Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Steen’s Chronicle: This election more up in the air than many believe
Steen Jakobsen
Chief Investment Officer
Summary: The outcome of the 2020 US Election is highly anticipated, but there is far too much that will not change after Election Day, even if we get a shock victory from Trump, a victory I still maintain is more likely than most believe, even if Biden likely to eke out a weak victory.
I, like fivethirtyeight.com have mixed feelings about 2020 election
- In 2012 the consensus was for a close race, despite Obama ending up winning and by a solid, no doubt margin.
- In 2016 the overwhelming consensus for a Clinton win was incredibly wrong, as she was most unelectable official in US history.
So my call and the fivethirtyeight.com calls have been based on who would lose, not win!
The 2020 US Election sees two old white men from the elite side of US battling for the Presidency, my take is:
- A Biden win de facto means more K-shaped economy, society and lack of deep reforms
- A Trump win de facto means more K-shaped economy, society and lack of deep reforms
Yes, it’s all the same. Yet another round, even if a super-sized one, of extend-and-pretend. The Fed balance sheet, currently $7 trillion, will go to $30 trillion before the next election, the government deficit will still be at 8-10% of GDP, social riots, a youth revolt and no Green transformation. When you elect from small pool of elitist politicians you will get elitist governments!
A President Biden would look like a President Carter in 1977-1980. Lots of hope but the domestic economy, severe acceleration of inflation (and stagflation) and external factors (China, anti-globalisation) will make him a one-period President delivering few or no reforms.
A President Trump would look like …well… like a Trump President from 2016-2020, but this time entirely bypassing Congress and Senate through wider and wider use of executive orders and policies rooted in a waning respect for rule of law. We can forget any reforms, much less any healing from the divisiveness of the last four years. Rather, we’ll simply see another Fed-issued blank check for infinite financial leverage without accountability, a process started by the worst central banker ever, Mr. Alan Greenspan when he bailed out LTCM in 1998.
The 2020 election, according to fivethirtyeight.com and other polling analysis outfits, sees Trump at about a 10% probability of winning. It’s still a probability which could happen. The mathematical odds are more difficult, but the “animal spirits” on both sides of a very divided America will see both camps activated and aggressively trying to cement their vote – mostly on the anti-Trump/pro-Trump fault-line. Biden is even less inspiring, if less hated than Hilary Clinton.
- There is too much focus on high turnout being Biden positive. It seems to me that there are surprisingly many Trump people turning up, maybe for the first time in years as they feel the naïve narrative of “the American Dream” is about to die with a “Communist left” taking over (not my definition!)
- There is definitely 10-15% of Trump voters who have been hiding in what they see as “False Polls” – this we have shown before in our Election coverage.
For more on a scenario which could see Trump regain the White House read this excellent road map.
Also please, pretty please check out John Hardy’s Election coverage since a week ago. All details of the scenarios are discussed, with extensive coverage of when different states report. Simply stunning work by Mr Hardy (In full disclosure I should mention that John believes firmly in Biden sweep, and his premise and forecast is thoroughly documented below).
- Election Countdown: Zero Hour - What the US Election result won’t change
- Election Countdown: T-minus 1 day – Podcast roundup
- Election Countdown: T-minus 2 days – What if I’m totally wrong?
- Election Countdown: T-minus 3 days – Election Night 2016 vs. 2020
- Election Countdown: T-minus 4 days – The polls are not tightening
- Election Countdown: T-minus 5 days – The Youth Vote will be the decider
- Election Countdown: T-minus 6 days – Scenarios and market reaction
- Election Countdown: T-minus 7 days
Conclusion
This time tomorrow we won’t have a true paradigm shift as regardless of the outcome, the US has simply quickened its march another step further into the end game of its extend-and-pretend financial and political model. No outcome will change that.
Market and consensus says Biden sweep. My gut tells me, not so fast. I still see highest odds scenario one of a contested/narrow Biden win overall, but damn it’s going to be long night.
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