Never in recent history, or perhaps ever, has there been a deeper divide between lovers and haters of a presidential candidate as there has been for Donald Trump. Like him or not, it is now apparent he is on his way out. After the press outlets declared Joe Biden the winner more than two weeks ago Donald Trump called on every resource at his disposal to dispute the results. Back in 2016 when Hilary lost there were grumbles of election fraud, after all she did win the popular vote, and to be fair what election is not trailed by a degree of voter fraud speculation. However, nothing in US democratic history can compare to what we recently witnessed. Trump stood defiantly, glowering at his detractors, firing staff, and heightening mistrust amongst a dangerous and sizeable element of the public. Trump’s lawyer, Rudi Giulani, recently shocked the world with an attacking defense styled press conference where he stated that the election would be overturned on accounts of voter fraud, regardless that Trump not only lost the electoral college vote by seventy five votes but also the popular vote by over six million. Giulani’s press conference was deemed ‘the most dangerous hour and forty five minutes of television in American history’ by Christopher Krebs, who until he was fired recently for his statement, headed up the government’s anti-electoral misinformation task force. Donald can lay claim to perhaps the greatest US economy, a glamorous accolade to shine and show in the trophy cabinet at his Mar-a-Lago Club in Florida. The post-loss antics of the Trump campaign were beginning to threaten his legacy and the democratic foundations of the
United States, until Monday the 23rd of November when Donald finally acceded to the terms of the constitution and began the process of transferring power to Joe Biden, and in doing so salvaging the remains of his legacy.
Why was Trump so good for the markets and do we have to fear the end of the Trump era? The answer may be found, amongst many possibilities, in the understanding that markets are not purely logical. Often emotion, not sound reasoning, can push markets, particularly during the highest stretches of a bull run or the lowest reaches of a bear. According to a corner piece of economic theory, ‘The Efficient Market Hypothesis’, markets are a true reflection of the prices of the underlying assets and that everyone has access to relevant and complete information, therefore all market players will make well informed, logical decisions. One thing we should all accept, especially of late, is that the human condition can be logical and sound just as easily as it can be scared and irrational. If this is true, it can be concluded that markets can exhibit inefficient pricing and movements. ‘Make America Great Again!’ had a nice ring to it and the markets loved it, evidently. Donald rode the wave of momentum push and near negative interest rates for years, however was it real and sustainable? What we have seen is how fragile the markets are at these levels: – 12.5% in March and – 4% in October for the S&P500, respectively.
Since 1932, an incumbent president has never failed to win a second term, unless the country had been in the clutches of recession. History has shown that markets usually react positively when a republican candidate wins the election, as the Republican manifesto is one that generally favours economic growth over the more ‘leftist’ policies of the Democratic Party. We’re living in radical times, not only has an incumbent president lost the election after an historically strong market run, but the markets have edged even higher on absorbing news that the democratic nominee, Joe Biden, had won the election.
A reason for this could be that the American democracy has survived and that the people, and the market, got what they wanted. The election results have proven that the country, well at least by six million counts, wanted a change in leadership, which they now have in Joe Biden. But what people have not been speaking about too much is the position of the Senate and House of Representatives. To really affect change and move like a maverick a president needs to have significant support within both the House of Representatives and the Senate. While Joe Biden won the presidential race, his Democratic Party made a poor showing everywhere else, losing a few seats within the House of Representatives, and not securing any greater influence in the Senate. Market pundits point to this as reason why the markets have been relishing the election aftermath, because without full senate support for Biden there is less risk of regulation and higher taxes. There will also be less chance of ‘easy’ fiscal support for Biden’s strategies, this has already been factored into markets as illustrated by a push in value stocks over momentum along with a rise in US longer dated bond prices. Bond markets assumed a divided government would greatly reduce the chance of debt-funded spending on stimulus and infrastructure next year, and thus less bond supply.
The Covid Question
Why was Trump’s administration seemingly so ignorant of Covid? Not because it was a threat to the American people but rather a threat to the economy, the one big tenant of security his presidency and campaign leaned on. March and October this year saw big sell offs in US financial markets that must have hurt the Trump administration, as the market reeled on news of new lock downs and second waves, or as the cold hard fact settled that hundreds of thousands of Americans had lost their lives, with no end in sight to rampant infections. A mounting concern for the US was the consequence in terms of virus spread the longer the election dispute continued. Until Donald Trump announced on Monday the 23rd November that he was granting funding and access to resources and information to Biden there was deep concern that the virus, left ‘unattended’ would run rampant. A bigger Covid impact would certainly hamper Joe Biden’s ability to hit the ground running, perhaps this is something that would please Donald as he walks out the door in two months’ time.
On Trade
“America is strongest when it works with its allies,” Biden said on Monday reaffirming his trade friendly sentiment, which is in contrast of that of his predecessor’s relentless pursuit for win-lose agreements in favour of America. Lest we forget the Mexican wall story, ‘We’re going to build a great big wall, the likes of which have never been seen before, and the best part is that Mexico is going to pay for it.’ A distant rumbling of concern for South African exporters has been the issue of the African Growth and Opportunity Act (AGOA). This act is up for re-negotiation in 2025 and the safe money was on Trump re-negotiating a more US friendly agreement at that time if he had won a second term. Under Biden the act is set to be protected or even enhanced allowing for stronger and less restricted trade between South Africa and the US. This also plays nicely to the narrative of a strengthening rand.
On Climate
“Anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that ‘my ignorance is just as good as your knowledge.’”
In this age of misinformation, it is not hard to get sucked into easy rhetoric, such as ‘climate change is natural, and we have little to do with it’. One just needs to watch David Attenborough’s latest documentary and witness statement, ‘Life on our Planet’, to realise how dangerous and apathetic that position is. We have dominated nearly all the natural world, consumed eighty percent of the big fish populations and devastated half of the natural rain forestations on the planet. On watching the documentary one appreciates the scale of ruin and a sense of responsibility is whole-heartedly felt. For us to stand a chance against what’s steam rolling towards us, change will need come from our leaders. The biggest influencer in this regard must be the leader of the biggest economy and carbon dioxide emissions producer, the United States. America’s withdrawal from the Paris Climate Agreement in 2017 was a BIG RED LETTER message that economic growth needed to be achieved at all costs, and that Trump was committed to galvanizing the fossil fuel industry. Biden has not proven himself yet, but his commitment to re-subscribe to the Paris Climate Agreement and focus on renewable energy industries will certainly boost developing global megatrends shaping the future of green energies and climatic control. The world is heating at a pace, scientists warn, that has us set on a trajectory towards extinction. If the US could set an example by prioritising the climate which other countries followed, then she would have gone some way in restoring global confidence in America’s ability to ‘save the world.’
The Biden effect, unsurprisingly, has been gentler than that of his predecessor. One would think that markets are now breathing a sigh of relief, a cooling off period so to speak. Here in South Africa we have experienced a fantastic market push correlated to a strengthening of the rand and bond market which has rewarded investors and created some noteworthy investment opportunities. Perhaps Biden’s rhetoric of a win-win solution to trade deals is what the world is wanting now, how this plays out will need to be seen over the years to come. Warren Buffet has been warning of an overheated US economy for some time, perhaps a slowdown is the tonic needed to hopefully avert or tame an expected cliff drop looming in the future. It’s now Joe Biden’s turn to shape the future of the US economy and global positioning, but if history has taught us anything it has been that in politics the degree of correlation between talk and action has historically been spectacularly low.
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