Blain’s Morning Porridge – Sept 30 2020: Exhausting Other Possibilities

“An honest man in politics shines more brightly that he would elsewhere..”

I did not stay up to watch the Trump Biden squabble. How the American’s wish to vote is no concern of ours. Yet, America is an important ally and trading partner. Their decisions will influence growth prospects around the globe, particularly here in the UK. The US election result therefore has major market implications – which are worth thinking about…

Let’s try and describe the current predicament in business terms.

The clue is in the President’s title as head of the executive branch of the US government. What the US needs is a competent CEO to manage the increasing threats and challenges to its position at the centre of the global economy. The CEO’s role is to carefully weigh, consider and direct based on the advice he receives from the best minds and experts available. The ability of the President to manage is a function of the team around him.

As an investor, my first concern on any company is the quality of its management and corporate governance. If you want to know why America struggles with Covid, Trade, Jobs, and Social Inclusiveness – then take a look at the board. That’s a narrative we haven’t heard in this election – it’s something the Republicans are not proud of. The fact Trump has fired any talent, and constructed a cabinet of yes-men and his own dubiously qualified family seems to a matter not-a-jot to the electorate.

If America was a company – and I was a shareholder (which, as a Scot, I am not) – I would be screaming for a change of management.

Instead, US politics has degenerated into a twitterstorm and popularity contest where the winner may well be decided on who looks best from a banal and pointless insults match. The fact last night’s debate degenerated into an unedifying series of bully-boy threats was hardly surprising.

The consensus seems to be both candidates won and lost. Trump behaved exactly as expected, and Biden handled it better than predicted – standing his ground and not showing his age. It will change little. 48% of Americans will remain incandescent with rage at the President’s lies, threats and posturing, while 44% will be delighted their President is standing up to the forces of left-wing darkness and is going to make them great again.

If this was a TV drama – it would be House of Cards on steroids. Who would ever believed the most powerful nation on Earth would stumble this low. What happened to society that let this happen? Society changes. Behaviours that would have caused horror a few years ago are now acceptable. Our bad.

Trump’s success is because he’s a master of this new disruptive normal. No one does deflection like him. He attacked Biden for his son receiving $3 million from the wife of Moscow’s mayor – a totally unfounded and disproved allegation stated as irrefutable fact and fenced behind fake-news meaning no news is news. Maybe Trump knew the NYT had uncovered evidence of the $2.3 mm he made from staging Miss Universe in Moscow in 2013.

Deflection is a skill – but it won’t solve America’s problems. We heard nothing last night about how President Trump or Biden is going to solve Covid, stimulate growth, address social issues or stabilise geopolitics. These things actually matter. Instead we got hints of worse to come.

Trump’s clear and inferred threats to democratic process – telling right-wing thugs to stand by, tweeting supporters to crowd-out voting stations, and making clear his intention to ask his “packed” Supreme Court to settle his claims of electoral fraud in his favour, should greatly trouble the global market. Democracy depends on respect for the process – which Trump denies. If we get post-election instability, then remember the old adage: “when the US sneezes the global economy gets flu.

It’s equally true that A house divided against itself cannot stand… The US looks more polarised today than ever. The divide between the sides is immense. Even the little things promote fury; last night republicans were mortified Biden didn’t address his rival as President Trump after the introductions, yet its ok for Trump to call his rival “Sloppy Creepy Joe”?

The fallout from this election could poison the Union for decades to come – holding back growth and potential and causing the world’s strongest most influential economy to lose influence, handing the globe and future prosperity to China. The parties – and there are clever smart people on both sides – need to move towards each other to solve the challenges. Never in history has a nation had so many advantages – yet never has a nation squandered its political potential and global leadership so pointlessly as over the last 4 years.

In that most forgotten of cliches; all it takes is a few good women/menlies an answer. I wonder is how many decent Republicans dread the necessity they feel to cast their votes for a man they know to be so vile, while how many Democrats are equally reticent about their bad compromise of a candidate? If America wanted to solve its problems, it would not have started from here – with two such poor presidential candidates.

What would be best for America, and therefore the global economy?  Strip away the noise and posturing, and give Trump some credit. He has stumbled on some fundamental truths about the economy, growth and trade. China was a fight that had to be picked – and now it has to be solved. But who is advising Trump on how to win the coming war? The brightest minds in the nation? Or the few remaining yes-men that can still work with him?

The Republican’s last card is to scare the electorate with the imagined threat the Saunder’s lunatic fringe of the Democrats will out-Corbyn Corbyn. To hold America together isn’t about telling right wing militias to “stand-by’, but to address valid points about social injustice. Solve that – and it can be done – and America trully could be great again.

Its not my place to opine on the American’s election, but one choice is less damaging than the other. If its not clear which I favour… then call me Alan Greenspan!

Let’s try to be positive about America. Perhaps the Trump regime’s legacy will go down as a moment of catharsis for America – by waking the country back up to its potential to be a global leader.  To do that it needs to clean itself.

In terms of where markets go.. let’s stick to facts. Since the days of President Roosevelt to Obama the Democrats have been in power over 36 years when 58 million jobs were created, while Republicans created 26 million jobs, also over 36 years. There has been a net loss of US jobs under Trump. Yesterday Disney announced 28,000 jobs to go.

Over here in Europe we’ve got our own political excrement to figure out. In the UK the government could not look more hapless over Covid if it stood on a rake and face-splatted itself.  In France, the Gillet-jaunes are spotted furtively in the shadows. Germany’s post Merkel era is likely to be unbalanced by who-knew-what about Wirecard accusations. Spain is Spain, and Italy is multiple different states clinging to the hope of a Brussels bailout.

All around the West there are lots of very unhappy voters. As our economies fizzle and splinter due to Covid and bad politics…. It’s no wonder the Russians and the Chinese are smiling this morning…

Let’s end on that most revealing and inspiring quotes about America: “Americans can be relied upon to do the right thing, after they have exhausted all other possibilities.”

Five Things Too Read This Morning

CapX – There are No Positive to Negative Interest Rates

BBerg – Merkel’s Old Foe May Finally Get Chance to Undo Her Legacy

FT – Upbeat Bond Market at odds with banks over scale of Covid Risks

WSJ – Silver Lake Launches New 25-Year Investment Strategy Backed by Mubadala

CNBC – UBS Says Buy Gold Now

Out of time, and back to the day job..

Bill Blain

Shard Capital

billblain@morningporridge.com