As the midterm elections approach, some hedge funds are betting on a Democratic sweep and “shorting” companies they believe have gotten cozy with the Trump administration, On The Money has learned.
Short sellers seek to make money by betting against companies’ stocks – borrowing shares of their targets, selling them, and seeking to make a profit if and when the shares dip. That’s when they replace their borrow with the lower-priced stocks and pocket the difference.
The “shorts”, as they are known in Wall Street parlance, perform a vital market function since they sniff out overvalued stocks when the rest of the market sees irrational fields of green.
The prospect of an energized progressive wing of the Dem Party looking to penalize anything that touches its chief nemesis, aka the Trump White House with control of Congress forms the basis of the latest short thesis, according to Larry McDonald, who runs the Bear Traps Report.
The widely-read resource for short sellers has been following chatter around companies that the shorts believe could take a hit if the polls are right and the GOP loses control of the House and possibly the Senate.
The rationale is that with vengeful Dems in control of the investigative committee in the House and the Senate, companies that have made in-roads with the Trump administration could land in the hot seat.
For the record, On The Money doesn’t endorse this type of political warfare; in fact we think it’s noxious and counterproductive to a functioning government.
We hated various efforts by various pols to target the Trump family over squishy claims of bank fraud, as was the case with NY AG Tish James. Likewise, we weren’t fans of the Trump administration looking for under every rock to prove a resignation-inspired bank fraud case against Dem Fed Gov. Lisa Cook over the listing of two properties as primary residences. In our opinion: A simple mistake in an application could well be the explanation.
That said, Wall Street is the ultimate nonpartisan animal when it comes to making money, and the shorts are making their moves, according to McDonald. Speaking broadly, he says they’re targeting companies that gave significant contributions for the controversial renovation of the new White House ballroom.
Another place to look: The list of tech CEOs at this week’s White House summit over the future of AI enforcement, and the companies whose CEOs appear most cozy with Trump. Crypto is another hotspot given the Trump family’s expansion into the digital coin business and the administration’s deregulation agenda.
“Socialists could get 20 seats in the House given the polls,” McDonald said. “The shorts believe the markets aren’t pricing in what this could mean and it goes beyond Democrats holding up Trump’s broader economic agenda.”
In other words, recent highs in the Dow, S&P and Nasdaq could be stymied by a Congress ideologically opposed to Trump’s economic regime. Pretty sickening stuff: Investing should be based on financial metrics, not politics. But that’s not reality.