Elections won’t matter to markets, chaos might
Only low-stakes questions posed in pointless shoutfest
Enjoy this special edition of dissident business news from Contention! Like the perspective? Share it with friends and on social media:
U.S. President Donald Trump and former Vice President Joe Biden had their first head-to-head debate in Cleveland last night, marking the home stretch of an exhausting multi-year election campaign. Television audiences for the debate were large, though few watchers expected to change their votes based on the exchange.
Contention has not reported on U.S. elections at any length, but the debates are a good chance to talk about the significance -- and more importantly, insignificance -- of the elections on capital markets.
We have not talked about the presidential race for two reasons:
We limit our coverage to topics on the business pages -- or which ought to be on the business pages -- and they have not focused on the horse race of the campaign.
Coverage of the race is all-consuming in virtually every other politically-minded publication. We trust our audience to find that news elsewhere.
Under normal circumstances business observers would have little real concern with the race. Trump’s abusive style and corruption aside, his policy profile has been boilerplate Republican fare -- tax cuts and regulatory rollbacks. His “America First” skepticism towards free trade orthodoxy breaks with his predecessors, but is part of a global trend predating his election.
Biden’s policy would not be that much different. Markets performed roughly the same under Obama and Trump, and even billionaire Biden supporter Barry Diller says, “As far as business is concerned, I don’t think long term there’s going to be any particular difference” between the two candidates. Industry lobbyists anticipate somewhat higher corporate taxes under Biden, and a less favorable regulatory environment.
Large firms will navigate these changes, and some smaller firms may get squeezed into selling out or going under. Just like the shift from Obama to Trump, however, the differences will likely be negligible. Wall Street money has already bet on Biden’s behind-the-scenes promises to put his most progressive campaign pledges on the back burner. His comfort with the previous free trade status quo only sweetens the deal.
But these are not normal circumstances, and markets have registered unprecedented uncertainty around the election process itself. Futures contracts betting on market volatility the week of the election are the most expensive event risk hedge ever, and now these volatility bets are extending later into November and December. Markets -- including gold, interest rate, and currency futures -- expect chaos around the election outcome.
Their bet: the United States is about to face an irreconcilable divide between two political demands: “Count Every Vote” and “Follow the Rules.”
Tens of millions of unanticipated mail-in ballots and intentional antagonism by a corrupted postal service could result in large numbers of late or incorrectly cast ballots. Biden’s Democrats -- almost certain to win a large popular plurality -- will press for all of these votes to be counted. Trump’s Republicans -- with a potential edge in the Electoral College -- will demand that officials follow the rules disqualifying the ballots.
Partisan election administrators, unelected judges, and potentially even GOP legislatures will get to decide the dispute. Every vicissitude of the process could swing markets one way or the other, paying off the volatility bets investors are making today. The dispute will be over on Dec. 14 when the Electoral College votes, but unless one side or the other wins by a large enough margin, roughly half the electorate will question the outcome’s legitimacy.
This is yet another symptom of a fading empire consuming itself to try and survive, but its ultimate stakes are low. The questions posed by our deteriorating conditions are not a part of the debate -- not last night, not ever:
How do the candidates explain the secular decline in growth and profitability extending across periods of rule by both parties? What do they plan to do about it?
What do they intend to do if they can't reverse China’s economic ascent? How do they balance the costs and benefits of pursuing this rivalry versus collaborating with China for global technological progress?
If the long-term viability of human civilization can only be secured by jettisoning consumer society as we know it, what will their choice be?
Everyone knows Trump and Biden’s answers to these questions already, which is why Chris Wallace didn’t need to ask them. All the turmoil awaiting an election about nothing important is yet another indicator of the downgrade at hand.
Disclaimer
Our only investment advice: Don’t expect any more election coverage from us soon.
Contact us with feedback or any stories we might have missed.
Photo Credit: CSPAN