A Rare Look into My Political Crystal Ball
A number of you have written in asking for me to weigh in on the coming election and its impact on the markets.
As you know, Money & Crisis is an investment newsletter. So, I try to steer clear of politics for the most part. However, there are times in which the political arena has a profound impact on the markets. And at those times we need to address what’s happening in politics.
Having said that, none of what I’m about to write is to be considered a political endorsement. I’m simply outlining what I see happening based on my framework and what my sources tell me.
Obama Controls the Democrat Party
First and foremost, it is clear that former President Barack Obama is now running the Democrat Party.
We know this because Senator Kamala Harris was his chosen candidate for the Presidency (this is why he failed to endorse Biden for so long).
Harris ended her campaign with only one delegate and is not particularly popular with African Americans, so Biden’s choice of her for Vice President makes little sense otherwise. Biden literally gains almost nothing by putting Harris on his ticket… unless he did so solely at former President Obama’s bidding.
We gather other evidence of former President Obama’s control of the Democrat party from the fact that Joe Biden has surrounded himself with Obama veterans both in his campaign and in his future cabinet.
In this regard, a Biden Presidency can be seen as a kind of “Obama third term” in which a future President Biden would likely be in office for a short period, before stepping down and handing the reins to Vice President Harris… who would be taking her orders from former President Barack Obama.
The Impact of an “Obama Third Term”
This would translate to a socialist economy featuring greater regulations, higher taxes, and more government control of the economy, very similar to that which we experienced from 2008-2016 (Obamacare, Environmental Protection Agency overreach, etc.)
In this scenario, the stock market would likely initially crash, and then rebound as the Fed began to intervene to prop things up (the Fed was involved in the market for over 80% of the first two Obama terms).
I would expect the U.S. dollar to drop considerably and gold and silver to spike (both are viewed as safe havens during times of government overreach).
Bottomline: a Harris Presidency would feature a weak economy but likely a relatively strong stock market in the intermediate term provided the Fed continued to intervene on a regular basis after the initial crash.
This would ignite a weak U.S. dollar and bubbles in gold/ silver and other inflation hedges. And it would eventually lead to a debt crisis as the U.S.’s already massive debt loads become truly critical.
What If Trump Wins?
By way of contrast, should President Trump succeed in securing a second term, we could expect the stock market to explode higher and likely begin entering a massive bubble.
One thing President Trump understands, that his opponents fail to grasp, is the negative effects of regulations on the economy. Having made his fortune in the highly regulated world of commercial real estate, he has seen firsthand how reduced regulations means lower costs and faster production.
With that in mind, I would expect a second Trump term to feature aggressive regulation-slashing policies in the U.S., particularly in the industrial / manufacturing sectors.
President Trump has made it clear that he views domestic production of strategic assets (oil, natural gas, rare earths, and other items) to be a matter of national security. So, I would expect to see a lot of mining and manufacturing projects get the “green light” if President Trump secures a second term.
I would also expect to see stocks enter a truly legitimate bubble due to a strong economy combined with ongoing Fed intervention. I’m talking about the Dow Jones Industrial Average going to 50,000 and the S&P 500 hitting 4,500+.
The Fed has already stated it will continue to intervene in the markets until the U.S. economy reaches a “full recovery.” However, as we saw in 2018, once the Fed embarks on a path of using extraordinary monetary policy, it can NEVER normalize things again.
Opportunities of a Second Trump Term
With this in mind, a second term for President Trump would mean both a strong economy AND ongoing Fed intervention (zero interest rates and massive QE programs). This is how major market bubbles are made.
I would also expect this to result in much higher inflation, which would send real estate, gold silver and other inflation hedges through the roof. And the U.S. would still eventually experience a debt crisis, as President Trump has shown he is a big fan of aggressive spending. However, I would expect said debt crisis to occur later down the road as the strong economy would make that day of reckoning come later.
This is a very broad analysis. Once we actually know the victor of the election, I’ll have more detailed ideas for you.
Editor, Money & Crisis