Let’s be clear, risk markets want Hillary Clinton as the next President of the United States. She represents the establishment, and at worst (or best, depending on your point of view) “look into” some Wall Street malfeasance, but her economic policy will resemble that of President Obama. Markets love stability and even with a black man followed by a woman in the White House, as rational people realise, it’s not the color of your skin or gender that matters when dictating policy.
And then we get to Drumpf. The Donald is a nightmare for markets because of his irrational, off the cuff and unstable diatribe. Sure, there are a sprinkle of solid economic reform policies amid the joke that is his party platform, but they would be disruptive at best, disastrous at worst.
Not quite a Black Swan, more an Orange Duck. Here’s more from Citi as it previews the general election, via ZH:
Policy uncertainty began to rise sharply when the very different prospective policy frameworks offered by the two candidates came into focus in the run up to the two party conventions. The extent to which uncertainty-induced drag persists will depend upon the ability of the new President and Congress to calm voter, investor, and global observer fears associated with the regime change.
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Luckily, electing someone who clearly shouldn’t be President is neither a new thing (read Nixon) nor is thwarting their efforts to disrupt the status quo. Remember, the entire House of Representatives and a third of the Senate is up for re-election.
As Citi continues:
Despite the rhetoric, we believe a more benign, and most likely, scenario is a continuation of moderate US growth despite the uncertainty-induced drag in advance of the election. Congressional and judicial limits to Presidential power should moderate policy proposals that are enacted, relative to what the individual candidates hope to achieve.
We posit that the uncertainty stemming from polices proposed on the campaign trail may be muted by the safeguards built into the US political and judicial system.
Checks and balances likely will transform aberrant polices enough to produce more reasonable and moderate economic outcomes.
However, the track record of this election has been extremely unconventional. A post-election environment dominated by influential “outsiders” may weaken or overthrow many institutionalized safeguards against extreme Presidential actions.This may be a significant source of “black swan” events and further economic disruptions that justify prolonged and growing uncertainty well after the election.
The black swans between now and November includes Trump replaced by another Republican candidate before the election, a third party candidate (Green or Libertarian) upsetting the current gap between Trump/Clinton, particularly betrayed Bernie Sanders voters, and a new look Congress that may be overwhelming Democratic given the Republican Party’s complete fall off the reality train.
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Right now, Trump is losing in the polls, down 6-10 points depending on the source, and thankfully the vast majority of young Americans are against the Orange Wonder.
No matter what the polls say, this is still a major risk to your portfolio until early November. Polls have done a poor job of capturing anti-globalisation sentiment and the US may be no different.
