You're listening to Strictly Business Podcast
with Lindsay Williams.
The DNC, that's the Democratic
National Convention, has recently concluded.
It was held in Chicago,
and it was an affair that has been described as being
joyous, hopeful, energetic.
I watched quite a lot of the interviews, I must admit,
in the last four nights, and it was certainly interesting.
It followed up, and of course, on the RNC,
that's the Republican National Convention.
And now...
we have to get to the serious business of getting down to who's going
to win the US general election.
With me is Philip Saunders,
director of the Investment Institute at 91
in London.
It's interesting watching from afar, isn't it?
Because we're not as involved as the Americans are,
obviously, Philip,
but it's quite insightful to see how they do things
compared to, for example, Britain.
You know, absolutely.
And I think that the American political
setup is unique.
It's, you know, as Churchill said,
it's democracy is the least bad system.
And the American form of democracy
works in ways that we often find
mysterious.
Yes, indeed.
When you consider three or four very small
states compared to, say, California,
can swing an election.
And that doesn't seem right to us, does it?
Not at all.
And I think that this is what people forget,
that a lot of votes just simply don't
matter in the states.
I suppose they don't matter so much in the UK as well,
but for different reasons.
And it's the swing states that
that's essentially where the battle is going to be won or
lost by either of the candidates.
And so really,
it's how they're doing in those states will
critically determine the outcome.
That's not a great system,
but it is a system and it's a system that they
have.
As I said in my introduction,
we've had both of the conventions of the two major parties,
and it's neck and neck.
I mean, maybe
Harris is a couple of points ahead in a national
poll of polls,
but there's something like a 3.7% margin of
error.
So it is neck and neck.
So it's all up to the swing states.
We don't have to comment on politics and who we think should
win or who we want to win.
We've got to now look at the outcome.
Should Harris win?
And should Trump win?
What would...
A new Trump presidency mean for the markets,
for American society, for the world indeed?
Well,
I think that probably somewhat different to
the previous Trump presidency.
And in the sense that it'll be
more about his people, you know,
they'll be more organized than they were before.
And if you look back, actually,
the previous Trump presidency and strip away all of the
sturm and drang.
Actually,
he was a fairly conventional right-wing
Republican president.
And I think that we'd probably get the same again.
I think what's interesting to think about also is
who gets control of the
Senate and Congress.
And although obviously the
presidential contest is very
sort of too close to call at the moment,
if you look at...
the likely outcomes for the Senate and
Congress.
It looks as if the
Republicans are on track to
retain the Congress and gain the
Senate.
And I think that that would put Trump
in an unusually strong position.
And that means that he would be able to
affect more of his policies.
Whereas if Harris was to win,
and the Republicans gain control of the Senate and
continue to control Congress,
then it's very difficult to see her being able to do
very much.
And so therefore,
which might not be a bad thing for markets and the economy,
but again, it'd be a very different situation.
I remember back in 2015,
end of 2015,
when Trump was declared the winner of
that election and then only went
2016 to 2020, four years.
of his stewardship of the world's largest economy.
I remember when it became clear that he had won,
Dow Jones futures plunged by over a thousand
points,
and the thousand points in those days was a real thousand points.
And then suddenly people said, wait a second,
he's going to cut corporate taxes,
he's going to cut taxes for the people that he sees
as really mattering in the United States, and up they went again.
Do you think the same thing might happen again,
apart from the plunge in the first place?
Well, I think to some extent, obviously, the...
markets learn or market participants do actually learn,
not everything, but they learn from their experience.
And so therefore...
I think the sort of plunge caused by the
possibility of Trump clearly winning would be,
you know, I think less likely.
But, you know, one way or another,
you might not like his style and his rhetoric,
but he basically is clearly a pro-business
president or would be a pro-business president.
I think that he would extend the tax cuts
that he put in place in
2017.
But his ability to sort of pull more levers of that kind,
you know, is obviously somewhat constrained.
But yes, pro-business,
a much more transactional approach to
policymaking.
Let's have a look now at the US dollar and interest rates, because
J.D. Vance said the other day,
he said the people in government, in other words,
hopefully him and Trump from his point of view,
they should have more influence over the monetary policy of the
United States.
In other words,
they're going to be on the phone to Powell and saying, wait, cut.
interest rates, please,
which is obviously bad for the dollar,
good for commodities and all other markets,
bonds in particular.
Could that happen?
Well, I think that, you know,
there is a longer term issue about, you know,
when governments,
government debt levels reach extreme
levels, then, you know,
can you have independent central banks?
