It will come as no surprise to those who attended our Topical Webinar last week* that Trump and Clinton have emerged as odds-on favorites for the November election. We use market-based, not poll-based research to draw election conclusions; folks with money on the line are better predictors than humans asking other humans questions. 2016’s primary races amount to the “watch what you ask for” moment in US politics. The aftermath of the 2008 crash, the failure, then bailout of large banks, the stagnant economic picture for a vast swath of US voters, and the failure of Congress and the President to enact any meaningful tax or fiscal reforms are all finally in play. The “Establishment” figures in both Parties are in full defense mode. What it means for risk and bond markets is far from certain since both candidates are running campaigns that will change after the summer conventions when both are forced to shift to the middle. Hillary is fighting off a Socialist (do millennials know what Socialism is?) and Donald is capturing the “anger” voters, completely “trumping” the tea party stalwarts who helped create them.
None of the candidates are talking about how to revive economic growth in the US, which of course is the real problem (so why should we expect a politician to discuss it?); the Democrats are fussing about redistribution of wealth and the Republicans are glibly touting migration halts and tariffs on China. These are terrible ideas but are they are the product of a Presidential Democracy** where “checks and balances” can morph into gridlock, then subversion.
Thus the “Occupy Wall Street” and “Build a Wall,” left and right fringe concepts, are understandable, even if economically disastrous. It is a difficult and bitter message to convey that US jobs must be filled by better trained and better educated foreign born workers. But that has been happening for years as the US K-12 system has deteriorated. And China should be seen as a partner as it struggles to evolve from strictly a manufacturing economy.
We don’t know enough about Trump to understand what his real economic priorities are. We do know enough about Clinton’s to believe that four more years of congressional intransigence are practically guaranteed. Uncertainty is worse than gridlock if you are an investor, but you have to wonder whether the latter, given current low US growth prospects and continued voter anger, is a better choice in 2016.
*Slides and audio will be available next week—contact us at Advisorrelations@jaforlines.com
** A sobering article by Mathew Iglesias here: http://www.vox.com/2015/3/2/8120063/american-democracy-doomed on the problem. A key excerpt: “In a parliamentary system, deadlocks get resolved. A prime minister who lacks the backing of a parliamentary majority is replaced by a new one who has it. If no such majority can be found, a new election is held and the new parliament picks a leader. It can get a little messy for a period of weeks, but there's simply no possibility of a years-long spell in which the legislative and executive branches glare at each other unproductively…. But within a presidential system, gridlock leads to a constitutional train wreck with no resolution. The United States’ recent government shutdowns and executive action on immigration are small examples of the kind of dynamic that's led to coups and putsches abroad…”
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JFG Team JAForlines, LLC Investment Management AdvisorRelations@jaforlines.com www.jaforlines.com
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