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Daniel Zurbruegg
July 27, 2020

Prepare for US Election Volatility

The COVID-19 waves of infections have monopolized media attention over the last few months. However, we should not forget the US presidential election on the horizon. As we head into fall and closer to November, investors should start considering the implications of the different possible outcomes and how to position their investments. At BFI, we have certainly started considering electoral secnarios and appropriate game plans.

The US presidential election of 2016 did have a marked impact on markets. When Donald Trump surprised the world and took his place in the oval office, stocks, credit, and the US dollar rallied. Investors, of course, had high expectations. Particularly, they anticipated a combination of policies that could support and uplift the US economy, which would in turn be positive for the world economy.

Lower taxes, less bureaucracy / deregulation, and increased fiscal spending were some of the factors that financial markets liked. And, as we headed into 2020, President Trump appeared to be unbeatable in the upcoming election. His campaign was supported by strong economic data and an unemployment rate the likes of which we had not seen in 50 years.

However, then the Coronavirus came onto the scene. The economic disruption it caused has at least stalled the current President’s campaign. According to the polls (see Gallup ratings that follow), the President's approval ratings have collapsed and lag behind the ratings of Democratic candidate, Joe Biden. The race is on. And, frankly, I don’t know what to think of the odds.Gallup Presidential Approval Ratings, July 2020

Source: Gallup.comBiden has announced a plan to “Buy American” with government purchases of US goods in the magnitude of US$ 400 billion as well as research and development spending on US technology of US$ 300 billion, with a focus on such things as 5G and electric cars. It appears that Mr. Biden is countering President Trump’s agenda of rebuilding America. However, while both candidates appear to be in favor of national infrastructure spending programs, policy similarities are hard to find elsewhere.

In fact, their platforms appear very different indeed. President Trump has focused his attention on America-First policies such as deregulation, energy independence, international trade (re-)negotiations, vocational training, and tax reductions. He clearly appears highly skeptical of any US commitment to multinational treaties and organizations. Biden by contrast, it appears, could be expected to increase spending on international co-operations, and on such things as climate change mitigation or an expansion of federally funded healthcare. It is quite certain he would also raise taxes for corporations and high-income earners.

This is of course just a short and high-level policy comparison. It sums up the fact that President Trump’s policies are more conservative and nationalistic, while those of Joe Biden are more liberal, if not socialistic. Clearly, Democrats over the past years have moved further to the left and have factions within the party that seem to have somewhat extreme leftist ideas that raise concerns.

Elections belong to the people. It’s their decision. If they decide to turn their back on the fire and burn their behinds, then they will just have to sit on their blisters.~ Abraham Lincoln

This policy divergence and the economic, geo-political and societal scenarios that will come with it, in America and globally, do have important implications on how to build your investment portfolio and how to protect your wealth structurally and legally. The scenarios are quite clear. The actual implications for sector and geographic allocations are not, and they require thorough analysis and preparation.

Mr. Biden’s policies, under the influence of the growing leftist demands, does not bode well for the economy or for financial markets. On the other hand, another four years of President Trump may lead to more social unrest and polarization. Moreover, international relations will be tested further and the intensifying “cold war” between America and China can hardly be expected to reach a lasting détente with President Trump at the helm. It is a tough choice for the American people for sure. And, for investors, it is certainly a time for planning and risk management considerations.

At BFI, we are preparing for different outcomes and scenarios, looking for allocations favored by a “Blue” victory, as well as strategies for a “Red” result. We are also identifying and prioritizing those asset classes, geographies and sectors that could fare well in both scenarios.

If you would like to discuss this further and find out more details about our analysis, please feel free to contact us directly.

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