Blain’s Morning Porridge – July 16 2020, 4 More Months?

Blain’s Morning Porridge, July 16 2020 – 4 More Months?

“If I ever ran for office, I’d do better as a Democrat..”

Markets are beginning to factor in the US November Election. It’s only 17 weeks away. We’re hearing all the usual fears about how bad a Democrat will be for the economy – especially if Biden also takes the Senate, and what it all means for market stability.  I’m wondering about two aspects: how important will it be for the Global Narrative, and what will it will mean for the US itself.

In terms of the Global Narrative – does the coming election actually matter? The Tectonic plates are already in motion, and can’t be stopped. Whatever Trump may think, China has been the defining aspect his reign. It was never just about terms of trade or patent theft.  By accident or design Trump became the catalyst for an inevitable showdown with China. He will be remembered for that, if nothing else.

Over his 4 years, the west has now swung 180 degrees from engagement with China to putting up barriers as the Rome vs Carthage moment approaches. Some call it the Thucydides Trap – the inevitability competing empires collide into conflict. Will it be a Cold War won on economics and business, or could it turn Hot? The Chinese certainly don’t want that – they lack true force projection in a conventional sense, but perhaps the next war will be fought in cyberspace.

Whatever, the shift has profound market, business and economic implications. Start planning…

A new ring around China of aligned Pro-west states has formed quickly. It’s no coincidence Trump signed the Hong Kong legislation the same day as Boris threw out Huawei. After the recent unpleasantness on the glacier, India is now aligning itself with the West. Australia is taking the dangerous economic step of delinking itself. Whoever becomes the next US president is not going to undo the new Geopolitical reality – the West’s relationship with China has changed for ever.

There will be issues – particularly for Europe. Does it decide to commit to the West or try to sit in the middle. Italy has embraced the China Belt & Road. The rest of Europe may be more circumspect.

Chinese and Western economic ecosystems will diverge in terms of technology, personal freedoms and surveillance, and business. Some large export markets will close as China favours domestic production. On the other, the virus has highlighted supply chain weakness, and raised the issue of supply security vs supply cost. As tech develops cheap automation and 3 D printing, will dramatically cut the costs of repatriating much of the manufacturing activity hived off to Asia.

As the world divides into camps, it’s unlikely the dollar’s position as defacto global currency will be seriously challenged – unless the West is seen to be losing.

These Geopolitical Macro factors are underway, are long-term and won’t be stopped by the coming election. For most of us, it doesn’t really matter what follows domestically in the US – as long as they don’t mess up too badly.

Yet, it still going to be the most fascinating US vote on November 3rd.

For the last 4 years in the UK we’ve had some extraordinary populist politics. Brexit vs Remain polarised the nation. It may yet fracture the union. It’s become the most divisive issues since Long or Short hair in the Civil War back in the 1640s. Despite the virus, it remains front page as we try to work out an accommodation with Europe. Brexit remains a dominant influence, determining and defining limited political choices.

Something similarly polarising is happening in the US – although it’s a very different equation. The divisive issue is partially Trump himself, but its also the haves versus the have-nots. Let’s not dwell on his character… but he’s conclusively demonstrated that head of the US Government is not a job for a sole-trader, seat-of-the-pants property speculator who can’t delegate, and craves credit for everything.

Being president is the most complex CEO job on the planet. The Republican Party chose Trump, and the American elected him because they saw an answer to years of fruitless gridlock and detachment of the political classes from main-street America. But, CEO of America Inc? Really? Try again….

From the outside looking in at America, Trumps most notable achievement is his unmatched ability to create absolute Frustration. That’s most visible on US media, where the mainstream has gone absolutely all out negative on Trump. Balanced reporting is out the window – although, to be fair Trump doesn’t really do balanced.

Frustration fuelled the badly planned and botched attempt to impeach and dismiss him – when the Democrats should have been leading on policies and ideas, they stuck to a pointless effort to replace Trump because… well, he frustrated them!

Frustration has also fanned the flames of aggressive Wokedom – the right to be offended by any opinion you don’t like, and be even more offended when others disagree with your opinion. It’s difficult to find anyone in middle class polite society who will admit to partners or friends they intend to vote for Trump… but many will because they horrified at where they perceive “Marxist Woke” is taking their country. Many voters can’t accept Democrats pandering to woke. The sight of Joe Biden taking the knee played brilliantly to younger voters, but caused many older democrats to wince.

(And before I get “no-platformed” as Anti-Woke, I support just about everything that promotes equality and opportunity across society. There is much to be fixed – including that Black Lives most definitely Matter and improving their opportunities will be an effective way to make society just and fair.)

Over the last few days we’ve seen the US twitter-sphere wracked with angst because someone we’ve never heard of has resigned from the NY Times because the left-wingers who run the paper were beastly to her. It’s a great resignation letter – but absolutely so what? It’s a whine and distraction… there aren’t that many hardline Brexiteeers writing for the Guardian either…

I don’t think “Frustration” will necessarily lose Trump the election. Although the polls all say Biden is ahead in all the key states that matter, a lot can happen before November. If the Virus is still rampant, that could benefit Trump if only die-hard voters go to the polls.

Biden currently leads because he’s doing nothing. His strategy is “why interrupt Trump when he’s making mistakes?”He’s advancing no agenda of his own, which means his vote is not “sticky”. In contrast, Trump’s core 40% plus vote will remain absolutely rock-solid no matter what he does.

At the moment Biden appears to have the votes to win, and the Democrats are standing some very strong candidates in key Senate races they look likely to take. They need to gain 3 seats to own the Senate – which looks distinctly possible, raising the nightmare scenario for the Republicans: a Democrat President, Congress and Senate empowered to deliver.. hence the scaremongering about economic and market collapse.

The fear is Biden will come to power raising taxes just as the economy is at its most vulnerable, triggering a market and economic crash.  Yep. He might. But I doubt he’s that stupid. With Trump out the way, maybe Washington could get consensual again – and hammer out policy? OK – maybe not.

The question to ask might be: Why who anyone want to be president in the wake of Covid – facing the major issue of paying off the enormous pandemic deficit?

Whatever… keep an eye on what’s going on across the pond..


For a digression on the UK Housing market – I’ve got a note in CAPX this morning: The biggest market failure in British housing isn’t supply . If you get a chance, please give it a read… more clicks means more fame and glory.. or something like that…

Five Things Too Read This Morning

Lots of fascinating stuff from Goldman’s blowout results, China’s suspiciously strong GDP number, will the dollar weaken, the ECB trying to stay relevant, and why the UK is struggling to reopen..

WSJ – Goldman’s Traders, Bankers Keep Profit Steady While Rivals Falter

FT – Chinese GDP grows 3.2% in second quarter

FT – Mounting risks in US will weigh on the dollar, analysts predict

Bloomberg – Don’t Fight The ECB can get one more shout

Torygraph – Only half of shops have reopened since lockdown eased

Next week service might be sketchy… lots of sailing days planned… ah the joy of an English summer as the rain beats down…

Out of time and back to work..

Bill Blain

Shard Capital