Tomorrow afternoon (December 4th) at the Money Show in Sarasota, I have the honor of participating in a panel entitled “Biden, Trump, or a 'Dark Horse?' Which Candidate Will Win the White House - And What You Should Do About It”. With that in mind, here’s some advance discussion of the topic.
Now that the election is less than a year away, we are beginning to look for market reactions. So far, the fog of politics prevails. That may change with Iowa and New Hampshire or we may have to wait until March primaries to see if there is some narrowing of outcome scenarios. The mainstream pundits’ opinions continue to favor a Biden-Trump rematch, while the pollsters indicate that a large portion of the likely voters would prefer something else. Unpredictable additions include the Robert Kennedy Jr. campaigning as an independent and Senator Joe Manchin’s flirtation, with or without the “No Labels” label. Republican Nikki Haley seems to be gaining momentum as the #2 R choice while the former leading contender #2, Ron Desantis, continues to spiral down in the polls as his money sources dry up and his former supporters switch to others.
Before the Republican debates narrowed the field on August 27, 2023, here’s how Politico summarized the situation regarding politics in America: “Playbook: How Biden and Ramaswamy are alike,” https://www.politico.com/newsletters/playbook/2023/08/27/how-biden-and-ramaswamy-are-alike-00113124. We recommend the entire piece to readers interested in the presidential campaign.
Under the subhead “ALSO DEAD: REAGANISM AND CLINTONISM,” Politico notes that Jonathan Swan, in The New York Times, “uses key clashes between VIVEK RAMASWAMY and MIKE PENCE … to explain how a new generation of MAGA-inspired right-wingers see Reaganism — neoliberal on the economy, hawkish on foreign policy, optimistic in its rhetoric — as ‘hopelessly naive' and anachronistic. Meanwhile, [David Lynch, in The Washington Post ] looks closely at President JOE BIDEN’s record on trade, China, and industrial policy, and sees an overthrow of the laissez-faireism that gripped the Democrats starting in the ’90s with BILL CLINTON and extended deep into the BARACK OBAMA era.”
We will leave it to readers to contemplate what Politico is suggesting. One well-known journalist has proposed that we are witnessing the development of a 2024 election tug of war between fascism and socialism. That would suggest that the center left and the center right have been equally neutered. I don’t have permission to cite the source publicly, but I have confirmed that he said it.
In my opinion, the Republican debates have done nothing to change the financial markets’ “wait and see” attitude about the presidential election outcome in 2024. The only clear item that all Republicans on stage and the front runner, former president Trump, off stage, agreed to is that they would replace Fed Chair Jerome Powell.
Note how easy it is for any candidate to bash the Fed chair, who is not there to defend himself. Sure. But they don’t talk about the debt-ceiling debate, the rise in US government credit default swap (CDS) prices, the sequential bank failures last spring when the Fed averted meltdown contagion, or about the disruptive issues involved in the defense authorization budget fight.
Coming up in January and February will be the budget fight again, as it has been “kicked down the road” again and again in the dysfunctional House of Representatives. Will there be a shutdown? It’s very possible, as the players have learned to avoid the military pay dates and are now playing their dangerous “chicken” game adroitly with the calendar.
Will there be a continuing resolution without any budget passage in both the House and the Senate? The default result of no budget is in the present law and will send spending below previous year’s levels. Can the two chambers get to a conference? The extreme alt-right Freedom Caucus refuses to discuss any revenue-side improvement. The extreme alt-left Progressive refuses to discuss spending cuts, and some of its members would confiscate the entire wealth of billionaires. Note that if you confiscated the entire wealth of the top 1%, the budget would still not balance. Also note that if you exclude the so-called nondiscretionary expenditures, the rest is so small that without a revenue increase (a tax of some type) nothing would work well without major policy changes.
Also note that if we could add 10 million new working and tax-paying immigrants who are young, and the fiscal balance would change; but that takes immigration reform, not a closed border and not the expulsion of many who are currently working in the US.
Here’s some advice to media, which I do not expect will be heeded. When a candidate takes the debate stage and promises “ten million new jobs,” why don’t you ask him/her where those workers are going to come from? Remind that candidate that there are already millions of unfilled job openings in America and that there are millions of people who would like to come to America and take those open jobs if the Congress would do its job and reform the immigration process.
Meanwhile, former president Trump interrupted his "legal activities" to pronounce that he would massively raise tariffs when he is re-elected president (“Trump vows massive new tariffs if elected, risking global economic war,” https://www.washingtonpost.com/business/2023/08/22/trump-trade-tariffs/). So far, financial markets have ignored his threat.
Note that I opposed the original tariffs when Trump imposed them and then subsequently increased them. In my opinion, tariffs are paid for by Americans as a hidden form of sales tax and are inflationary. I wrote about this several times. The tariffs are collected by American companies, and they are remitted to the US Treasury by American taxpaying entities. They cause prices to rise, and they diminish the competitive pricing structure of internationally traded goods and services that are subject to those tariffs. They encourage retaliatory tariffs by foreign governments. They trigger a vicious cycle. Tariff wars have a long history of increasing costs and decreasing competition. Yet, I haven’t seen any of the Republican challengers to Trump tackle his position on tariffs head-on.
Meanwhile, the Biden administration has not rescinded the tariffs and continues to employ some of them.
There are many causes of the inflation surge that the Federal Reserve is fighting with higher interest rates. Many hours are consumed in debate about Fed policy. How many have noted the inflationary impact of tariffs?
I will leave it to readers to recall the last time they saw the tariff debate on any of the financial news outlets. As this is written, financial markets are ignoring this risk.
David R. Kotok
Co-Founder & Chief Investment Officer
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