And
Speaker 2: wasn't embarrassing? Yes he did? I mean that there was
Speaker 2: You couldn't tell anything about that election from prices before
Speaker 2: it happened or after. This is so different from.
Speaker 1: That, it's hard to overstate John says how much things
Speaker 1: have changed since then.
Speaker 2: It's a very interesting, difficult, flammable situation. The level of
Speaker 2: interest is unusual, and it's pretty extreme.
Speaker 1: I'm David Gura, and this is the big take from
Speaker 1: Bloomberg News today on the show, The Trump Trade and
Speaker 1: what it tells us about how Wall Street sees this
Speaker 1: election and the future of the economy. What is the
Speaker 1: Trump trade? What exactly is Wall Street betting on? Okay,
Speaker 1: Trump trade?
Speaker 2: Very broadly, it's positive, bullish on stocks and negative bearish
Speaker 2: on bonds. At present, it seems to be predicated on
Speaker 2: the belief that even though a Trump presidency will be
Speaker 2: negative for bonds, it won't be so negative. It won't
Speaker 2: push up yields so much that it derails the stock market.
Speaker 2: So that's basically the Trump trade, a belief that Trump
Speaker 2: is going to win and that what he does will
Speaker 2: be expansionary and that it's also going to boost growth
Speaker 2: and help the stock market.
Speaker 1: Could I ask you how people are playing this in
Speaker 1: a few different outset classes as you mentioned Starks, Yes,
Speaker 1: I would guess that there would be people who think oh,
Speaker 1: this is going to be good for energy stocks, for instance,
Speaker 1: or financials. Perhaps there'll be less regulation.
Speaker 2: Yeah, companies that are deemed to be very benefited by
Speaker 2: logistics by globalization have a problem. If you were interested
Speaker 2: in FedEx, for example, that's plainly doesn't do well when
Speaker 2: Trump's numbers are seen to improve. But yes, overall a
Speaker 2: Trump win is seen to be good for classic cyclical
Speaker 2: companies and it's not so great for classic defensive, staple
Speaker 2: type companies.
Speaker 1: How about in the bar market.
Speaker 2: Bond market generally there are two animating features here. One
Speaker 2: is it's a cliche, but it is true that bond
Speaker 2: markets prefer gridlock. When you have gridlock when one party
Speaker 2: in Congress actors a check on the presidency, generally speaking,
Speaker 2: the deficity is less likely to get out of control,
Speaker 2: Supply is less likely to be too heavy, and so
Speaker 2: that keeps yields lower. The assumption, which I think is
Speaker 2: probably correct, is that if Trump pulls off the presidency,
Speaker 2: the chances of overwhelmingly strong that he wins the Senate
Speaker 2: as well, and probably also holds onto the House. So
Speaker 2: if you have unified government, that's bad for bonds.
Speaker 1: John says fixed income investors like Most are not typically
Speaker 1: motivated by ideology. They just want to make money, and
Speaker 1: some are trying to bet on what a Trump presidency
Speaker 1: might mean for inflation in both the short term and
Speaker 1: the long term.
Speaker 2: It will absolutely, undoubtedly be terrible for inflation in the
Speaker 2: short term. The total burden on the amount of tariff
Speaker 2: that will be paid. This is Barclay's research. I'm going
Speaker 2: from not anything to hyper liberal. The twenty eighteen tariffs
Speaker 2: added about two percentage points onto the cost of the importans.
Speaker 2: The tarfity is talking about now, if he really goes
Speaker 2: through with it, will add seventeen percentage points. So this
Speaker 2: is protectionism on a scale not seen since the Great Depression.
Speaker 2: And if you are a company, you will pass that
Speaker 2: on or pass as much of it as you can on,
Speaker 2: because otherwise you're shareholders won't be very pleased with you.
Speaker 2: So it is directly inflationary in the short term. I
Speaker 2: don't see any arguments against that. If Donald Trump persuades
Speaker 2: more production to come to the States, if he persuades
Speaker 2: companies currently operating in China to move their production facilities here,
Speaker 2: in the long term, that will definitely be good. But
Speaker 2: it takes far longer to build a factory than it
Speaker 2: does to raise a price, and so there is still
Speaker 2: no way that you avoid an inflationary spike if he
Speaker 2: really goes through with this, and that will be bad
Speaker 2: for the bond market.
Speaker 1: Currency traders are also focusing on what former President Trump
Speaker 1: has been saying about tariffs.
