Gregory Bergman

Editor-in-chief, CapitalWatch

Slow-moving coup.

It's a term we have all heard. Comedian Bill Maher has repeatedly referenced it to admonish his viewers of Trump's intention to stay in office even if he loses the election.

Maher was right: Trump would rather set a fuse to our democracy than admit defeat. Even in the unlikely event of a blowout Biden victory, Trump will stay in office until a deep state statesman tosses him out. One thing the conspiracy-obsessed Trump supporters do have right is that there is indeed a deep state despite Trump's efforts to replace everyone in the government with sycophants. At least I hope so; we will need them.

Now, the fact that so many of Trump supporters cheer "eight more years" at his rallies is telling. They pretend, as he does, that they are joking. But they aren't and neither is he.

The fact that this not-so-tacit endorsement of a Third Term comes from the very same people who would collectively awake in their trailers in a cold sweat over an imaginary Obama Third Term is another example of the kind of McConnellian hypocrisy (hypocrisy so bold as to be hyperbolic) that has become the norm. I satirized that ridiculous conspiracy theory about Obama in my comedy Obamaland now streaming on Amazon Prime.

Gratuitous plug over.

Now, how will Trump's inevitable theft of our democracy affect the markets? Not near as much as it should or would have at any other time in our history. Just imagine if the nation's first first-term president John Adams refused to accept the results of his electoral defeat at the hands of Jefferson in 1800. When word spread by horseback to the far reaches of the colonies, the budding nation, and its incipient decade stock exchange, would have died in their cribs. The Buttonwood Tree Agreement would not have been worth the paper it was printed on and the sycamores themselves sold for scrap.

But today is a different story. Trump is different and so are the people he pretends to serve. In a hyper-political environment with protests and riots raging nationwide, the most politically active people seem to be the ones least likely to respect and/or use our system of government to produce change. Everyone is looking to dismantle structures. Some say the nation's institutions, born in sin, are inherently and irreversibly racist, while others say a cabal of pedophilic-minded deep state actors is so perversely entrenched that only an orange-colored wrecking ball can break its spell.

One thing on which everyone agrees is that our democracy is broken. The final nail in the coffin came this week in the wake of RBG's death and Senator Mitch McConnell's brazen about-face on replacing a Supreme Court Justice during the final year of a president's tenure. Just as no one was surprised by that, no one will be, nor should be, surprised by Trump's refusal to leave; he has told us as much repeatedly. The slow-moving coup is about to speed up.

A report from The Atlantic claims Trump is looking to ensure that Republican electors vote not according to the popular vote in the state as is customary, but for him no matter what the ballot count winds up being. The nation's Electoral College system depends on the votes of the 538 electors. There is nothing in the Constitution that says they must vote in accordance with the will of the people in their districts. In Article II, Section 1, Clause 2 just says that each state shall appoint electors: "In such Manner as the Legislature thereof may direct."

Of course, this language was inserted as a way of protecting the nation from someone just like Trump, but that's unfortunately beside the point. The forthcoming disaster will lead, if we survive, to an eradication of the Electoral College once and for all. In the framers' desire to protect the minority from the masses, they failed to lay the groundwork to prevent the masses from the minority. Gerrymandering was just the beginning.

But who cares? Not the market. While there will be an uptick in the fear index, known as The CBOE Volatility Index (VIX), volatility won't be near as severe or as long-lasting as most investors and analysts are counting on, should a contested election take place. There are several ways to bet on or against stock market turbulence.

While you cannot buy the VIX directly, you can buy through several ETNs, including Barclays iPath Series B S7P 500 VIX Short-Term Futures ETN (BATS: VXX.

Most investors are betting on it to rise; I am betting it will rise, but not as high as expected, and will fall faster than anticipated. And I am not alone. Why? Because the VIX is already priced at a historical premium. As cited in MarketWatch, likeminded contrarian Clifton Hill, global macro portfolio manager for Acadian Asset Management, said volatility looked "expensive." I agree.

