The shadow of uncertainty on markets
The market is likely seized by the fear that the uncertainty surrounding the US election and its aftermath could render America effectively in a governance mess
With the formal crowning of Kamala Harris as the Democratic presidential candidate just days away, the insult-driven Republican campaign has been increasing in intensity. While she appears to have the momentum in her favour, it remains anybody’s race. With over three months to go before the election, there is no doubt that the frenzy in the United States (US) will only get more horrific. Even more concerning is the fact that whoever wins, polarisation will get much worse than it already is.
If Trump wins, it is clear that he is going to run an imperial and vengeful presidency. Further, given the likelihood that the Republicans may continue to control the House of Representatives and the possibility that they may also win control of the Senate, we could see a further weakening of institutions, both domestic and international, to Trump’s taste. Also, given that Harris's anointment has led to an upsurge of real vigour amongst Democrats, another Trump presidency will certainly see waves of protests across the US on a range of issues, including reproductive rights, equal opportunity and a better shake for labour.
However, if Harris wins, it could be even worse. Trump and his still very large band of disagreeables will never accept her victory, and their response this time may well lead to blood on the streets. Biden, who would still be president till January 2025 (when the next president takes office), will need to ensure that the National Guard or even the military is out on the streets to protect the election verdict, even though it would make the US seem like a “third world” nation.
Meanwhile, as this grotesque American circus accelerates, the trauma in West Asia continues to deepen. Israel's Benjamin Netanyahu appears to be using the US's domestic preoccupation to widen the conflict in the region, perhaps betting on the belief that, whoever wins, the US wouldn’t be able to reduce support to Israel if Iran has been sucked in more directly. Oil prices, which have been remarkably calm since the Hamas attack on Israel, may finally begin to charge higher.
{{/usCountry}}Meanwhile, as this grotesque American circus accelerates, the trauma in West Asia continues to deepen. Israel's Benjamin Netanyahu appears to be using the US's domestic preoccupation to widen the conflict in the region, perhaps betting on the belief that, whoever wins, the US wouldn’t be able to reduce support to Israel if Iran has been sucked in more directly. Oil prices, which have been remarkably calm since the Hamas attack on Israel, may finally begin to charge higher.
{{/usCountry}}Russia's Vladimir Putin, too, seems to be acting with both eyes on the US election. It is curious that he should choose this time to implement the huge prisoner swap with the US, which could theoretically be seen as a parting feather in Biden’s cap and, by extension, a plus for Harris. He knows that a Trump victory would increase the pressure on Ukraine, making it easier for him to exit the conflict as a winner with some real gains. So, this move may be a hedge against Trump losing. It could set the stage for negotiations with the Democratic administration, which could, again, lead to him exiting a winner with still some if lower, gains.
{{/usCountry}}Russia's Vladimir Putin, too, seems to be acting with both eyes on the US election. It is curious that he should choose this time to implement the huge prisoner swap with the US, which could theoretically be seen as a parting feather in Biden’s cap and, by extension, a plus for Harris. He knows that a Trump victory would increase the pressure on Ukraine, making it easier for him to exit the conflict as a winner with some real gains. So, this move may be a hedge against Trump losing. It could set the stage for negotiations with the Democratic administration, which could, again, lead to him exiting a winner with still some if lower, gains.
{{/usCountry}}And, of course, all this is playing out in what could well turn out to be a major rout in global equity markets. In the last two weeks, the NASDAQ has fallen by more than 10%, with stocks across the world following suit — the Nikkei index in Tokyo fell by the most it has in 8 years. Gold has reached yet another all-time high.
Post-facto analysis yields some obvious reasons: 1) the US economy appears to be slowing quite sharply quite suddenly; 2) the Federal Reserve is, as usual, behind the curve and is now expected to cut rates by 50 basis points perhaps even before the September meeting; and (3) over the past two years, speculation driven by excess liquidity has resulted in severe capital misallocation and consequent overpricing of assets. Indeed, Richard Bernstein, writing a month ago in The Financial Times, suggested that “…unwinding of [the misallocation] could result in a lost decade for equity values, as it did when the technology bubble started to deflate in March 2000.”
In addition to all of the above, the market is also seized by the fear that the uncertainty surrounding the US presidential election and its aftermath could render America effectively in a governance mess.
Nonetheless, if Harris wins the election, despite having to ward off the Trump madness, her administration will be able to control the ship and build towards a new economic model, tilted more in favour of labour than towards capital, which approach, in any case, appears to be taking shape in various places across the globe.
Jamal Mecklai is CEO, Mecklai Financial. The views expressed are personal