Trump Indictment: Why It’s So Hard to Forecast What Comes Next

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Former President Donald Trump is likely to surrender and appear for his arraignment on Tuesday, according to lawyers acting on his behalf.

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About the authors: Alex Friedman and Larry Hatheway are the co-founders of Jackson Hole Economics, and the former chief investment officer and chief economist, respectively, of UBS.

Momentum investing is a powerful strategy in financial markets. If a stock exhibits an upward or downward trend, it often continues. Why? Because of bandwagon effects, when people tend to follow other people, a trait amplified by social media. Over the last 20 years, commodity trading advisors have leveraged computing power to turn this into a hugely profitable strategy called “trend following.”

We are about to see the legal equivalent of trend following upend our politics. But perhaps not in the way we might expect.

It has been three days since the grand jury convened by Manhattan District Attorney Alvin Bragg voted to indict former President Donald Trump, the first-ever of a former U.S. president. The charges are still sealed, and Trump has denied wrongdoing. Predictably, opinions have largely fallen into two polarized camps: “no one is above the law,” and “Democrats have weaponized the legal system.”

Both sides seem to agree on one point—that the New York charges involve a relatively minor issue on the scale of misconduct Trump has been accused of. Critics of the former president lament that the first indictment of a former president stems from an alleged hush money payment to a porn star related to interactions she says took place in 2006 instead of something “major” like Trump’s 2020 attempt to overturn the election. And supporters note that the most likely charge is a misdemeanor in New York, and that the district attorney would need to stretch to charge Trump with a felony in this case. That would require tying it to the concealment of another crime, namely a campaign finance violation.

But arguing the merits of the indictment misses the bigger point. A precedent has been established, from which a trend is likely to ensue, whether or not Bragg has a winning case. The Manhattan district attorney has just declared the former emperor has no clothes and, in doing so, opens the way for others to follow.

There are three leading candidates for potential future charges against Trump. In Fulton County, Ga., a special grand jury recently concluded its investigation into Trump’s demand that Georgia Secretary of State Brad Raffensperger find “11,780 votes.” Now DA Fani Willis needs to decide whether to present evidence to a regular grand jury to obtain indictments. Then there are the U.S. Department of Justice investigations of Trump’s handling of classified documents and the role he played in the Jan. 6 attack on the U.S. Capitol. Independent counsel Jack Smith is overseeing a criminal case.

Trump has said he’s in the right in all these cases, and charges may never be filed in some or all of them. But the 2024 presidential election was just redefined. Until last week, Trump was living in the past, unwilling to move past his false claims of a stolen 2020 election and seemingly crippled by the weak showings of his hand-picked candidates in the November 2022 midterm elections. Florida Gov. Ron DeSantis saw the opportunity and has been maneuvering to be the Republican nominee for 2024.

Now the conventional wisdom—the developing trend line—is that the New York indictment has given MAGA Republicans an emotive issue. Victimization and a supposed deep-state conspiracy will energize the base, making Trump all-but impossible to beat in the 2024 Republican primaries.

The weakness in trend investing, however, is that it works until it doesn’t. Just as “trees don’t grow to the sky,” unsubstantiated trend lines don’t continue indefinitely.

So, what might undermine this emerging consensus about Trump’s new path to at least the Republican nomination, if not the 2024 presidency? At least two scenarios come to mind.

First, Trump has proven he is his own worst enemy. As legal pressure on him builds, it is probable he will exacerbate his legal peril through social-media posts and other public statements. In turn, he may reach the proverbial implosion point, where even his supporters cannot abide by the displays of mental instability that may ensue.

Second, Trump may go to jail. Were he to be convicted, the question would be whether sentencing happens before the 2024 election or after. Although no law prevents an imprisoned individual for running for president, that scenario seems improbable even by today’s standards of political improbability.

In politics as in markets, momentum begets momentum. The New York indictment will unleash forces in U.S. politics, whose direction and implications are difficult to fully comprehend, much less forecast.

But as in markets, political momentum also rests on narratives, the stories we tell ourselves to grasp what unfolds. There are innumerable contradicting narratives associated with both Trump the man, and Trump the legal case. To some he is a populist, the champion of the forgotten, and to others, a nationalist, a misogynist, a racist. These divergent narratives will go on even if the legal cases were to end Trump’s individual political future, for they embody some of the very contradictions in America’s story.

Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to [email protected].

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