Wall Street makes its Trump bet

Oct 23, 2024

Presented by Structured Finance Association

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QUICK FIX

Hedge fund billionaires are preparing their portfolios for a second Trump administration.

“Certainly, the markets are saying he’s going to win,” Paul Tudor Jones said in an appearance on CNBC on Tuesday. The billionaire founder of the Stamford, Conn., hedge fund Tudor Investment Corp. said he’s also started making “inflation trades” in anticipation of Donald Trump winning a second term.

Jones isn’t the only one. Third Point’s Dan Loeb told investors last week that his firm had increased investment positions to reflect what he says is the growing likelihood of a Trump victory. The former president’s “America First” tariff policies will boost domestic manufacturing, infrastructure spending and certain commodity prices, he wrote , and the unwinding of regulations — particularly around antitrust — will “unleash productivity and a wave of corporate activity.”

Meanwhile, John Schlegel , the head of Global Positioning Intelligence at JPMorgan Chase, reported in a client note last week that hedge funds have increasingly shown a “strong preference” for assets that are projected to fare better in a Republican administration. A Goldman Sachs index of investment strategies linked to GOP policies — which include oil and gas, defense and crypto stocks — surged over the last month.

While Vice President Kamala Harris ’s slim lead over Trump has narrowed in recent weeks, the race remains a toss-up. Polling averages in all seven major swing states are within standard margins of error. The likelihood of a nail-biter is much higher than that of a landslide. But Wall Street’s bullishness on Trump’s odds — and I say “odds,” not policies — is a mirror to what’s reflected in all of those stories you read about anxious Democrats or optimistic Republicans.

Mark Dowding, who manages $130 billion as the chief investment officer of RBC BlueBay Fixed Income, told The WSJ that he was “struck by the fact that Republicans are feeling more confident” in recent meetings with policymakers and lobbyists. His recent investments will perform well if Trump wins and his agenda causes inflation to rise.

There’s obviously a downside risk to that bet. As Schlegel writes: “Based on the thematic shifts, historical returns around elections, and elevated positioning, there’s room for a bit of disappointment and reversal in coming weeks if odds start to shift the other way.”

Or, to put it in a language that a POLITICO audience will certainly understand: “The race is 48-48,” longtime Democratic strategist James Carville told MM. Whether or not someone is 0.7 percentage points ahead in Arizona or down by 1.2 points in North Carolina is “meaningless,” he added.

As for the usefulness of election predictions: “Everyone is a polling expert and an election prognosticator,” he said. “From hedge funds to people at baggage claim in the airport.”

IT’S WEDNESDAY — If you’ve got tips or pitches, send them my way ssutton@politico.com.

A message from Structured Finance Association:

BASEL III CAPITAL REQUIREMENTS: The BASEL III Endgame proposal touches nearly all aspects of banking in America. The Structured Finance Association opposes a provision in B3E that would arbitrarily and excessively punish institutions simply for turning illiquid loans into liquid securities. Existing capital standards already incorporate post-crisis reforms and add a surcharge for securitization. Under the Basel III proposal, millions of people and businesses could lose access to low-cost credit because the cost of securitization would rise. Learn more at www.structuredfinance.org.

Driving the Day

The Center for Global Development holds a discussion on “Bretton Woods at 80: Priorities for the Next Decade” at 9 a.m. … Fed Gov. Michelle Bowman speaks at the Philadelphia Fed’s Fintech Conference at 9 a.m. … Rep. Ro Khanna (D-Calif.), New York Department of Financial Services Superintendent Adrienne Harris, and CFPB Director Rohit Chopra are scheduled to speak on day two of Georgetown’s Fintech Week conference … The IMF and World Bank will hold a fiscal monitor press briefing at 9 a.m. … European Central Bank President Christine Lagarde will speak at an Atlantic Council event at 10 a.m. … The Fed’s beige book is out at 2 p.m. …

Must read — Rachael Bade and Jasper Goodman report that Howard Lutnick, the Wall Street CEO leading Trump’s transition operation, is in hot water with Trump insiders who say that he is improperly mixing his business interests with his duties standing up a potential administration. Be sure to check out Playbook later this morning for more.

“The alarm inside Trump’s orbit has been compounded by the belief that Lutnick has tried to sideline a host of aides and advisers who worked in the first Trump administration in hopes of instead filling the second administration with new people who could be personally beneficial to him.”

Family business — Benjamin Guggenheim reports that lobbyist Brendan Neal, the son of House Ways and Means top Democrat Richard Neal, repeatedly took on clients who had business in front of this father’s committee. Many tax policy advocates privately regard the powerful Massachusetts Democrat as being “too close to special interests and the main obstacle within the Democratic party to closing loopholes that companies and wealthy people use to lower their taxes.”

Ambitionz as a Dimon — Trump isn’t the only one who’s got fans on Wall Street. The NYT’s Rob Copeland reports that JPMorgan Chase CEO Jamie Dimon has told associates that he supports Vice President Harris and would consider joining her administration, potentially as Treasury secretary.

— The FT: “ Who would run Kamala Harris’s economy?”

What’s the Scenario? — The global economy is doing just swell, according to the International Monetary Fund’s economic outlook. Growth is projected at a healthy 3.2 percent through the end of next year and “the battle against inflation is almost won,” IMF chief economist Pierre-Olivier Gourinchas said at a press conference on Tuesday morning.