Speaker 2: The currency traders take it as an absolute given that,
Speaker 2: particularly if he goes through with those tariffs, that it
Speaker 2: will be very bullish for the dollar. If the Trump
Speaker 2: proposals are accurate, that he's really going to try to
Speaker 2: deter near suring as well and really try to force
Speaker 2: people to bring production back to the US, this will
Speaker 2: mean a very strong dollar. You then get into the issue,
Speaker 2: as is so often the case, you need to start
Speaker 2: thinking in terms of a chess player and what the
Speaker 2: next moves will be. If, as is likely, you get
Speaker 2: a startling strengthening of the dollar, which makes it that
Speaker 2: much harder for US exporters, presumably the next response either
Speaker 2: will be okay, maybe these tariff's answers to a great idea,
Speaker 2: or what can we do to push the dollar lower? Now?
Speaker 2: One possibility which is not particularly positive for the markets
Speaker 2: is that we then have a President Trump trying to
Speaker 2: impinge upon the Fed's independence to get rates down when
Speaker 2: they would otherwise rise and weaken the dollar, which for
Speaker 2: any number of reasons would really terrify people. The other possibility,
Speaker 2: given that Trump at least put his name to a
Speaker 2: book of the deal, is that you could try to
Speaker 2: have a grand deal two weeken the dullo.
Speaker 1: That's happened before when Ronald Reagan was the president, But
Speaker 1: the world has changed a lot since then, and John
Speaker 1: says it would be hard for Trump to broke were
Speaker 1: in agreement like that today. Coming up, how the Trump
Speaker 1: trade has evolved, how it's playing out in prediction markets,
Speaker 1: and what happens to the Trump trade when we find
Speaker 1: out the outcome of the election. That's next. Another place
Speaker 1: where you can see investors betting on a Trump win
Speaker 1: is in the prediction markets. Today. They exist on sites
Speaker 1: like Predicted and the Iowa Electronic Markets where people can
Speaker 1: bet on the outcome of the election. But Bloomberg opinion
Speaker 1: columnist John Authors says prediction markets have a long history.
Speaker 2: Prediction markets have been around for an extremely long time.
Speaker 2: They used to be thriving prediction markets in papal conclaves
Speaker 2: in the fifteenth and sixteenth century.
Speaker 1: Who's going to be the next pope?
Speaker 2: Who is going to be the next pope? Cardinals would
Speaker 2: tell their attendants who was leading, and they would rush
Speaker 2: out and put bets on it with the traders out
Speaker 2: there on the streets of Rome, and the betting markets
Speaker 2: could be surprisingly accurate, and the money that was involved
Speaker 2: was multi millions in today's today's terms, because obviously in
Speaker 2: Renaissance Rome, who is going to be the next pope?
Speaker 2: Really about it, and there were prediction markets writing on
Speaker 2: the floor of the New York Stock Exchange for many
Speaker 2: decades at the beginning of the twentieth century.
Speaker 1: Today, another one of these prediction markets is called poly Market.
Speaker 2: It's a big and liquid market. Officially, Americans can't trade there,
Speaker 2: which ought to be a very big red flag sign.
Speaker 2: There can be some extra dispassion attitude that can come
Speaker 2: from not actually being American.
Speaker 1: In recent days, a polymarket user who goes by Freddy
Speaker 1: nine nine on the site has bet more than forty
Speaker 1: five million dollars on a Republican victory. He's been identified
Speaker 1: as a French national with extensive trading experience and the
Speaker 1: financial services background, according to Polymarket, and John says one
Speaker 1: thing that sets polymarket apart is that, unlike other prediction markets,
Speaker 1: there is no limit on what you can bet.
Speaker 2: It's a more liquid market. You can also express your
Speaker 2: conviction more easily because you can bet more. Polymarkets like
Speaker 2: any markets, if somebody enters with a really big bait,
Speaker 2: it will move, which is what's happened after Eaton Musk
Speaker 2: told everybody, look at polymarketing, isn't it wonderful?
Speaker 1: John is talking about a post Musk made on x
Speaker 1: in early October in which he praised prediction markets as
Speaker 1: being quote more accurate than polls, as actual money is
Speaker 1: on the line.
Speaker 2: The last time I checked, when we were recording this,
Speaker 2: I think polyma market put the odds on Trump winning
Speaker 2: at sixty two percent. That's more than a one in
Speaker 2: three chance that Kamala Harris is the next president. According
Speaker 2: to polymarket. You wouldn't bet your life on this. And
Speaker 2: that's to some extent the point of where a prediction
Speaker 2: market has its advantage. You see the price and then
Speaker 2: you think, well, I do think Donald Trump is probably
Speaker 2: going to win. But do I really know that the
Speaker 2: Democrats don't have a better ground game they did last time?
