Blain’s Morning Porridge, Sept 4th 2023: The Big Threat: US Politics, is there a way out?
“Well, if I ever ran for office, I’d do better as a Democrat than as a Republican – and that’s not because I’d be more liberal, because I’m conservative. ”
While the US is on holiday, its maybe time to consider the biggest threat to market-political stability in 2024 – the US electoral cycle. It’s a pretty binary – Trump or anyone else. At present Biden is setting up to lose – anyone else would likely win.
It’s a holiday in the USA today, so I think we can risk a comment on US politics. Next year American voters, and by default, the globe, face a choice between the devil and the deep blue sea. We can’t ignore the US election. It has to be talked about – it’s the biggest risk on the market-political threat board for 2024.
The result could spawn and accentuate long-term consequences and trends shaping the US, and therefore the global economy, for decades. Markets are not immune to politics – the election will affect a host of issues including alliances, geopolitics, the dollar, US rates (based in US Treasury demand) and the demand for US goods. US soft-power will be at significant risk. When political stability goes out the door, the currency, the bond market and stock prices are likely to follow.
(I care not that I will be ruthlessly trolled for my temerity as a damned foreigner daring to comment on the “politics” of the Land of the “Free”. I will be accused of stupidity and worse. I was once disparaged as a no-nothing limey with no right to comment on ‘Merica, while also being told I should be executed for treason in the same line! Remarkable. My crime? Suggesting that if the American revolution had occurred with the same porky imbecility as the Jan 6th “insurrection”, the USA would be taxed by Westminster to this day.)
It’s an oft remarked fact US second term elections are a referendum on the incumbent. At present the polls show Donald Trump and Joe Biden are pretty much neck and neck. The multiple charges and indictments against the former president have seen his popularity soar. 70% of Republicans stand solidly behind him. Meanwhile Biden is losing ground due to the performance of the economy, where his disapproval rating on inflation is -41! The Dems are hoping the strong economy and recovery, polices on gun control, and playing to the widespread rejection of the Supreme Court’s anti-abortion stance will win the election.
They are ignoring the fundamental problem: they are fielding the wrong candidate. Biden is simply too old – and voters want a strong leader. [Admission time: Despite serious reservations, I voted for Boris Johnston in 2019. I did so because Jeremy Corbyn was the wrong candidate as Labour Leader. Look where that got us…]
The risk of a second Trump presidency is just how vengeful and destructive (rather than merely disruptive) he will prove. What will he be seeking to protect? I suspect his own self-interest. What to punish and destroy? I suspect he has a very, very long list. Trump has successfully convinced his supporters they are the patriots, supporting him in a war against the imagined Wokery of the Dems. On the other hand, read any history of Trump’s 4 years in the White House, and you have to wonder if his chaotic approach to office will actually deliver anything substantial a second time around.
(That’s a best case scenario for a second Trump presidency: that he’ll be so mired in the courts and exhausted by it (remember he is also an old man), that’s he’ll lapse into lethargy and damage the US and globe less than we fear.)
In terms of a worst case, it’s the fears about what Trump might do that makes the 2024 US election cycle as binary as it can be for markets: Trump (-ve) or anyone else (+ve). If that anyone else was anyone except Joe Biden, then this article would be entirely unnecessary.
The expectation among the American chattering classes was Trump would vanish, becoming a warning from history, and nothing more. A liberated Republican Party would be ensuring something similar could never happen again. Had that been the case, this would be a normal election cycle.
We’d have few concerns about the ultimate colour of the winner. We’d be largely indifferent between a Republican or Democrat. We’d be figuring out what it likely meant for the economy – how the subtleties between respective policies might impact growth and influence climate friendly and renewable power developments through subsidies, what it meant for oil and gas, the potential for tax change or even reform. The shifts would be nuanced – we’d remain confident nothing at the bedrock of American success was about to change: a vibrant economy, thriving job creation, a dollar based global economy, successful companies, liquid markets, strong global alliances, and its position as global hegemon.
But, Trump in not a one-off. His capture of the Republican Party is just one aspect of the indelible mark he’s left on the nation and its economy. He’s changed politics to the core. Look to the next generation of American political leaders and ask what they’ve learnt from Trump? Not the same lessons they read in Lincoln’s Gettysburg address.
Now we have to figure out what Trump means long-term. Just a few of the many questions to be faced below:
- What does the packing of the Supreme Court mean – and what could it lead to? There is no shortage of concerns about how women’s rights have been dialled back and dinner party discussion about how the Right will turn the USA into Gilead from the Handmaid’s Tale.
- How much does electoral denial shift the USA away from democracy towards a he-who-shouts-loudest autocracy? Look at the challengers.
- Could polarisation lead to break-up and civil war?
- What is the future for politics given the current slate of contenders for the Republican nomination?
- What will it do to the US position as global hegemon? – Unravel it.
Biden could have been a good president – decades ago. Today, the front benches of the US political leadership look like the Kremlin in 1970s, old men and women who should have retired a decade ago. It’s tragic to watch Republican Leader Mitch McConnell stumble into silence mid question. Republican Presidential hopeful, Nikki Haley recently called the US senate a “privileged nursing home”. It’s equally upsetting watching Biden trying to figure out what’s going on around himself. He does not project necessary global power and leadership gravitas. What point is there in 90 year old Senators?
Had any Democrat save Biden stood, Trump’s chances of success would diminish. Instead, Trump can probably further magnify his electability by picking one of his fellow travellers, like Fan-Boy Vivek Ramaswamy. He’s a good example of what Trump has unleashed, a young billionaire with zero political CV, willing to boost his political chances by embracing Trump’s brand of disruptive populism by challenging the incumbent political classes with gusto. He was slated on the first debate for his inexperience, especially in foreign affairs. Trump is said to be considering him as running mate.
Should Trump win he is expected to prove a vengeful wrecker of a President; likely to unravel long-established alliances, while moving the domestic agenda into deeper polarisation. Even the most staunchly patriotic firms will be working out how to preserve value in an isolated, perhaps even despotic America. Investors in the US will look elsewhere. The best and brightest engineers and thinkers will be wondering where else will be more welcoming.
Both Republican and Democrat Parties produce good and bad politicians – the problem for the Republican’s is Trump’s legacy is so toxic – teaching US political want-to-be’s the path to success is polarisation, division, and denial. Within just a few years that new reality will have established itself at the core of US politics. I’m sure it’s a lesson not lost on the Dems also. What does that do to democracy long-term?
In 2020 and 21, following Trump’s defeat, American friends in the Republican party assured me Trump was finished, an aberration, never to be repeated. Yet, these same people are now telling me Trump V2.1 won’t be nearly as bad as we fear. That truly scares me. On one hand its Stockholm Syndrome, on the other it tells me the Republican Party has reconciled itself to Trump.
Yet, maybe there is hope of a non-Trump/Biden final.
On the Republican side the name of Virginia Governor Glen Youngkin as a safe-pair of hands to lead the nation. On the Democrat side Gavin Newsome of California and Gretchen Whitmere of Michigan are being talked about as potential candidates able to win the White House. If any of these candidates stands, then we can all stop worrying about what happens in 2025.
Out of time, back to the day job and the train to London
Strategist – Shard Capital