But Gourinchas also identified several major risks that could weaken the IMF’s outlook in the coming months, Adam Behsudi and I report. One of the biggest threats to growth are “undesirable” trade and industrial policy shifts that could significantly lower output, as well as the potential for a sharp reduction in migration to advanced economies, which contributed to recent declines in inflation.

— It wasn’t just Gourinchas raising red flags. When asked about Trump’s affinity for tariffs at a Bloomberg event in Washington on Tuesday, European Central Bank President Christine Lagarde pushed back, per Victoria Guida: “In any period of time where this country, the United States, has thrived, were periods of trade, not periods of, ‘I’m going to retire behind my boundaries and play at home.’”

— Those critiques of protectionism are coming in the final days of a presidential election that could shape U.S. trade, industrial and immigration policies for decades. Mass deportations and universal tariffs are central components of Trump’s agenda. Harris would take a more targeted approach to both, though she has also pushed for reforms to curtail illegal immigration and restrict certain imports.

— Speaking of industrial policy: Christine Mui reports that Treasury is poised to publish a final rule that will determine which companies are eligible for a tax credit passed under the CHIPS and Science Act.

Call it Swiss Beatz — CFPB Director Rohit Chopra told Victoria that it’s “very important” that the United States finalize the Basel III endgame regulation “as quickly as possible.” Federal Reserve regulatory chief Michael Barr last month outlined the contours of a reproposal, but Chopra’s opposition is a reason why it’s yet to be approved by the FDIC.

The CFPB

Buggin’ Out — That was fast. The banking lobby is suing the Consumer Financial Protection Bureau over its new rule governing customer data, Katy O’Donnell reports. The Bank Policy Institute and Kentucky Bankers Association filed a lawsuit in federal court in Lexington, Kentucky, arguing that the agency exceeded its authority and that the new rule will hurt consumers and endanger “the entire financial services ecosystem.”

— White House National Economic Adviser Lael Brainard defended the long-awaited rule earlier in the day, saying it would make it easier for consumers to switch banks and use financial services that better fit their needs, provide greater opportunity for innovative new businesses to compete, and lower costs for consumers.”

Credit cards and the scammers — The CFPB is close to fining Goldman Sachs “tens of millions of dollars” over its management of its credit card business, The WSJ’s AnnaMaria Andriotis reports . The enforcement action reportedly involves the bank’s customer service operations, including how it handled fraud and refunds, through its partnership with Apple.

A message from Structured Finance Association:

Russia

Then take all your assets — Treasury Secretary Janet Yellen said Tuesday that the U.S. is “99 percent there” on finalizing a $20 billion contribution to a broader loan package to Ukraine that will be repaid from the income generated by frozen Russian assets, Michael Stratford reports.

— Yellen also said the U.S. is close to finalizing a new batch of “strong new sanctions targeting those facilitating the Kremlin’s war machine, including intermediaries in third countries supplying Russia with critical inputs for its military.”

At the regulators

Top of the heap — The income threshold for the top marginal tax bracket climbed to an eye-popping $751,600 due to inflation, Brian Faler reports. Expect to hear that figure a lot when lawmakers tackle a sweeping debate over the code next year.

— Stock buybacks could be another big talking point in next year’s tax reform debate. The progressive watchdog group Accountable.US reports that the 15 largest corporate beneficiaries of the 2017 tax law used their savings to spend roughly $840 billion on stock buybacks and shareholder dividends.

It ain’t 2023 — Federal regulators announced that a small Oklahoma Bank had failed late Friday. But unlike other recent bank failures, including those of SVB and Signature Bank, depositors who had more than the FDIC's $250,000 limit for individual deposit insurance won’t be made whole right away. The message is clear: “Customers with large deposits can lose money when their bank goes belly up,” writes the WSJ’s Jonathan Weil.

Synapse — From Stratford: “Acting Comptroller of the Currency Michael Hsu is endorsing federal oversight of digital payments, citing a ‘regulatory gap’ that was exposed by the collapse earlier this year of the fintech middleman company Synapse.”

That ‘whoosh’ is the private credit industry sighing — SEC Chair Gary Gensler on Tuesday said the nonbank sector offers “important alternatives and competition” for banks that benefit investors, public companies – and even the banks, Declan Harty reports. The regulator also said financial risk should not be painted "with a broad brush.”

— Policymakers have been raising alarms about the potential risks that nonbank lenders could pose to the financial system as private credit markets ballooned in recent years.

Jobs report

Will Kinzel is now head of global government affairs at Carlyle. He most recently was the founder of consulting firm Parafossam and is an alum of Molson Coors, Delta Air Lines and former Speaker John Boehner.

The crypto firm Ripple has hired Jim Green as its new global head of public policy. Green previously held positions at Okta and Salesforce.

Odds and Ends

He’s running — New York City Comptroller Brad Lander, who oversees the city’s massive public retirement system, on Tuesday announced that the pension would halt future investments in midstream and downstream fossil fuel infrastructure. Lander, who has announced his intention to run for mayor as Eric Adams ’s administration is engulfed by scandal, said the pension’s trustees have a “fiduciary duty to our beneficiaries to take [climate risk] seriously as we make long-term investment decisions.”

A message from Structured Finance Association:

New proposed capital rules under Basel III Endgame could raise costs on everything from personal mortgages to business credit. These changes would arbitrarily double the capital that banks must reserve for securitized loans, making it harder for banks and others to offer low-cost credit to consumers and businesses. These proposed rules on securitization capital requirements would be significantly more restrictive than even the stringent European Union regulations. Learn how these changes could affect your access to credit at www.structuredfinance.org.