I did not watch the Republican National Convention live this week. But did cacth some snippets of speeches the following mornings on CNBC, and have read plenty of reaction pieces. My mildly informed take-away is that the event did little to sway undecided voters and yet will cause a temporary poll move this week from the onslaught of media attention. The DNC holds their convention next week and Clinton looks set to announce a VP today to try to re-capture some of the Summer doldrums news cycle. Trump’s speech last night probably solidified his standing with the “law and order vote” as that’s what it seemed focused on, and his choice of Pence as running-mate probably relieved some social conservatives. But those are votes that were never going to go to Clinton. The strong performances from Trump’s kids will have little effect on Bernie’s peeps as they all look to be coming around to Clinton, and likely had no sway with minority groups.
Speaking of minority groups, one of the most interesting speeches came from legit self-made billionaire, tech entrepreneur and prolific early investor Peter Thiel. His presence checked a couple of boxes you don’t normally see on stage at a Republican convention. A Silicon Valley insider, and one who is openly gay. Thiel seems to be a contrarian at his core, and one not afraid to burn bridges in the Tech community (see Gawker lawsuit). But his support of Trump is an outlier in Silicon Valley (there are dozens if not hundreds in open disdain). The politics there tend to be liberal, libertarian or a mix of those two, and with Silicon Valley being in the greater San Francisco area, Trump’s chosen running mate (not a big supporter of gay rights) makes 2016 a head scratching one for Thiel to be out there so publicly.
So those are my thoughts on the convention itself and Thiel’s speech, but what does that have to do with the markets? A lot actually. Obviously my opinions have prior biases, both through positioning and politically in my gut. While many in financial punditry will tell you they avoid having their political beliefs seep into their market views (always know your prior biases and have a mental checklist) it’s hard to separate that a lot of times. Think about all the money that’s been lost over the past 7 years by people convinced that The Fed was all too powerful (and somehow at the same time inept) or the bond vigilantes who assumed we’d be at Wiemar Republic inflation by now, or those that assumed Obamacare would wreck the economy. The doom bunkers turned out to be pretty lonely.
But with the current state of the global economy, who’s guiding the ship hasn’t been as important in generations. The reliance our economy has on decisions made by our elected officials and those appointed by them is massive at this moment in globalization. Again, let me be clear, I am a registered independent. I have voted for both Democrats and Republicans in my adult life. This time around count me in as #NeverTrump. That does not exactly make me for Clinton, but it is my belief (as outlined last month in this space MorningWord 6/8/16: If you stand for nothing, what’ll you fall for?) that Trump at the reins of the U.S. economy and our military is a massive risk to global financial stability. We may disagree on this, and it may piss you off, and that’s fine. But don’t take it personally. It’s just politics. You may feel differently. But let me explain why I feel that way.
Trump is part of a reaction we’re seeing globally that’s encouraging a withdrawal from the rest of the world. Some of it with good reason (the benefits of globalization been far from evenly distributed, the system feels rigged, etc.) but a ton of it seems based on fear. Trump’s speech last night was scary as shit. And the reaction to all that’s scary in the world tends to be to crawl under a desk and close your eyes. And that impulse is self destructive.
Look no further than the aftermath of the Brexit vote in the U.K. to see the adverse effects from a nationalist/ populist “FU” vote aimed at political elites. Yeah, their stock market has regained all of its post vote panic losses, but nearly a month on the British pound, (whose trading on any given day occurs in multiple of that of UK equities) is still trading at 30 year lows:
The point of this post is not an appeal for your vote in November to go one way or the other. I’m not in politics. But I do think it’s worth considered the financial risks of isolationist urges. In one fell swoop on June 24th, the value of U.K. citizens bank and investment accounts in denominated in British Pounds lost 10% of their value. And this story is still playing out.
My overall market view with the S&P 500 (SPX) a few ticks from all time highs, and spot VIX a few ticks from 52 week lows has nothing to do with this election. I still think we have the usual headwinds about global growth, the likelihood of an external factor like last Summer’s Chinese deval or something similar remain ever-present. But those events are not foreseeable or time-able. That’s why I said yesterday that those playing for a continuation of this breakout should look to define risk. But whether you agree or disagree with economic policy over the last 8 years overall, you have to admit that they brought stability after one of the scariest economic scenarios the world has seen in over 75 years. Clinton is not likely to deviate for the most part (which may be where you are hung up, I get that). But, Trump clearly has to, based on the rhetoric of his campaign. And that’s a massive uncertainty.
For investments, that’s uncertainty vs a near certainty at a very fragile and volatile time. So keep an eye on those polls and know what they entail for this Fall.
So here’s my political prediction using market lingo we can all understand. Trump will close on a high this week. I suspect Clinton starts to control the media cycle starting today when she announces her running mate (signs point to it being a safe choice like Tim Kaine). And assuming there are no big gaffs at next week’s convention, she will start to rebuild a lead into and out of the debates (that will be must see TV) and possibly expand on Obama’s margin of victory over Romney in 2012. But that’s not necessarily a blowout. So you do need to keep an eye on the poll of polls to get a sense of any market reactions.
As I did last month, I’ll end my political missive with a quote from Lin-Manuel Miranda ‘s Hamilton musical, in which Aaron Burr advises a few young revolutionaries including Hamilton:
Geniuses, lower your voices… You keep out of trouble and you double your choices
I suspect as it relates to our markets, and the global economy, a victory for the certain over the uncertain means doubling your choices.