President Donald J. Trump – Immediate implications for Canada

I have been saying here since January 2016 and repeating ever since that Donald Trump will become the next president. Friends of mine will know the words out of my mouth back in August 2015, where I said “not only will Donald Trump win the Republican nomination, but he will become the next president of the United States” – and everybody else started laughing. “No, I’m serious! You laugh today, but just wait and watch”.

Making these sorts of predictions looks easy in retrospect, but there is a lot of genetic psychology that makes it quite difficult to be the one to stand out in a crowd with a very unconventional viewpoint (especially in a country where basically 90% of the people supported Hillary). Either you are regarded as crazy (as my friends clearly did), or shunned, or both. The funny thing is even when you are proven correct, those attitudes generally don’t change much. The only solace on marketable pieces of information such as this (or a lot of what goes on in the financial marketplace) is that correctly contrarian viewpoints tend to make a lot of money.

The markets have basically V’ed since the election (and indeed, I kept a real-time chart of the S&P 500 futures on my desktop as the election results came through, and it was very impressive how trading took it down and up on the returns of various polling stations in key states like Florida).

But there are some macroeconomic parameters that need to be factored into a Donald Trump presidency. While the US system is designed to make sure that you can’t enact too much change with a stroke of the pen (the US Constitution is an amazing structure demonstrating separation of powers), it is pretty clear that companies dependent on Canadian trade with the USA are going to have a more difficult time if there is any perception of protectionism in that particular industry.

Energy policy in the USA will be fairly obvious – there will be more friendly regulations concerning fossil fuel extraction.

In particular, in the political climate of Canada, Justin Trudeau already has staked a bit of his political credibility on his future relationship with Hillary Clinton, and that has now gone to dust. It will indeed be very interesting to see what happens when Trump wants to renegotiate NAFTA – the impression I will be getting is one if I was in a boxing ring with Mike Tyson.

The other quick conclusion I can reach is that it is more probable than not that interest rates will rise quicker than most people generally realize. My hypothesis for this is that the institutions behind the US Government are quite Democratic-party dominated at present and they will want to hamper anything that will come out of the President’s office. And the easiest way to do this is to starve the nation by raising interest rates. Watch the Federal Reserve this December raise rates.

So in general, we have the following parameters:
1. Sell long-term bonds or anything with medium to lengthy durations.
2. Long US dollars.
3. Get rid of anything Canadian that is US trade-sensitive.
4. Get rid of anything strongly dependent on Democratic-related domestic subsidies in the USA.

One of Obama’s legacies is saddling the nation with another US$10 trillion dollars in fiscal debt in his 8 year tenure. Even for a nation as rich as the USA, this is a lot of money (about US$30k per capita). This clearly cannot be sustained and unlike other forms of political actions, the direct connection to the standard of life and the increase in the nation’s debt is diffuse and won’t be felt until later – but I suspect the impact of the huge increase in debt will happen over the next few years.

US Presidential Election: Current Guess

I apologize to my readers. Instead of writing anything relevant to the financial markets, I’m instead writing about Trump vs. Clinton. Please forgive me – this will pass after Tuesday.

The following is my November 3, 2016 guess. My prediction has nothing to do with endorsement of any candidate or policies they represent. In fact, a Kaine/Pence (choose one for president and vice president by flipping a coin) administration would probably be a lot more acceptable for most of the public.

Canadian readers of this site can remember what happened with the NDP and Jack Layton in the 2011 election in Quebec. While it isn’t huge like that election was, there is an element of it in this particular election.

2016-11-03-electoralmap

Polling:

If you are Hillary you do not want to see this:

2016-11-03-latimes

LA Times / USC has always had a pro-Republican skew to it from the very beginning of this election (although they were quite right in 2012), but that “hockey stick” boost at the end is something you don’t want to be seeing if you are a Democrat – people locking in their votes for Trump. Since this is a national poll, it can only be extrapolated so far since there are huge Democratic majorities in California and New York, but this isn’t what you want to be seeing if you are cheering for Clinton.

The aggregate polling also shows a Trump spike, but I have always claimed that poll samples (including the LA Times one above) is not representative of who Trump is going to actually get out to vote – voter turnout and the distribution of voters that show up is of paramount importance in elections in Canada and the USA.

2016-11-03-rcp

Polls do try to correct for this factor by including “likely voters”, but methodologies can only go so far. Since most political pundits use backward-looking lenses to project results, it is not surprising that they are all still predicting a Clinton victory.

The real-money markets (Pinnacle Sports is the best proxy for this) has Trump at +226, which is the highest probability odds I have seen him. Betfair (which is closed to Canadians), I also consider highly credible and they have him as 9/4, which is pretty much the same.

Markets will be asleep for the next week and a half

Mark November 8, 2016 on your calendars – the date of the US Presidential Election.

Until then, no major market participant is going to be doing anything, short of the knee-jerk reactions from quarterly earnings reports.

You’re also starting to see a build-up of volatility which bettors are using to hedge:

vix

And yes, Donald Trump becomes the next president. This isn’t an endorsement of him, but rather what I have been saying for the past year and a bit. This is an election where the standard calculus does not work, and people are continuing to make the mistake of using those lenses in a very different environment (similar to the error that the Conservative Party of Canada in the lead-up to the 2015 election).

Pinnacle Sports had Trump at +580 (roughly 1-in-7) to win a week ago and now he is at +280 (roughly 1-in-4), so the betting markets have been very volatile.

Also I have noticed most Canadians use Canadian lenses to look at what is going on in this very American election. Most of the time the political culture is similar, but this is a very special situation.

US Presidential Election Update

The Republicans are having their national convention this weekend. Donald Trump will be nominated as their candidate for president, something that most pundits saw as a joke when he announced last year.

Readers should be cautioned that the national polling figures for the USA are nearly useless in determining the closeness of the presidential race. Three major states with huge populations, California, Illinois and New York, are very heavily Democratic-leaning and they will not be seriously contested during the election. These states will involve lop-sided victories and will skew the numbers.

Instead, readers should be looking at the following states (electoral votes in brackets):

Florida (29)
Pennsylvania (20)
Ohio (18)
Michigan (16)
North Carolina (15)
Arizona (11)
Wisconsin (10)
Iowa (6)


Click the map to create your own at 270toWin.com

 

Note it is very probable that Hillary Clinton requires 270 to win, while Donald Trump requires 269 to win.

I will be reverting my previous prediction of a “landslide” to a moderate victory for Donald Trump. As readers can infer from this map, the Republicans have much more “work” to do to win these swing states than the Democrats. That said, the nature of elections in Canada and the USA depend on a factor of voter turnout, something that polling does very poorly – the primary component of this assumption is that Trump has the ability to get out previous non-voters due to his non-political methods.

I will also state that I do not endorse the policies of either candidate. It is simply a prediction of what I believe will happen given what is going on in the USA political landscape. From a market investment perspective, it is likely the fruition of Donald Trump’s policies will cause considerable volatility in the markets and the markets are not sufficiently bracing for impact.

Reviewing one of my year-end predictions

For my December 31, 2015 new year’s predictions, I said the following:

* Next US President: Donald Trump will be elected as the next president of the United States, by a considerable margin. This prediction is not an endorsement of him, but it is a reflection of my political analysis and my take on what is happening in the United States at present.

I’ve been telling people since September 2015 that Donald Trump would not only win the nomination, but the presidency of the United States. The general election result is not even going to be close – Trump will get at least 350 electoral votes.