October 26, 2020 | The Virus Vote

One week before the US elections and many investors (despite Monday’s plop) have decided it’s over. She’s done. Trump is toast.

Now, let’s be clear: there could be a big momma of a surprise. 45 might pull this out of the bag by taking Florida. Or if the results are close on election night he could claim victory, opening a protracted legal quagmire. Maybe the Proud Boys will start a war in prime time with NFAC, livestreamed on FB. Dunno. It is, after all, one messed-up country these days.

But here’s the betting seven days out: Biden sweeps.

The polls say this. Massive advance voting supports it. The virus suggests it. The infections over the weekend of Mike Pence’s inner circle were a coup de grace, coming atop record daily spread levels at the end of last week. Just when the president wanted to shift the focus onto the economy (“a Trump recovery or a Biden depression”) the bug took centre stage again.

Since the first presidential debate another 25,000 Americans have died. The world’s most advanced country, with the best health care, has suffered the greatest death toll and infection rate. It’s a leadership disaster. Symbolic of that is Trump’s maskless bravado and now Pence’s insistence he keep campaigning when his closest aides are stricken. It’s the very definition of reckless.

Of course, polls could be wrong. But if not, America may lurch left because that’s the only path this president has left for voters. More government and higher taxes, as the pendulum swings.

Okay, so what does this mean for your portfolio? Biden bad? Or Biden good?

The first conclusion is that markets will respond with relief to any outcome so long as it’s decisive. If we all wake up on the 4th and there’s no clear winner – but with Trump claiming the high ground – stocks will not be happy.

But wait. Won’t a Biden win mean higher taxes and an economic drag, just when America can least afford it?

Yup, rolling back some of the Trump tax cuts on corporations will be negative. So will be the proposal to treat capital gains and dividends as regular income. Ditto his plan to increase the marginal rate on people earning over $400,000. But none of those moves are likely to take place until economic recovery is underway. More important, the market sees a Democratic win as clearing the way for another massive stimulus package in late January, now that relief before election day is impossible (which helped caused Monday’s funk).

What would a clear Trump victory mean?

More of the same. Tax cuts. China-bashing. Deregulation. Promotion of the O&G industry, financials and defence. Compare that with sectors that would do well under Biden – like infrastructure and clean energy. Biden would bring in a $15 minimum wage to try and even the wealth gap a little while whacking high income-earners. Both moves are costly. Trump policies would continue the current course, in which the wealth divide will widen further. Biden might lock down the economy for a while to eradicate the virus. Ouch. Trump seems inclined to let it rip through an open society. Many more would die.

Inevitably, the pandemic will end whatever the body count ends up being. When it does, the US economy will erupt. Commodity prices will rebound with global growth Canada will do well. So will financials and industrials, then consumer goods. The best strategy is to ensure you have a properly weighted, balanced and globally diversified portfolio of low-cost ETFs in place now and stop worrying about what happens next Tuesday night.

But what bloodied Mr. Market on Monday?

First, the virus seems uncontained and the White House said on the weekend that the current administration can’t control it. Second, it appears squabbling in Washington means no stimulus package is near – something investors were counting on. So, more disease. Less money. And a big sell-off. Besides, if there’s a Biden win and capital gains taxes are to increase next year, why not cash out now?

Well, just to clarify; this blog is making no prediction. The polls might fail miserably, as in 2016. Trump could scuttle out of this campaign’s rubble like an unkillable beetle. But it’s equally clear the virus could take him down.

Let’s just hope for one outcome above all. That somebody gets squished.

Garth Turner October 26th, 2020

Posted In: The Greater Fool

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