The oil markets are starting to price in a Trump Presidency, even if the media are in denial

Media Commentators are currently behaving like the three wise monkeys with regards to Donald Trump; they don’t want to hear what he is saying, watch his rallies or talk about his likely policies. But the markets are starting to pay attention, especially the energy markets.

A key part of behavioural finance is about the cognitive biases in our thinking and these include, inter alia over-confidence, an excess trust in perceived authority figures, assuming that everyone thinks the same way as we do and failing to seek out facts that might contradict our existing opinion. This latter, confirmation bias is a key driver to the puzzling phenomenon where two people can see exactly the same thing yet interpret it in completely different ways. As the expression goes, “two movies on the same screen”.

Markets however are not so binary, they reflect a balance of opinion and while the price at any time may effectively reflect the conviction of one side or other they tend, usually, to give us an early warning not picked up in the binary press. At the moment, one such warning may be coming from the Oil market, which has dropped almost 25% since October. The traditional explanation from market pundits (not the market itself, note) is probably one of demand - the bond market has rallied because the Fed is going to stop raising rates and that is because the US economy is going to slow, ergo the demand for Oil is going to slow, therefore price falls. But what if it isn’t a concern about demand but about supply?

This brings us to our binary world and the T word. Trump. Obviously The Donald is going to dominate a lot of the news cycle as we head into next year, but in a strange way nobody is currently listening to what he is saying, watching what he is doing or talking about it. Except we think, the oil markets.

Trump is the leading candidate for President, so markets are listening, even if the media class are trying not to

This is partly because he is no longer on Twitter/X. In 2016 he conducted almost his entire campaign and much of his subsequent Presidency via 140 character tweets, such that the whole world knew what he was thinking and plotting. He has since moved to his own platform, Truth Social, where he is effectively talking to a much smaller audience and one that is basically an echo chamber. Equally, since he is not involved in the debates leading to the primaries, there has been little coverage of him outside of Fox news. This is where the Confirmation Bias comes in; the majority of the mainstream and business media would like to ignore Trump if they could, and so currently they are, but the betting markets have him ahead of Biden and both of them a long way ahead of the next contenders, Nikki Haley and Gavin Newson.

An important and painful lesson from previous political ‘surprises’, including the first Trump Election, but also Brexit, is that the value is in predicting what is likely to happen, not what you would like to happen, the essence of Cognitive bias. Moreover, come the actual Primaries he is going to be making his views known, even to the half of the population that are currently pretending he isn’t there.

The Green New deal builds a world naturally suited to China, not the US

And the most important thing that Trump is saying right now is that he would massively increase US Oil production, especially in the Arctic and that he would export ‘the Gold under our feet’ to pay off the debt. He is also staring to point out that the whole Green New Deal is building a system which is very suited to “Jainah” rather than the US. One can fact check his arguments and certainly the Mainstream Media will utterly refute his argument, but that is how he works. The argument changes from ‘there is no alternative’ to ‘how much can we get rid of/hold on to’?

This is thus but a step away from a Trump win leading to a scrapping of the whole annual COP20-something fest and indeed, on Fox last night he referred to John Kerry as ‘an idiot’. A Trump administration rowing back aggressively on electrification and EVs, allowing Hybrids and Gasoline would also be a further blow for the world of ESG and we notice that some of the bigger cheer leaders on Wall Street are going quiet on the E bit just as a Trump government would be going after the politicisation of the S part. Wall St are pinning their hopes on the lucrative magical thinking of Carbon Credits, but good luck with getting Trump to agree to those either.