Blain’s Morning Porridge, Nov 3 2020: Not about Trump anymore!

“Vote Early, and vote often….” 

Markets anticipate a Biden victory. Y’day stocks rose on expectations a clear result will ultimately generate wider stimulus, improve the US government’s Pandemic response and bring predictability back to US policy. The polls say Biden will win a comfortable national majority (which counts for zero), and the all-important electoral college majority. Polls are split on the Senate races, but if Biden wins States he’ll likely take their coin-toss senate seats in his wake.

But, the next few days are likely to be tense. The VIX has slipped slightly from 40 on Friday – a clear “Danger, Danger Will Robinson” moment, but a high reading remains a warning of how volatile markets believe the post-election markets could go. If polls are wrong and we get a shock result… hold on tight.

How messy might it be? Compare and contrast the candidates yesterday. Trump hammered on about electoral fraud, how “bad things happen in Philadelphia”, a “stolen election” and is already resorting to the courts. Biden is calling for national unity. Trump has already set the narrative and it staggers me to read things like.. “Trump can only lose if there is massive electoral fraud.” Or one email I got: “Trump will only lose PA if it is stolen from him in Philly and in ballot counting.” Democrats are warning about the dangers of polling stations being intimidated by right wing militias, and ballot stuffing.

If the polls are right, (and let’s assume they are), Biden looks on course to win the Presidency and a majority in both houses. Markets see that as positive.

Trump supporters don’t.

While the media are warning about immediate turmoil and uncertainty, let’s try to figure out the key market issues – like is this dollar positive or negative? Should I buy US stocks? It all depends on the next few months and years rather than days. It’s not about Trump anymore..

Trump has been an extraordinary president. He has not been everyone’s cup of tea. Even my most Republican-leaning chums admit he’s divisive, dishonest, and rude – which may be a national virtue across the Pond, but is frowned upon here. (We don’t like bad losers either.) The president is effectively the USA’s CEO – and to be blunt, seldom has the President seemed so unsuited for that task. It’s been chaotic. But credit where credit is due: Trump identified many key issues.

Whatever you believe about Trump’s success, his successor has to deal with a host of issues in his wake. These will determine the US’ place in the world and the outlook for the economy, stocks and bonds. The critical long-term issues include:

The Western Alliance, NATO and Asia

Nations do not succeed on their own. They succeed in terms of trade, influence and by being seen as leaders. The myth of US exceptionalism and its position in the world has been battered these last 4 years. The strength and role of the US dollar, and the attractiveness of US firms and their products depend long-term on the re-establishing the USA’s global pre-eminence – which is now tarnished.

Trump played his own hard ball rules internationally for his domestic audience. Insulting US long-term allies was a mistake. Its critical to re-establish trust. The alternative is for the US to become isolationist and hand the global economy to China. (In the late 15th Century that’s exactly what China did; closing its borders while the West’s mercantile expansion leading direction to the current Age of Capital while China fell into decay.)

A weak divided NATO will increase the likelihood of aggressive China expansion and encourage a disruptive Russia, further distracting from the path of Western economic growth. NATO’s success was as a deterrence to Russia. The US needs to expand/restore its alliances in Asia and around the Pacific to balance/counter China influence. It should be easy – China’s hamfisted efforts to bludgeon Australia and India over criticism highlights the likely success of a US alliance.

Deal with China 

Trump woke the West to the China “challenge”, but his threats and tariff policies have thus-far backfired on US manufacturing and agriculture, while spurring China onwards. The reality is the pandemic has accelerated China’s position in the driving street of global growth.  Inevitably, China will soon be the largest economy, and will develop its own Tech base and dominance. Deal with it.

The US has still to identify what the China challenge really is – it’s not a communist state to be beaten as the USSR was; its state capitalism and shares many common issues with the west, although democracy and human rights are not on the list. China wants to win, but it can only win via trade. America has choices: i) find an accommodation with China to drive global growth and economic recovery – from which we all benefit, ii) lead the west in an alternative global economy, or iii) continue down a chaotic pathway towards trade conflict and even a hot war. Option (i) seems the better call.

The Role of Government

The big problem for the US is internal.

Infrastructure, healthcare, education and welfare are all “difficult” issues intertwined with the role of the state. Trump knew that, and so do his successors. The state needs redefinition and consensus on what the state looks like. Republicans generally agree the problem is too much state.  Democrats generally want more.  The truth lies between – the issue is the quality of the state and government.  Bad government is bad, expensive and handicaps growth. The Pandemic has exposed serious fault-lines on responsibility and accountability – which need to be addressed.

There is a balance: there are some things free markets and capitalism do well – there are others the state can do better. Nations that can balance Public State Goods with a sound economy work. Vibrant economies depend on regulatory and tax regimes to encourage growth and entrepreneurship, the rule of law, stability and sound governance. But there needs to be balance of all the factors that make up the economy – and that means addressing income inequality as much as job creation. Balance.

Inequalities lie at the heart of much of the current US polarisation. In a perfect world, this election would have been about a leader to recognise and address these divides – and reconciling mind-boggling wealth that seems indifferent to deprivation and suffering just a block away. What I’ve seen over my most recent US trips has been inner cities crying out for a New New Deal.

At the core of the US economy is capital and global confidence in the dollar. It needs maintenance – which means demonstrating the ongoing credibility of the state as it spends its way out of crisis and the increasing debt. Sovereign debt becomes a crisis when confidence collapses – which could well have been accelerated if the Federal Reserve’s path towards becoming a mere piggy bank for the President to juice stock markets to highlight his economic success had continued. Stock price hint at success, but real success is a solid economy.

All these factors; the strength of the economy, the success of the state, and fairness of the society play into the core issue – confidence. If the US continues to be “unbalanced” the case to invest in it diminishes.


Whatever the result, however close or large a landslide Biden generates, a large swathe of Trump supporting Americans are unlikely to ever accept the result. Let’s not be coy about this: Trump voters tend to be rural and are less likely to have degrees than Democrats. They are a fertile soil for the lies and fictions of QAnon and the rest of the unhappy Libertarian right. The rise of social media and how it distorts politics via bias confirmation is only now being understood. It needs to be addressed.

QAnon is just one of the many conspiracy theories nurtured on the web that’s corrupting the stability of US politics. It’s gain traction because it plays to people who want to believe – its classic confirmation bias. All across the states the unhappy right accept as Gospel truth QAnon’s story that Hillary Clinton presides over a massive child-sex ring based in the basement of a Pizza shop. Depending on who you believe, Q is either a Trump insider and patriot, or it’s utter bunkum and fake news.

Most of us – and I hope all Porridge readers – are savvy enough to spot outrageous lies from fiction, but make you own mind up. Reuters, a highly respected international news source around the globe, or deep state fake news to the extreme right, suggests it was Russian manipulation that made the unlikely conspiracy theory so popular and such a destabiliser of the US political system.

Democracy is a fragile thing. Shake it, break it… and you are unlikely to be able to fix it. Whatever happened to courtesy, decency and honour? I guess we will shortly find out..

Five Things To Read This Morning (Not about elections..)

BBerg – If This is the COVID Recovery, Then Steel Yourself

BBerg – Lockdowns Mean Christmas Comes Early for Amazon

FT – China economy outstrips US despite Beijing bashing

FT – Bank of England faces new doubts over potency of buying bonds

WSJ – SoftBank-Backed Greensill Ditches Corporate Aircraft Ahead of Fundraising Effort

Out of time, back to the day job and very early start tomorrow!

Bill Blain

Shard Capital