The 2016 presidential election primaries haven't even started, but the last few weeks of political posturing and hyperbole are more like the kind of activity we see in the days just before election day in a race that's too close to call. Even for political junkies and experts, this early election season has often been hard to follow, predict, and understand. This is especially true when it comes to the way some of the candidates and the President himself have been acting lately. But here's a tool everyone, especially CNBC fans, can use to make things easier to understand: think like a trader.
We know that active investors make bets, sometimes risky bets. They also often hedge those bets, when they can, with a different investment to minimize the damage in case their main bet goes bad. But investors/traders all rely on the free market staying as free as possible. The essence of the free market is having the ability to make lots of investments in almost anything imaginable, quickly cash out of them, try something else, and have the freedom to maximize successes and minimize failures each time. Despite all the regulations and other occasional roadblocks, the American financial industry has established one of the freest markets in world history.
Politicians don't have much of a free market to work with. Not everyone can "trade" because the financial and personal cost of campaigning is relatively high for even minor offices. And there aren't very many "investments" to make either. The voting public and the mainstream news media simply won't focus on a lot of different issues during the course of an election season. There is no S&P 500 of "bet-worthy" political issues; it's more like an "S&P 3." So just to make a political bet or investment, a candidate has to really be sure he or she isn't wasting time on a bet no one will care about one way or another. They need to focus on a political issue that is such an essential news-making commodity that it's not likely to be ignored at any time. Right now terrorism and gun violence are examples of two political issues worth betting on, big time. And over the last few weeks, both Donald Trump and President Barack Obama have done just that.
When Trump declared last month that he would consider banning all Muslims from immigrating or getting visas to visit the U.S., a lot of the experts were puzzled and stunned. Some even posited that Trump was deliberately trying to commit political suicide to get out of the race. But a very savvy colleague of mine here at CNBC figured it out immediately. As soon as the story broke, he emailed me the following message: "My God! Trump is going long another Islamist terrorist attack on U.S. soil!" He understood that in the wake of the San Bernardino attack, Trump was taking a major political bet on the possibility a similar attack by a similar perpetrator would occur. Despite never having served in the military, intelligence services, or in any elected office, Trump can now claim to be the toughest candidate on the issue of Islamist terror inside America. And if God-forbid another San Bernardino-like attack is carried out by Islamist terrorists, it will be very hard for any other candidate to gain in the polls as much as Trump is likely to advance. Again, Trump is not "rooting for" a new Islamist terror attack, he is simply positioning his campaign to reap the greatest potential rewards if it does happen. I know it sounds pretty cold and gruesome, but most good traders will tell you that you need to keep emotions and politeness out of it when it comes to investing wisely. Trump is long terror, period.
And in the last few days, we've seen President Obama also work to position himself against the same kind of Islamist terror attack on a domestic target. By focusing on guns at this time more than at any other time in his presidency, (which is saying something), Mr. Obama is hedging against such a terrorist attack. Remember that in the first several hours during and after the San Bernardino attack, the general public was not yet aware of the reason for the attack or who was behind it. All we knew was that it was another mass shooting and the usual suspect politicians and pundits wasted no time commenting and Tweeting their anger at the NRA, support for more gun control, etc. Guns and gun violence were the immediate issue injected into the national conversation. And so with the next Islamist attack on American soil likely to be carried out at least in part with guns, President Obama's renewed focus on firearms now is likely to keep the conversation about guns at least initially before the hard questions skewering his immigration and anti-terror policies take center stage. Again, President Obama is not rooting for another mass shooting or terror attack. But he is acting like a cold and calculating Wall Street trader positioning himself with a brilliant hedge to avoid the worse political fallout should such an attack occur.
If your response to the above analysis is revulsion that our elected leaders and presidential candidates spend their energy trying to gain politically from expected atrocities... well congratulations, that makes you a normal person. And I feel compelled to repeat my very strong hopes that no more mass shootings or terror attacks of any kind happen ever again in this country and my belief that no political candidate or official is actually rooting for one to occur. But the sad fact is that both are likely to occur once more, and politicians who want to succeed have to position themselves ahead of time like traders make positions ahead of predictable bullish and bearish future events. You can and should be repulsed by this cynicism, but you shouldn't ignore it. Thinking like a politician isn't easy to do, and it's not always easy to think like a trader either. But sometimes combining those two mindsets is the only way to figure out what the heck is going on.