And simply because you basically have to if you like,
sort of keep the show on the road.
And having an independent central bank, you know,
is a problem.
So
I think that this is probably just rhetoric.
I think that the Fed's independence,
you know, is unlikely to be sort of
impacted, really.
However, you know,
all political parties put pressure
on the Fed.
You know,
the Democrats basically are the same.
So I don't think that that in particular
would impact things.
I think inflation under a sort of Trump
administration would probably have a tendency to be somewhat
higher.
And that actually might be dollar supportive, interestingly,
because the Fed,
unless it's pressured otherwise,
would have to basically compensate for a more
fiscally loose policy by maintaining
a tighter monetary policy.
Let's move now, if we can, to Harris.
The thousand point plunge that I referenced
when Trump was first the winner all those years ago.
It could happen again with the Democrats led by
Harris, couldn't it?
That seems to be a more likely scenario.
And then after that, who knows?
But it wouldn't be well received by the market participants,
I don't think.
Yeah, so I think that at this stage,
as I said before, I think both, you know, the...
the winning candidate has always tacked
successfully towards the center.
And so therefore, you know,
Trump has got to tone down his more radical
rhetoric, as has
Harris.
And so therefore, that's, you know,
it's really, you know,
potential extremes that markets react
badly to.
And I think that, you know, it's different this time because,
you know, we've seen Trump as president,
you know.
How much worse can it be,
so to speak?
Harris basically is a continuity candidate.
So we've seen Biden,
although basically at the moment it's
probably continued to be a pretty policy light
campaign from Harris.
By and large, you know,
the Biden programme, you know, has been, you know,
it's pretty detailed.
It's out there.
You know, clearly, you know,
he went through a sort of campaigning process.
well.
And that's typically when policy tends to be
decided.
So, you know, she might tinker at the edges,
but by and large, she's a continuity candidate.
Okay, so all up for grabs,
just over 70 days to go.
Do you at 91, look at this and say,
we have to monitor this very, very closely?
And are you mindful of the fact that one winner
may mean a different strategy?
to if the other one wins and therefore you have to tweak your
portfolios?
Or do you just say everything will be fine,
it'll all settle down,
and they both have leant towards the centre and that's why they're
in the position they are?
I'm being a bit clumsy with this question,
but do you take cognisance of it?
Yes, I mean, I think that it's, you know,
because I think we've got some very significant political changes
going on.
So therefore,
and we haven't mentioned geopolitics, but, you know,
obviously that's a pretty live issue as
well.
And so therefore,
I think that politics has a heightened importance.
And so as investors,
we've got to be ruthlessly objective.
as ever, but I think it matters more.
But it's one component of
thinking about the sort of, you know,
context of
one's sort of tactical and strategic asset
allocation.
And actually, you know, Trump, if you like,
is the disruptor type candidate.
But then again, sort of, you know,
the Democrats have been
extremely fiscally lax.
you know, the numbers looking forwards are really
uncomfortable.
And that as investors, you know,
remembering the bond vigilantes,
that as investors is something we have to pay attention to.
So how you diversify your portfolio basically
does have a political relevance simply because of the size of
government debt these days,
and also because of the sort of fractious
nature of international relations.
You mentioned geopolitics,
and it was remiss of me not to talk about that because Trump made a comment.
during the DNC.
He says, can you imagine
Harris negotiating with President Xi?
Then he mentioned Kim Jong-un for some extraordinary reason.
He mentioned Putin for a not so extraordinary
reason.
But yeah,
would they take us seriously, do you think, Philip?
Well, I think that, you know, in a way,
basically all that side really has been managed by
people other than Biden.
Blinken,
in other words.
with Blinken and the various other people
around him.
And so
I would suspect that she would basically be
more of a sort of figurehead, whereas
Trump believes in, you know,
looking them in the eye and sort of he believes that
basically personality can have a significant
impact.
And the other thing is, so he's more hands-on,
clearly.
Whether that's a good or a bad thing, you know,
depends.
But he is highly transactional.
So therefore, you know,
these sort of outrageous sort of comments about
tariffs of, you know,
sky high and so forth, you know,
that's a negotiating position.
So in reality,
I think that it's going to be a much more
transactional relationship and much
more sort of about bilateral negotiations.
I mean,
the Democrats are being dragged in that direction at any
rate, but they are basically sort of.
you know, for more of the same,
whereas Trump basically will be back on the case
for, you know,
not allowing America to subsidise
European defence, for example, to the extent that it does already.
Thank you very much for your insight.
Philip Saunders is director of the
Investment Institute at 91 in London.
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