Blain’s Morning Porridge July 15^th 2024: Trump, Rising Instability, Uncertainy and What Next for Rates?

 “A pox on both your houses”…. “Romeo slew him, he slew Mercutio; who now the price of his blood doth owe?”

The attempted assassination of Donald Trump may catalyse global players to walk away from the apparent instability and uncertainty this US election looks to be leading to. Volatility, distrust and division may well multiply.

But first, it’s going to be a gloomy morning across England. The Football did not come home. Spain was the better team through the competition. Cheer up – we have the Olympics in just a few weeks’ time. Time to pick ourselves back up and get back in the race – literally!

There are a whole lot of topics to think through in these thin summer markets: the outlook for inflation, central bank actions, and the picture of the China economy now emerging. We’re certainly not short of topics for discussion here at the Morning Porridge, but the Big One this morning is the “Judder Moment” on Saturday night near Pittsburgh.

The bullets may have missed, but the market uncertainty and political instabilities (domestically and geopolitically) surrounding the November election just got much, much worse and more difficult to comprehend. Like everyone else over the weekend I was thinking “if” – how much worse could it have been. I found myself thinking of Huey Long – an equally divisive figure from the Left of US politics in the 1930s who was assassinated, but whose family electoral machine dominated Louisiana politics the next thirty years. (Interesting character – look him up on Wiki.)

Just what will the attempted assassination of former President Donald Trump mean?

1. For markets – not just the immediate boost its’ undoubtedly given Trump in the polls, and the increased emphasis on how a Trump win may impact growth, higher inflationary expectations, and a steeper yield curve.
2. For rising instability – on terms of the increasing political polarisation and division across the States. Therein lies a bigger problem. “A nation divided against itself cannot stand”, etc, etc…
3. Just how more fervid will be the political reactions and potential unrest following the vote in November be?

Rising political instability and uncertainty is never positive for markets. We still have 4 months till the election – and there is no shortage of “moments” still to come – Will Biden stand or not? Who will replace him? How will Trump react to the assassination attempt – and the reality of how close it came to killing him? The thankfully failed assassination attempt just increases the likelihood the amplitude of the Biden/Trump/Election Drama Triangle turns chaotic.

Polarisation is already the clear winner. On one hand the Right are vigorously blaming President Joe Biden for the attempt, Senator JD Vance of Ohio proclaimed: “The central premise of the Biden campaign is that President Donald Trump is an authoritarian fascist who must be stopped at all costs. That rhetoric led directly to President Trump’s attempted assassination.”  Predictably, the immediate trending hashtag on Twitter was #staged across Democrat leaning forums. There are no shortage of ragtag conspiracy theories about the Secret Service failure, or the shooters Republican affiliation on the web.

Bollchocks to all that nonsense:

The reality will no doubt be the obvious: yet another marginalised young American with easy access to a gun, who watched too much Conspiracy Shit and Fake News, and seriously believes the Swamp and the Global Economy are run by a Cabal of Jewish financiers from a pizza shop in downtown Vienna – or whatever the current nonsense is – went amok.

This morning, I read how the shooter was an outcast and bullied. That resonated with an interview on the BBC last with one of the shooter’s contemporaries from school – she was at great pains to say she was “nice” to him. Join the dots.

The increasing instability in US politics is playing out in multiple dimensions.

• The first aspect is noise – which is driving the soft-markets, the twitter-sphere and keeps the commentators in business. A lot of it is hysteria, noisy and terribly excitable.
• The second aspect is big money – which is watching to see how their underlying macro themes are playing out in terms of bond market risk, inflation and recession, tariffs and trade, and the possibility of stagflation.
• A third aspect is geopolitics and global investment flows – the more unstable and uncertain the noise around the election plays out, and how ineffective the US constitution proves to deal with it, the less enamoured global investors are with Treasuries and the dollar.

I know European CIOs and Chairmen utterly shocked at how US political stability seems to be unravelling in plain sight. And there is no point pretending its just Trump at fault. Biden’s apparent resolve to cling to office is as much as dereliction of presidential responsibility as anything Trump has done. If a country or an economy it determined to appoint the wrong person to lead it – then it’s no surprise if the market decision is to exit that investment.

Expect to see these aspects of the current US political quagmire play out in different ways in coming months. The tone of the election will continue to veer toward hysteria. Politics and posturing will increasingly move short-term markets. The commentariat will pontificate on the news, predicting daily market moves from the political elements, while the “deep” money will be laying longer term bets on long-term outcomes. I’ll try to focus on these in the coming months.

I was talking to a US fund on Friday who told me they were increasingly desensitised to the ongoing politics – and were focused on the positive growth consequences of howkeeping Trump’s 2017 tax cuts in place will play out in terms of a rising deficit on bonds, interest rates remaining stable, and the trade consequences of tariffs. That’s all fine and good in a stable, sort-of predictable system. The problem is the market reactions to this election are becoming chaotic!

As Saturday just highlighted, you can’t take the stability of the system for granted. What other shocks may still be to come?

Meanwhile, Rates

Markets are yet again taking last week’s low US CPI print as proof positive a US rate cut is around the corner, thus bonds, stocks and everything will rally..

Whoa! Nope. With inflation remaining sticky at 3%, interest rates will remain positive – ie above inflation. There is very limited room for rate cuts. Moreover, inflationary pressures are mounting – especially in agricultural commodities and food. Time to dust off “investing in stagflationary economies” handbook. Gold… always believe….

Out of time, and back to the day job,

Bill Blain

CEO and Founder,

Wind Shift Capital

www.windshift.capital