Do markets care who wins?

In a word, no. While plenty of investors are making big bets on the outcome of the election, those may prove to be misguided. While it’s possible you may see some short-term swings, the longer-term market math is likely to be determined by things that neither president can change substantially — Covid, the US fiscal situation and demographics, all of which point right now to slower economic growth and more debt. Even if you got another Trump administration, I think we are at the limits of what any tax cuts could do to create a market sugar high à la 2017. 

As one of my favourite analysts, Luke Gromen, put it in his “Forest for the Trees” newsletter last week, “Whoever wins, markets may react along the established narratives for a few days, but then either Trump or Biden and Congress will start getting their security briefings, which the math suggests will probably go something like this: The US economy likely cannot grow without more Federal stimulus help and the US Treasuries (UST) market cannot function without Fed help, so if you don’t want to agree to both, you need to start picking which you’d prefer to nominally default on — USTs, or US Baby Boomers’ entitlements.”

Of course, neither candidate will allow either of those outcomes, so in any post November 3 scenario, we will probably see more federal fiscal stimulus, monetised by the Fed and the US banking system. Why is this? Because as your very own FT has been writing for some time now, overseas creditors are no longer willing or able to underwrite US debt. My colleague Gillian Tett took on the topic most recently, asking who was going to buy all the new American debt? Answer: the Fed. Nobody else really wants it. 

Now, there is an argument to be made that there might perhaps be more demand for government bonds than people think because retiring Baby Boomers will have been rotating into those assets as part of more conservative portfolios. But an ageing population and an underemployed group of Millennials also points to slower growth. 

Ultimately, we are going to need something powerful to goose the economy in a way that creates more jobs. We will need to create a new wave of productive federal spending that encourages the next big Main Street investment and productivity boom — as I’ve written before, that’s exactly what fuelled the last two major real economy growth booms — first, the government encouraged the development of commercial railways, and then, the internet. 

As I’ve also written, I think the seeds of that could lay in Joe Biden’s green stimulus plans. But he will need an incredible team to pull it off. On that note, without counting chickens, Ed, who would you like to see in a Biden government? 

Recommended reading 

• Democratic pollster Stan Greenberg makes an alarming case that the Republican party could get more radical if Trump loses.

• I was moved by the New York Times’ special section, “Out of Work in America,” which covered the personal stories of real people struggling with unemployment amid the pandemic. It’s a good way to remember these are not just numbers but real people with felt experiences that need to be taken in and understood. 

• The Times also rightly spotlighted the fact that America can’t locate the parents of 545 children who were separated at the border. This is such a shameful thing, and I’m glad Joe Biden won points with his empathy and righteous outrage on the topic in last week’s debate.

• In the FT, I thought Stephen King was very sharp on why Modern Monetary Theory’s path ends with an inevitable reckoning. This isn’t a case for not taking on debt right now, but more a case for not pretending that it won’t matter at some point in the future. To me, the trick is to make sure it’s productive debt. 

More from the FT with just eight days until the election . . .

• FT Magazine: Inside the Democrats’ battle to take back Texas. Mr Trump’s polling advantage in the Lone Star state remained below five percentage points for much of the summer.

• Christine Spolar: Political division has put rural Pennsylvania on edge

• Timothy Garton Ash: The world must prepare for a contested US election

• Concerns grow inside Downing Street as polls point to Biden victory

Edward Luce responds

Rana, I prefer eggs so I’m bad at counting chickens. Assuming that November 3 and its aftermath results in a Biden victory — let’s say a scrambled one — the battle for the big jobs in his administration will come out into the open. Unfortunately for most of the hopefuls, there are too many big figures chasing far too few big jobs. Most are likely to be disappointed. My bet for secretary of state would be Chris Coons. As a Delaware senator, Coons is close to Biden and has strong credentials to be America’s top diplomat. His selection would signal a return to the status quo ante — centrist, moderate and unlikely to challenge assumptions about an America-led world. By contrast, if Biden chose Chris Murphy, the Connecticut senator, that would signal a more radical change in foreign policy. Murphy champions much of the progressive foreign policy that younger Democrats support. Other contenders are Susan Rice, Tom Donilon, Nick Burns and Bill Burns. A wild card would be Samantha Power. I would expect Michéle Flournoy to head the Pentagon. Pete Buttigieg could be UN ambassador. 

The other big openings — Treasury, Homeland Security, attorney-general — are harder to predict. If I was forced to bet I would go for the Fed’s Lael Brainard for Treasury and Preet Bharara for Department of Justice. Buttigieg could also be considered for Department of Homeland Security. As is always the case, personnel is policy. Whom Biden selects will tell us a great deal about what his priorities will be. My hunch is that he’s more prepared to be radical on the domestic front than on foreign policy. I would prefer him to be radical on both — as I hinted in my column last week about Trump and Washington’s foreign policy blob. But there are only so many fights an incoming president can pick. Biden’s all-consuming aim in the opening months would be to flatten the coronavirus curve. The rest is academic. 

Who do you think should be in a Biden administration if the former vice-president wins the White House? Tell us at swampnotes@ft.com.

Source: Economy - ft.com