“Grey swan is a term used to describe a potentially very significant event that is considered unlikely to happen but still possible. Because there is a slight chance the event will occur it should be anticipated, particularly as it could shake up the world, economy, and stock market.” —Investopedia

Following up on the previous Grey Swan article from several weeks ago, it seems that the color grey is getting darker. Actually, greyer and more ominous. As a reminder, this column is written to bring out thinking about potential significant market moving events that may or may not happen. In order to be totally objective there can be NO bias. That’s right, no political bias, no market position bias, no historical bias . . . just a completely objective thought on a potential “Grey Swan Event.”

So as a fund manager, a financial advisor, a passive investor, a proprietary firm trader, etc., how would you position your investments, implement a strategy or hedge your positions?

The political landscape in the U.S. has taken an ominous turn. Indeed, it has moved from “grey swan thinking” to very “dark grey thoughts.” Once again, put aside ALL bias and just think.

What Is The End Game:

The U.S. is in the midst of an impeachment inquiry by the Democratic Party to explore the possibility of removing a sitting president. At the same time there are Department of Justice investigations into interference in the 2016 presidential election. Both the Democratic and Republican parties are highly polarized as the 2020 presidential election draws nearer. It is very obvious that—for whatever reasons—the Democratic-led House of Representatives is intent on impeaching President Trump.

The problem is that even if the House Democrats succeed in voting to impeach, the Republican-led Senate will certainly not convict the president. Certainly the Democratic leadership knows this, so what is the “end game?” They must have a plan, but there is no speculation or discussion of what that might be.

Scenario One:

Should the impeachment fail, President Trump is more likely to win re-election against the any of the current democratic candidates. Surely this has occurred to the Democratic leadership. Will they “entice” Hillary Clinton (or John Kerry, Al Gore, etc.) to return to politics?

Potential Market Effects:

Financial markets would probably accept the more moderate candidates and welcome the certainty of an incumbent re-election. However, the equity markets would probably decline and interest rates may rise back to “normal” levels, causing a corresponding economic slowdown.


Scenario Two – The Dark Grey:

What if the end game is the actual removal of  President Trump by the House of Representatives declaring the 2016 election void? In other words, a House-led coup? The arrest of a sitting president.

Potential Market Effects:

Civil war would seem to be inevitable. The financial markets collapse, the dollar suffers a huge decline and global economic chaos ensues. Obviously, gold and Bitcoin would soar.

Could a civil war in America actually happen? The Democratic opposition party has to have a Plan B to this impeachment inquiry that is dead in the U.S. Senate. What is the missing Plan B or end game?

Let’s just say the Grey Swan is turning a darker shade of grey.

Bill Taylor is managing director and chief investment officer of Entoro Wealth LLC.