Speaker 2: Do I really know that the polls aren't just missing
Speaker 2: lots of very motivated, angry young women who weren't voting
Speaker 2: last time because of the abortion issue. Actually, no, I
Speaker 2: don't know that. So am I really confident enough to
Speaker 2: bet much more than that. No, Actually, we'll leave it
Speaker 2: at only about a sixty percent chance. That is the
Speaker 2: benefit of prediction markets that they do capture that, But
Speaker 2: it's not the same. There's there are certainly people who
Speaker 2: think that polymarket at sixty two percent for Trump means
Speaker 2: they think Donald Trump will get sixty two percent of
Speaker 2: the votes, which be an absolutely monstrous, historic landslide. No,
Speaker 2: it doesn't mean that that isn't going to happen.
Speaker 1: I wonder what happens on election day. Say Trump wins,
Speaker 1: what does that mean for people who have bet on
Speaker 1: this Trump trade? If he loses, what does that mean.
Speaker 2: In terms of the bond markets. I imagine you would
Speaker 2: see a big relief rally into bonds and you would
Speaker 2: probably see some degree of a sell off in stocks
Speaker 2: if you have a Kamala Harris presidency. If and I
Speaker 2: think it's very unlikely, but if if somehow or other
Speaker 2: John Tester wins in Montana or Ted Cruz loses in Texas,
Speaker 2: which would make a lot of people in this country
Speaker 2: extremely happy. But I still don't quite imagine it happening.
Speaker 2: If somehow or other you get a clean sweep for
Speaker 2: Kamala Harris rather than a checked Kamala Harris, then I
Speaker 2: imagine the sell off in bonds would continue and the
Speaker 2: stock market would probably not like that very much either.
Speaker 2: I think the best outcome, probably for most asset classes,
Speaker 2: is Kamela checked by the Senate. Possibly Camela checked by
Speaker 2: the Senate and the House. That would not have any
Speaker 2: great negative response. I don't think.
Speaker 1: How good is Wall streeted predicted the outcome of elections
Speaker 1: if you look at.
Speaker 2: History, Oh, the number of times.
Speaker 1: As good as the cardinals.
Speaker 2: Yes, I mean the over history twenty sixteen, the polls
Speaker 2: were wrong. Answer with the prediction markets. It was one
Speaker 2: where for whatever reason, people just didn't catch what was happening.
Speaker 2: Over history, the various prediction markets that were available were
Speaker 2: better than the gallop pole over a series of elections,
Speaker 2: So prediction markets generally are pretty good over history. The
Speaker 2: number of examples of really big sell offs or booms
Speaker 2: in response to an election result is pretty minimal, which
Speaker 2: means that Wall Street is generally not surprised by the results,
Speaker 2: twenty sixteen being the big, glaring exception to that. I
Speaker 2: think one of the things that's very difficult is again
Speaker 2: that you need to know about the chess moves ahead.
Speaker 2: Like from what we know now, you can say various
Speaker 2: things about Harris versus a Trump foreign policy, domestic policy,
Speaker 2: but broadly speaking, it's not that obvious how different things
Speaker 2: would be.
Speaker 1: This is the Big Take from Bloomberg News. I'm David Gura.
Speaker 1: This episode was produced by David Fox. It was edited
Speaker 1: by Caitlin Kenny and Sid Verma, and mixed by Alex Sagura.
Speaker 1: It was fact checked by Adriana Tapia. Our senior producer
Speaker 1: is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our
Speaker 1: executive producer is Nicole Beemster Boor Sage Bauman is Bloomberg's
Speaker 1: head of Podcasts. If you liked this episode, make sure
Speaker 1: you subscribe and review The Big Take wherever you listen
Speaker 1: to podcasts. It helps people find the show. Thanks for listening.
Speaker 1: We'll be back tomorrow. Hey, everyone, Bloomberg wants to hear
Speaker 1: from you. Help make shows like ours even better by
Speaker 1: taking the Bloomberg Audience Survey and have a coffee on Bloomberg.
Speaker 1: For doing it, visit YouTube dot com slash Bloomberg Podcasts
Speaker 1: and click the link in our profile or community section.
Speaker 1: To take the Bloomberg Survey, hosted by our partners Material,
Speaker 1: go to YouTube dot com slash Bloomberg Podcasts Today