if Biden wins…

if Trump wins…

As I’ve suggested a number of times before, the investment implications of a second term for Trump are relatively straightforward: ultra-low interest rates, continuing government suppression of economic growth, dollar weakness, the beginning of corporate and individual capital flight, further deterioration of the American “home-of-the-free” brand. Pretty awful for the country, especially so, in vintage Trump style, for Trump’s supporters.

As it has been for the past three years, the stock market would likely remain buoyed by near-zero interest rates, a sluggish economy and the absence of other liquid investment opportunities. The same capital flight pattern within the stock market that we’ve seen since 2018 would likely continue to prevail–avoiding stocks tied to the domestic economy and embracing those with international revenues and the smallest physical footprint in the US.

Weird that no one has been talking about the stock market’s negative Trump verdict, but maybe this is a little too esoteric to get into a campaign ad.

if Biden wins…

He’ll face the Augean task of repairing the surprisingly (to me, anyway, and I had low expectations) extensive economic and social train wreck Trump has created during the last four years. My thoughts:

–I think the dominant near-term economic issue remains the pandemic, and in particular Trump’s efforts to discourage Americans from following medical advice about mask wearing and social distancing. I presume he would continue to do so if shown out this week. But he would no longer have the authority of the Oval Office behind him, and the consequent reluctance of government medical authorities to correct his misinformation.

The stock market questions:

—-how long will it take to get the pandemic under control (next Spring?);

—-when will the economy begin to return to normal;

—-when will investors begin to shift away from stocks that defend against the pandemic to beneficiaries (like hotels, restaurants, airlines…) of a return of commerce to normalcy;

—-how to play stocks like Zoom, which have been gigantic pandemic beneficiaries but which may also have a port-pandemic life.

A corollary of the last topic: how many of the work/lifestyle changes induced by the pandemic will endure. For example: for me, kayaking, indoor rowing and hiking mean I’m not going back to a gym anytime soon. On the other hand, the press is full of New Yorkers buying homes in Montana. Tom, a friend who grew up there, thinks that “madness” will stop once newcomers see the bitterly cold and snowy winter.

On the shift away part, the market has already begun to reembrace Consumer Discretionary over the past several months. One could also read the mid-sized tech stock selloff of the past few days as the first step in reevaluation of pandemic beneficiaries (I’m less sure of this).

Human costs aside (so far the US has had 300,000+ deaths more than usual during the pandemic, more than than all the American military killed during WWII), one of the major economic negatives due to Trump’s coronavirus bungling is what will likely end up being a several trillion dollar increase in the national debt. Add that to the $1 trillion loss over the next decade or so from the Trump tax cuts for the wealthy/failure to reform the tax system, and the US debt/GDP begins to make the country look like an Argentina-style fiscal mess. (Argentina may be too extreme, but it’s the right feeling.)

-the gigantic budget deficit. The typical solution to outsized government deficits is that politicians engineer a currency devaluation so they can repay in currency that’s worth less, by, say, 30%, than what it borrowed to finance the deficit. Because of this, a currency begins to slide once any whiff of devaluation is in the air. And Trump has already also undermined the dollar in this fashion by his suggestions that the US not pay interest on Treasuries owned by China, and consider bankruptcy a way of washing away accumulated debt.

To my mind, Senate Republican resistance to allocating more pandemic relief funds, needed in good part because of Trump’s superspreader behavior (kind of Jim Jones redux), comes from this worry.

I don’t know how the deficit/devaluation issue will play out. The stock market relevance is that a weak domestic currency makes foreign earnings more valuable, and vice versa. A weak currency makes imported goods more expensive, and vice versa. A weak currency is bad for bonds.

A Trump defeat would presumably give a lift to the dollar.

tariff wars/immigration. Yes, China is the greatest economic and political rival of the US today. Yes, I believe personally that the US should act to retain its leading position in the world. My complaint is about execution. Unfortunately, in this arena we see Trump the poleznyy idiot on full display. His closing the border to immigration has pared maybe a third, maybe more, from trend GDP growth. The arbitrary and senseless grab bag of his tariffs has spurred Chinese industrial development, while retarding US growth and damaging Trump’s supporters in particular (again, no surprise here). Another shoot-yourself-in-the-foot move. As is the case with the huge government debt Trump has run up, some tariff/immigration growth-killers may be long-lasting. But I think Biden would undo the looniest of the Trump program on day 1.

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