A generation ago, the brokerage house where I was an equity portfolio manager hired a political commentator. In one of his first pieces, he said that the Democrats had a social program but no economic one, and that the Republicans didn’t believe in much of anything but were flirting dangerously with a religious movement that aimed to trigger a war in the Middle East (he didn’t specify the location, though) that would trigger the second coming of Jesus and the end of the world.
He didn’t have much else to say, however, and he didn’t generate much revenue for the firm, so he was fired a year or so later.
He did, however, capture the economic ineptness of the Democratic party in general and the power of fundamental Christians in shaping the Republican agenda, both of which continue to this day.
My wife and I have been in France for the past few weeks, and more or less off the grid. Two things relevant to the current US stock market stand out to me from our trip, however.
–We went to a Holocaust museum in Lyon, located in a former Gestapo headquarters. It was kind of surprising to see how closely this WWII stuff resembles the ICE playbook.
–a fellow traveler needed a doctor, who while he was treating our friend mentioned that his reaction to events in the US was a deep sadness that we’re no longer the shining city on the hill of the Reagan days.
The story of the US stock market since Trump’s inauguration, and the administration’s, witting or not (my guess is either not or Trump doesn’t care), deeply anti-economic growth agenda: avoid anything that depends on domestic economic strength and embrace instead firms that have costs in the US and revenues abroad. This is the classic emerging markets strategy.
Especially attractive are companies like software architects, whose charm is in part due to the fact that their infrastructure and intellectual property can be on a plane this morning and in, say, Canada within a few hours.
If we look at the domestic consumer, this has been a bad place to be since the Trump inauguration–and especially so for companies that serve the less affluent consumers who, ironically, form a strong pro-Trump bloc. Many of these companies have brand names and distribution networks that in theory should make them attractive to either foreign or domestic acquirers. For foreign-based companies, however, the home country reaction to such a move is likely to be very severely negative, given the fascist vibe of the adminstration.
If the election on Tuesday turns out to be an endorsement of Trump policies, my guess is that the currency weakens, as do Treasuries–and the market continues to focus on tech companies that have plant and equipment outside the US or specialize in software. Investors will likely also begin to shift more aggressively to non-US stock markets–for the first time in a quarter-century. My guess is that interest would center on Japan and China, but that may only be that I’m more familiar with those markets than I am with the EU.
If the election as a strong statement of disapproval of Trump policies, my guess is that the dollar will strengthen and domestic low-end retail will begin to perk up for the first time since the inauguration.