2nd November 2016
US election: whatever the result, investors may have opportunities to buy the robust US economy on the cheap, says Rowan Dartington’s Guy Stephens
Just as we thought the US election was moving in a market-friendly way, new Clinton emails come out of the woodwork to upset the applecart. Most politicians have skeletons in their cupboards and the duration of their time in power is influenced by whether they ever come out and how far into their leadership this occurs. Sometimes they develop over time as popularity and success breeds complacency and an inner circle member senses a vulnerability and breaks ranks in a dash for power. In the UK, I am thinking of the downfall of Margaret Thatcher and that speech from Sir Geoffrey Howe and more recently the antics of Michael Gove when Boris Johnson was unexpectedly thrust into a potential position of power for which he clearly was unprepared.
What marks this US election out as extraordinary is that both candidates already have enough revealed skeletons to fill a cemetery, and the really scary thing is that the victor will lead the most powerful nation in the world. In most open democracies, neither candidate would have even made the starting blocks. No wonder Jeremy Paxman delivered a documentary the other week asking the question as to how the US electoral system has produced two of the most hated candidates in history. This is why you cannot rule out Trump because the choice literally is between an apparent sexist bigot and an establishment figure with suspected acts of dishonesty with regard to confidential matters of state. Neither scores highly on the ‘fit to govern’ scale.
One feature that should be at the forefront of many voters’ minds is how that individual will represent the country on the world stage as an international statesman/woman. However, we are all aware of how introspective the typical US citizen can be and so perhaps it is no surprise that the US voter doesn’t appear reviled like much of the rest of the world. Arguably, this is where Theresa May scores highly compared to Jeremy Corbyn. There is also little doubt as to how Angela Merkel of Germany, Francois Hollande of France, Shinzo Abe of Japan and Xi Jinping of China rank in terms of international charismatic leaders. Regardless of one’s political persuasion the likes of Margaret Thatcher and Tony Blair commanded great respect on the world stage and raised the profile of the UK above our natural ranking. The US electoral system has jettisoned all the worthy alternatives in this area which is odd. In many other democracies the voters choose the party and the party members select their leader – in the US the voter is choosing the President based on simplistic measures watered down for the public and it really is a case of who can fool more of the people for more of the time rather than far more complex and unknown issues only fully understood within the walls of Congress. When US citizens are interviewed as to which way they are going to vote, they say Trump or Clinton, not especially Democrat or Republican. In the UK, we vote for the party and consider their policies, with far less emphasis on the Prime Minister. Promoting either of these US candidates to this elite club, in the most powerful position on the world state beggars belief and credibility for the US as a nation. An election should be about the party and its policies, not one individual and what a choice!
With the polls almost neck and neck after the latest email revelation, there could be a low turn out due to apathy and that works in favour of Trump. That outcome will likely qualify as an unexpected market ‘event’ and introduce volatility. However, once rational heads work out what this means, there will be a point at which exceptional profits can be made. If Trump is returned, it is probably less likely that interest rates will be increased in December and eventually markets will cotton on to that. In addition, the political support for Trump in Capitol Hill is wafer thin – he will struggle to do very much at all and will have to morph into a true Republican to garner much support. It is universally accepted that he doesn’t truly represent either party and will therefore be a puppet President as things currently stand. Where the risk lies is how he would react to the inevitable challenges on the foreign policy front as the most quoted and watched global leader. Few would dispute that Barack Obama has scored highly on the charismatic scale, despite also arguably being a puppet President due to the Republicans holding both the Senate and the House or Representatives. At least the minimum time for endurance is just four years while the rest of the world groans. If Trump gets his planned cuts in corporate taxes through Congress, that would be a boost to earnings even if it caused mayhem with Treasury receipts.
Maybe by some miracle for market friendliness Hillary Clinton is returned. However, what if there is a smoking gun within the latest email sensation? We could be faced with the possibility of a second Clinton Presidency at risk of impeachment, which dogs her early months of power, engulfing her Presidency in scandal and paralysis. So, in fact, both outcomes probably end up with a puppet Presidency with polarised opinion in both parties each with their own reasons for despising the successful candidate. And that delivers very little change which, in time, will be market friendly.
So, strategically, there are two positions. An element of cash in case a Trump win triggers a sell-off which provides an opportunity to buy the robust US economy on the cheap and an element of cash in case a Clinton win gets into email trouble shortly afterwards which also provides an opportunity to buy the robust US economy on the cheap. A Clinton win no longer looks like a positive outcome – the knives will be out if she wins and it looks like there is more scandal to come whether or not this latest skeleton ends up being a mere Halloween prank.