Blain’s Morning Porridge – March 6th 2024: US Primaries – Do They Really Matter? 8 months to go!
“These are not the droids you are looking for…”
The US Primaries confirm its likely to be Biden vs Trump. While short-term markets don’t really care, it’s going to be a massive distraction and noise for investors deeply concerned at the future. While everyone else is panicked – that’s when opportunities emerge!
In November 2021 a very good American friend (who is a Republican, but I forgive him) assured me we’d seen the last of Donald Trump. He’s now trying to calm my fears and tells me this time Trump will be different – there is nothing to worry about, that the dangers inherent in the orange man are less than the damage President Biden’s failed policies are doing to the US. Blah, blah, blah.
And he may well be right. Market “strategists” like myself worry far too much about politics. Markets won’t be that bothered short-term who wins the US election. Biden has done extraordinarily well for the USA – robust growth, resilient economy, strong jobs. Trump wasn’t so bad – he cut taxes and rolled back regulation. Markets are short-term.
Investors are long-term and are far more bothered about the prospects of Donald Trump V2 (V for Vengeance) on the global economy, geopolitics, isolationism and conflict.
Last night was Super Tuesday in the Dis-United States of America. 15 states held their primaries to choose respective candidates for the US presidential election on Nov 5th – potentially the most nervously anticipated election in global history. And I write that without a hint of hyperbole.
There is no shortage of analysis written on the consequences of a Trump victory on Global trade, the Dollar, Treasury prices, and US stocks. There is much less commentary on likely outcomes of a Biden win. I’ve been warned not to trust the polls – Europe is apparently massively overestimating the likelihood of a Trump victory – US commentators think it’s still very close, with lots still to play for – including Trump’s many court cases.
There is also the possibility Biden may be stood down and replaced. Harry Truman and Lyndon Johnston both stood down in March of election years. We also underestimate the revulsion of US women to the Supreme Court decision on abortion rights – name me a single powerful, significant woman supporting Trump (one not already caught in his party!)
What happens if Trump doesn’t win is…. Worrying. We can only assume there will be a massive campaign of denial to follow. Much nashing of teeth on booth sides about democracy denied. The analysts will make calculations about the costs of real insurrection by “stop the second steal” supporters. (I spotted a Tweet last night alleging Democrats testing new vote stealing tech in the primary in Austin, Texas – stopping Republicans from voting!) Inevitably there will be talk of a second US civil war.
The reality is the coming US election is going to be horribly distracting for markets. Thank the lord we will be watching from the comparative sanity of Yoorp. Disinformation, fake news and conspiracy drivel will fill the media. We’ll be staring in open-mouthed horror at the insanity being expressed on the screens. Election noise will dominate markets – meaning it will be a great time to play the opportunities game.
At this stage, I shall simply remind readers of Blain’s Market Mantra No 2: “Things are never as bad as you fear, but seldom as good as you hope.” Yes, the US election will be messy. But, no – it is not the end of the world. Other markets and investments are also available, as they say….
That said, it really is time to be doing some work on what the USA is going to look like this time next year.
I don’t think anyone will be particularly surprised at the news President Biden swept the board for the Democrat nomination – an almost Soviet majority for the one man on the ballot. Even less of a surprise to see Donald Trump sweep the Republican primary vote – but 60% of the vote is a number Putin would be furious at: Russian campaign officials would be falling out of windows like a monsoon rain. Nicky Haley managed to win Vermont… which in the grand scale of things…. may mean nothing at all, but I bet the Republican manager in the state is looking for new job this morning.
The thing is…. Here is Europe we’re all stunned and surprised at Trump’s renaissance. We’re trying to understand how the American political system has apparently so failed – stuck in unreconcilable gridlock, polarised to the extent America’s exceptionalism has been buried, and enabling perhaps the two worst candidates in American political history to compete for the top job on the planet.
Get over it.. that’s how the US works.
Famously US elections are all about the “Economy, stupid”… but this one clearly isn’t, except it is. The US economy is robust and resilient – unemployment remains tight, pushing up wages. Growth exceeds the anaemic numbers seen in Europe – the US is the fastest growing developed economy according to most analysis. But, President Biden is getting little credit it for it…
Instead, voters are increasingly blaming Biden for their perception of how the standard of living in the US is falling, how their incomes fail to cover basis expenses, and the growing feeling the economy is hopelessly unbalanced between the haves and have-nots. In this, they have a point.
Inequality is the real crisis in the USA – and its largely the fault of monetary policy. 15 years of distortingly low interest rates – yep, the QE era is to blame, again – fuelled a massive increase in inequality; not just in terms of incomes as the rich got richer, but of opportunity across the USA.
Take a look at how divided US society has become:
The perception – fuelled by the media – is of a prosperous, wealthy middle class of millennials working in tech with their gorgeous city lifestyles, their earnings rising, savings fuelled by gains on their stock-market accounts, big bonuses as their company stock rose, the soaring value of their properties, and their kids being smoothed into the best schools by greasing the right palms. These are the social classes that can afford to hold liberal views, to support woke perspectives, and appreciate intangibles like social justice, gender politics, and equality. (It is very easy to support equality when you are secure at the top of the pile.)
Blue-Collar America hates them and all they stand for. “The deplorables”, the Trump-supporting middle America are the ones facing crippling credit card debt to buy necessities, 20% interest rates on auto-loans they can’t afford, and can barely pay their grocery bills after their rent. They’re working for firms that are struggling for static wages, haven’t seen much change or productivity growth in decades. Inflation, higher interest rates and rising services have slashed discretionary spending – and thus the profits of the firms they work for.
Working class America can’t afford the luxury of skinny oat-lattes or to support gender positive discrimination or whatever the woke cause of the day is. What they see is rising crime, and defunded policing struggling to contain the social damage that follows. Immigration has become the rally point for the populist political class assembled around Trump. These are the votes Donald Trump appeals to. He has caught their attention by identifying and aligning himself with them.
And that’s why Donald Trump has got himself this far, and will, perhaps, go further..
Next 8 months are going to be “interesting”, but full of opportunity.
Out of time and very late
Bill Blain
Market Strategist and Author of the Morning Porridge
