You may not respect him, but have you ever seen someone with more luck than Donald Trump? I put it to you that you haven’t and I would wager that neither has Hillary Clinton. Three debates and a decade old video of Donald Trump lewdly discussing how he likes to grope women seemed to have moved him from a better than outside chance of winning to a massive and decisive loss. His obituary had practically been written and pundits were getting comfortable that they were never going to have to say “President Trump” with a straight face.
The reopening of the email investigation by the FBI has breathed second life into Trump’s campaign, reinvigorated a dejected base and rekindled the seemingly pathological hate many have for Hillary. Trump’s candidacy is still a long shot, but not as long a shot as it should be.
The question that has lurked in people’s minds since Trump actually won the nomination for the Republican nominee is “what if he wins?” Normally it would mean very little, much of America’s budget is spoken for, in the form of military, social security and domestic payments as well as interest on debts. But Trump’s promises have people scared. Beyond the impractical (build the wall) and unlikely (make Mexico pay for the wall) Trump has promised to change the economic landscape in a big way. He wants to tear up trade deals and have a trade war with China. To Wall Street and other hubs of investing this sounds insane, and people who understand these agreements know that trade deals can not simply be torn up without serious repercussions. These promises make investors heads reel with fears of economic collapse.
But asking “what happens if he wins” is really several questions stacked on top of one another. The first question is “What happens tomorrow?”, the next is “how likely is Trump to follow through on his agenda?” and lastly “What should investors do?”
The Day After Tomorrow
Predictions about the market impact of a Donald Trump win range from apocalyptic to the more mundane, but a sudden sell off wouldn’t be surprising. In fact given the time frame between the election win, the time it takes to assemble a new government and the ability to pass legislation, its unlikely the much would happen policy wise initially, and a sudden sell off would be met with growing confidence in the market as investors and market makers bought cheaply sold companies and economists saw economic health remain steady. That might amount to a phony war while real changes remain over the horizon, but the events following BREXIT might provide a useful guide: an immediate sell-off followed by a market bounce, but with a large amount of uncertainty looming.
How likely is Trump to follow through on “the greatest wall you’ve ever seen”? Probably not that likely. A lot of Trump’s plans rest on other people helping push his agenda, and while he holds the bully pulpit that role is only effective so long as he’s popular.
In Toronto, Rob Ford’s election stunned a lot of city councilors and led to some hasty changes of allegiance, but as time wore on and Ford was seemingly more unreliable, his opponents were emboldened. Trump may not even get the same grace period and early support, having won a highly contested election in which all the guardrails came off the political system, lots of people will feel better about challenging his success than making him great. But given the uncertainty of power and how craven many politicians seem to be, its likely some of his ideas will find their way into action. While he’s unlikely to actually end trade agreements, spending increases on defence and border control and new tariffs on countries like Mexico won’t be surprising.
What Should You Do?
To start with? Nothing. America’s economy looks strong and competitive. Job growth has been fairly consistent and GDP continues to rise. The standard approach for politicians is to denounce your opponents accomplishments and them claim them as your own after a certain time. I can only assume that the temptation will be for whatever president/congress to declare victory and say that not every aspect of a Trump’s agenda is needed. Whether that satiates his followers has yet to be seen, and if Trump finds political appetite in pushing his agenda, that may ultimately lead to a more insulated, poorer nation; one less appealing to invest in.
The most likely scenario?
Trump loses and nothing goes back to normal.
Trump’s most damaging language may yet be his view that the election is “rigged.” Initially meant as a shorthand for media bias, it has morphed to be an accusation of actual vote rigging, and is coming dangerously close to demanding voter intimidation to “preserve democracy”. The outcome of this election may leave us much of where we were before, with Republicans comfortably in opposition to a democratic president who they feel no need to work with.
Politicians are public servants, but ones frequently given to bouts of moral cowardice. This is a result of being elected and needing to satisfy an ever more diverse group of people to hold on to power. The easiest way of holding on to power is to grab whatever tent pole groups the largest number of people together. In 2009 that tent pole was the tea party, which opened the door for a number of savvy politicians to take seats away from older and more principled people, even as the language became more extreme. For at least several decades it has also been quite popular to say that one “isn’t a politician”, a line so tired that it practically begs to be called out on live television.
These trends only exist because they resonate with enough of the public to facilitate getting elected. If Trump fails he will have still demonstrated how much more effective one can be ignoring the (now very few) niceties of politics. If you thought we had seen the last of people literally talking about penis size and advocating war crimes in an election cycle, think again. A number of junior and potential politicians will see this as a path to higher office and getting media attention, two things in short supply for any ambitious politician.
In the end, I expect more of the gridlock that has defined the past eight years, and for some reason I don’t think that will bother Wall Street one bit.