But a contested election of this magnitude, a constitutional crisis of this scale? Doesn't matter. We all know the market is, in large part, divorced from the economy, a lesson this year made abundantly clear. Yes, the market (or rather, slices of it) goes down a bit on bad unemployment or virus news, but the insane bull-run bounce-back after March that began to weaken in September did not rise or fall based on any major macroeconomic news.

Exuberance and earnings from tech giants overweight on indexes drove the stock rally to obscene heights. The market is divorced from the economy and economic uncertainty. We know that. So why shouldn't it likewise be divorced, at least to a larger extent than is widely believed, from political uncertainty?

It's all about sentiment. And the sentiment is that the market and the economy are distinct. So, too, is the sentiment that our democracy is broken. So, too, is the sentiment that economic performance trumps the rule of law or democratic norms.

I honestly believe that a large swath of the American public is ready for a dictator, so long as it is their dictator looking out for their interests.

This is not hyperbole. We have come to this point culturally due to a combination of privilege and paralysis in equal parts. Privilege, because we are the oldest continuing democracy in the world, an island free of real constitutional crisis and threat of foreign invasion, and paralysis because we are unable at this point in our history to enact major change.

We do not know what Germany knows--that democracy is fragile, and tyranny is but a half step behind, waiting patiently to pick up the broken pieces. Russians are cynical of their government because it never worked; we are cynical of ours because it has simultaneously worked too well and too little. Our government's political stability has come at the expense of its competency. Even Eastern European nations have forgotten what dictatorship looks like as some turn their backs on their nascent democracies. In America, we have not outgrown our republic; it has outgrown us. Politicians always pander by saying we should have a government as good as our people. The way weare headed, we soon will.

The faith in our institutions is over, but the faith in our markets remains...for now.

And why not? China doesn't have democracy and yet they build bridges while we build (or fail to build) walls. The theory was that, once rich, the Chinese would demand democracy. Well, they are rich (or rich enough), and they don't seem to care. Perhaps we won't either, so long as people get to keep their guns and the Academy pushes for more diversity in directorial nominations.

A smart bet would be to bet against market volatility, a smarter one would be to bet on a political crisis unlike any our nation has known since the Civil War. If I find an index that bets on the end of our republic as we know it, I will let you know. Such an ETF would represent my most cynical, yet most confident "buy."

Positions to Take in the VIX

Let me be clear: Volatility will rise during and after the election, especially if it is a contested one (meaning if Trump does not come away as the clear winner). Right now, November futures contracts tied to the VIX have been significantly lifted, which is typical. What is atypical is the fact that volatility futures prices are also up for December and January. Which, of course, speaks to the expectation of a contested election, images of Trump being forced out by the Secret Service by his "hair" no doubt dancing in traders' heads.

But it is the very fact that this is expected leads me to believe the volatility will not be as significant as charts indicate. The VIX will, indeed, go up from where it is now, which is why you can buy it today and sell in November. This is a good hedge for the next trade, betting against the volatility investors seem to be betting on for December and January.

There are myriad ways to do it--from shorting the VIX to buying puts to selling calls. Obviously, selling options is generally riskier than buying them in terms of what you can lose, the former offering nearly infinite downside potential. While the buyer of options has the right, but not the obligation, to buy or sell an underlying security at a specified strike price, the seller is obligated to buy or sell an underlying security at a specified strike price if the buyer chooses to exercise the option. For every buyer, there needs to be a seller.

As for me, I will be buying puts; you should too.

You Could Also Bet on the Election

My stock-picking record is good, but my political-picking record is great. From John Kerry's nomination to Obama's to Trump's, I call them well. Of course, I missed Biden's nomination; to be honest, I didn't think he had a shot.

If you are confident in your pick, you can bet on all things political on sites like MyBookie.com, Bookies.com, Bovada.com, and BetOnline.com, to name a few. Today's odds, according to Bookies.com, have Biden the favorite with -121 odds.

However, I do not see a bet for a contested election, or a bet that Trump will not leave office.

When I do, I will let it ride. All of it.

Gregory Bergman

Editor-in-chief, CapitalWatch

(The opinions expressed in this article do not reflect the position of CapitalWatch or its journalists. The analyst has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice)