Blain’s Morning Porridge, Nov 11 2020: Critical American Days

“Between the crosses, row on row, that mark our place; and in the sky the larks, still bravely singing, fly.”

November 11th should be a quiet day. I will go for walk this morning and stand for a while in Netley Cemetery. It’s a lovely shaded spot. The rows of gravestones pay no attention to rank or nationality. The bodies of a young German soldier and an Irish Ranger rest next to each other for eternity. They died a few days apart in 1915 in what was then the largest military hospital in Europe. They lie with hundreds of their comrades in the dappled sunshine under the trees. It’s a wonderful peaceful place. I read roses thrive in German war cemeteries, so I will try and find some or else I shall leave a poppy for Georg Huber and wonder who he was, who missed him, and what he missed.

Today Europe fights our battles in a slightly more civilised fashion as we reach the end stage in Brexit negotiation. Boris will have been delighted to get the first phone call from Joe Biden, but I wonder how much pressure he will feel to strike a deal with Europe? Which rather assumes Biden will ever get to the White House…

I am pretty certain that Biden will become the next US President… but they question to ask is what sort of presidency will he and we face? The outlook is looking progressively less certain and unstable. We might have beaten the Coronavirus, and the market is rallying hard – a supposed rotation from Tech into Fundamental stocks is underway – but the underlying risks of unstable politics holding back recovery are mounting.

It’s now a week since the US election, and the situation is deteriorating into a messy quagmire – redolent of Flanders’ Fields. Whatever the markets think about the inevitability of a Biden presidency, what sort of Presidency it is, and what it can it achieve are likely to be set over the next couple of days. For every day a result is delayed and denied, then my expectations for the long-term in the USA diminish.

Four years of gridlock animosity is not a great backdrop for growth, although its maybe positive in terms of it being unlikely there will be any agreement on issues like regulating tech. It will be equally damaging long-term in terms of infrastructure and social spending.

The point about democracy is the collective will expressed in the ballot. The credibility of the result is enforced by the speed at which votes are counted and a winner declared. Each US state set its own rules and procedures to ensure the clarity of the result – and in the absence of any evidence of fraud, there should be a presumption the votes counted determine the winner.

Apparently not.

These rules are now being re-written, undermining the primacy of the ballot-box, (which is a generic term that includes mail-in-votes which every state agreed are legal and set up procedures to count.) Delay is a deliberate policy and it’s been the cornerstone of Republican election planning since Trump began to rail about fraudulent postal votes as it became clear he was at risk.

Delay is toxic. It allows unwarranted doubts and concerns to fester and metastasize and diminish the legitimacy of the result. That’s Trump’s objective. Republican leaders are going along with it as they know their electors are Trump’s supporters – he runs them.

The GOP is following orders. I was told, by Republican supporters yesterday, that “process” must be followed – process meaning their definition of process. I was told how important it is to investigate carefully and patiently every ballot. One Trump supporter earnestly suggested the only way to determine the veracity of the vote is to link every vote with a living in-state voter to determine its legality! If it takes 30 days, until the electoral college meets, then so be it… I was told “be patient” and it’s “up to the people and the courts to sort this out.”

Democracy dies screaming.

I am a foolish person to have thought “Process” had been followed with 76 million Americans voting for Biden (winning an anticipated 306 college seats) beating Trump’s 70 million votes. That looked like democracy in action. One side wins, the other loses and they have a re-match in 4 years time. Simple? No.

Instead the results are being deliberately delayed. It creates an impression for Trump fans that its close, and delay gives credence to the allegations of electoral fraud. I asked a Republican y’day what evidence of fraud there is? His logic was brilliant: “Ah, by asking for evidence of fraud you admit fraud is possible, therefore you must also accept we should investigate to determine if it occurred.”

And on that convoluted logic the American peoples’ decision will be handed to the courts.

Remember: God hates lawyers.

One republican was very keen to emphasise that 87, count them 87, lawyers are currently swarming over Georgia looking for evidence of fraud. I had to laugh when I read about Trump’s appeal for donations to fund legal cases against fraud – someone read the small print and discovered that only 50% of the funds received will go to fighting these cases, the rest will be handed to Trump’s campaign funds to pay off unpaid election expenses!

It increasingly looks like lawyers, not the people, will determine the US election result – which begs the questions; what’s the difference between an election won on the point of a gun as opposed one won on the point of a lawyer’s quill? Answer: none – both deny the will of the voters. I suspect it will wend its way up the Supreme Court which will face its supreme test in demonstrating its independence.

What does further delay achieve? Every day increases the doubts as to the election’s veracity and magnifies the already polarized divisions in the US. Every day’s delay convinces Trump supports they’ve been robbed and tightens Trump’s grip on the GOP – which is why none of the party grandees risk speaking out.

If Biden wins in the courts, the atmosphere around his presidency will be forever tainted – hoped for cooperation to resolve issues of stimulus, infrastructure, health and education in a gridlocked capitol will be doomed. We will face 4 years of US internal conflict as Trump ferments conditions for a triumphal return in 2024.

Do not underestimate Trump. He is not stupid and he is cunning. Delay and disruption suits him. Imagine just how “disappointed” he will be if frustration and anger inflames a few riots and he warn of BLM insurrection?

The next 3 or 4 days will be critical for the US.

Republicans will be speechless in fury at my termerity criticising delay. They will fulminate about the 37 days delay in 2000 when Al Gore contested Florida. That was one state where the recounted vote gave the election to GW Bush by 537 votes – practically a coin toss. The current situation is nothing similar – we have majorities in excess of 10000 in 4 states being contested with minimal hopes of successfully overturning the numbers.

If there is no meaningful evidence of widespread electoral fraud, and the recounts are done, then the results should be certified and the winner announced and transition begun. If not, and the Republican’s drag this out through November into December, then it’s time to reassess the long-term prospects for the US economy, the dollar and to think about Treasuries… A house divided can not stand.. and all that..

I was writing about China last week – where the shock of the cancelled Ant IPO reminded us of the dangers of investing in domiciles where the rule of law is superceded by state control. It strikes me we’re potentially heading down the same road in the US.

In fact, I’m getting so concerned about the US, I might even have to re-engage with Europe… if they will let me back…

Five Things to Read This Morning

FT – Ackman places new bet against corporate credit

FT – China Tech stocks tumble as regulators step up antitrust pressure

BBerg – UK Announces Law to Protect British Assets from Foreign Buyers

BBerg – London Office Landlord Warns City’s Rents Have Further to Fall

Torygraph – 80% of Americans say Joe Biden won

Out of time and back to the day job!

Bill Blain

Shard Capital