High stakes

The Vix spiked a little and stocks lost a chunk as Wall Streer stressed about Debate Night.

The consensus is Trump has little to lose or gain. Everybody knows he’s weird. Nothing new. Move along. Harris, however, has much to lose or gain. She’s been surfing a sea of endorphins for the past month, but is still an unknown thing to many voters. Tonight she could look like a refreshing and welcome change from angry & old guys, or she could appear weak and lightweight in the teeth of a foe.

This will likely be the only debate. The polls are tight, so it matters more than most presidential sparring matches. It’s historic, too. Trump is now the oldest living human to go after the US presidency. Harris is the only woman of colour to be in a race at this level. And the switch from Joe to Kamala was abrupt, stunning and without precedent. Plus, never before has a former president battled a sitting VP for the Oval Office.

Will you watch? Whaddaya think will happen?

In terms of policy that might affect investors, markets and your TFSA, there’s a lot on the line.

Trump is a protectionist. Harris not so much. Trump thinks countries shipping goods to the US would pay huge amounts in tariffs, but that’s not the way it works. Tariffed goods have higher prices attached, which US consumers pay. Hence, Trump is considered to be the Inflation Candidate.

“Trump’s policies present the largest upside risks to inflation,” warns Capital Economics, “due to the impact of tariffs on import prices, which could force the Fed to keep interest rates higher than it would do otherwise.”

Recall that Scotiabank has warned this resurgence of American inflation would spill into Canada, reducing our GDP by 1.7% and adding almost 2% to interest rates – which otherwise would continue to decline. Yes, a recession – at least in that bank’s estimation.

Might Harris be inflationary, too?

Sure. She’s a tax-and-spend Democrat who has pledged more caring (expensive) social programs. Harris would fund her largesse with higher taxes on the wealthy and corporations. (Trump would keep current corp tax breaks in place. She would not.)

As far as financial markets go, they don’t like inflation. They hate higher rates. They love lower taxes. They adore corporate benefits. They like trade. They do not like trade barriers. “We’d expect higher Treasury yields if Donald Trump wins the presidential election rather than Kamala Harris,” Capital adds. “Another Trump term would also be a headwind for equities – especially outside of the US – though it wouldn’t necessarily pop the bubble inflating around AI hype.”

Badly hit if Trump wins might be China, of course, which has been the object of his scorn and criticism. He’s mused about a 60% tariff on all Chinese goods, which could have a major effect on that country – where the economy is already soft and drifting into deflation amid a real estate meltdown. As goes China, so goes Asia.

If a Trump-led US retreats from global free trade and adopts a more isolationist stance with regard to NATO and Ukraine, there could be a backlash from Europe, now in the throes of its own serious political polarization. A Harris administration is seen as being more China-friendly and willing to pour new billions into foreign conflicts, military alliances and the role as America as the global cop. More spending.

Trump might also bring a stronger US dollar. That would result in a lower loonie and weaker commodity prices, particularly for oil and gold. Negatives for Canada.

And let’s not forget Trump’s pledge to deport millions of recent arrivals in the US – in fact, the greatest movement of people in that country’s history. This would have an impact on the American labour market, reducing the workforce, augmenting wages and feeding inflation. Unless the president diddles with the Fed’s leadership and governing body, higher rates are a likely result.

Finally, will either Harris or Trump actually do what they say? How much hyperbole, machismo, exaggeration and bravado is being tossed around at a moment like this? Is America really about to turn into a walled, isolated, puritanical fortress or a depraved lefty den of fiscal debauchery?

We have no idea. But we do know that what happens in America does not stay in America. This is a moment we need to absorb.

About the picture: “Hi Garth!  ‘Long time listener, first time caller’..err writer,” says Karl in Saint Catharines. “It’s with happy saddness to let you know our good boy Hudson passed away yesterday evening. The BiG guy went 17 1/2 years. A 1st ballot Hall of Famer and one of the greatest to ever play the game. Here is the first picture we took of him.

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/09/10/high-stakes/