Well, the good news is there are no more election TV commercials; one more and I may have combusted. As of this writing (Wednesday the 4th), we have no election decision and, as predicted and/or feared, Pennsylvania will decide the next US president.
It has been rather nice to live in Pennsylvania the last few weeks. It has been a beautiful fall season and, politically speaking, we’re still the prettiest girl at the dance, at least until Friday. Grab a comfortable chair and pop some corn, this is now an official national drama, likely to include another Supreme Court intervention.
Whomever wins the presidency, the partisans say we’re all doomed and the loss was due to cheating (Democrats) or voter suppression (Republicans).
And how about this refrain: “This is the most important election in the history of the country”. Give me a break, we’re subjected to the same hyperbole every cycle.
I’ll concede this is the most contentious presidential election in some time, but there have certainly been equally contentious elections with higher consequences.
Bush-Gore was a dandy election and excellent reality TV. Nixon-Humphrey in 1968 was another rough and tumble affair with similar societal discord. Even Thomas Jefferson and John Adams had a tightly contested, invective-filled election in 1800.
However, the most contentious, consequential presidential election of all time, never to be supplanted, was the election of 1876. Check out this story.
Ulysses Grant was finishing his second term in 1876. He and the Republican congress had successfully enacted “Reconstruction” – a series of laws and Constitutional amendments - following the Civil War to strong arm the Confederate states back into the Union and to permanently grant full civil rights to African-Americans.
Like in 2020, in 1876 both parties settled on two underwhelming presidential candidates - Rutherford. Hayes (Republican) and Samuel Tilden (Democrat). In an ugly election including actual voter suppression and poll violence, Tilden won the popular vote and led the electoral college by just nineteen electoral votes– but the final twenty votes were contested, enough to flip the contest to Hayes.
The election outcome became a political stalemate. Tensions ran high with no clear resolution, until an unsavory back room political deal was cut by Congress. Via a new law, all twenty electoral votes were awarded to Hayes in exchange for the removal of all federal troops from southern states and the end of Reconstruction. Presto, meet President Hayes. Hayes was an ineffective president and the country was forever changed for the worse because of this devilish deal.
At the time, the Reconstruction project was only half-baked. The cynical political move by Republicans to hold onto presidential power at any price led to horrible systemic oppression for “free” African Americans, directly resulting in Jim Crow laws, the KKK, segregation and real voter suppression for another century.
Therefore, spare me the contemporary “most historic election” babble.
I need a calculator to tabulate all of the phone calls and conversations we’ve fielded over the past few months about the impact of the 2020 election on their investment portfolio.
I get it. The COVID crisis has accelerated many trends that were already in motion, including growing political partisanship. It is now reached disturbing levels as there’s little hope for bipartisan solutions to our serious problems. However, investing is just not that easy, if it was, I’d be a bar manager.
I always chuckle at the stream of media reports I get about past presidential election cycles and their impact on investments immediately thereafter. Here’s a shocker: There’s no predictable pattern about how to invest before or after an election and over the longer run it really doesn’t matter which party controls the executive branch.
2020 is a prime example about how economic and investment conditions are different every election cycle. Who knows how long COVID will endure? Does $30 trillion in national debt really matter? How about zero percent interest rates? Will the US dollar droop in value? These are just some of factors that matter much more so than who the next quasi-senile president will be.
We’re focused on which party wins the senate majority because the senate is the swing power body in the federal government. If you accept my thesis the house remains Democratic and Biden wins the presidency, control of the senate will drive the next round of economic and tax policy.
If Republicans retain control, it will lead to more gridlock – and there is such a thing as good political gridlock. If the Democrats sweep and control all levers of federal government, there will be real tax and fiscal changes coming for sure.
Before you lose your cookies, I’ve read that if Biden is telling the truth and seeks only to raise the top federal income bracket back to 39.6% but also eliminates the detested cap on state and local tax deductions, high income individuals would actually see a tax decrease. Hmmm.
Moreover, a Democratic sweep will lead to massive levels of new fiscal spending – much of which is needed – as new economic stimulus due to COVID. The stock market is craving for more stimulus so it’s conceivable the stock market could soar (for a while) after a Democratic sweep.
I recently saw a chart depicting investment returns based on various combinations of political party control of government from 1950 through 2019. Over this period, the S&P500 Index materially outperformed during full Democratic controlled government versus full Republican control. However, split government control resulted in materially better S&P500 returns over the same time.
A key takeaway for investors is to root for divided government to suppress partisan party impulses.
Another is to stay focused on the Fed Reserve. Since 1951, the Fed Reserve has been mostly independent from influence from politicians. With the emergency measures last spring due to COVID, the lines between the Fed Reserve and the US Treasury have blurred. Without question, politically influenced monetary policy could have real and lasting consequences for investors.
So, as we await the election results, brace for some election-related volatility that will soon fade and then turn your focus on the risks and opportunities coming in 2021.
Until next time, be well….Tim