2016 Election – Impact on Politics, the Economy, and Markets

by Victor Sperandeo with
the Curmudgeon


This column doesn’t normally cover politics, apart from very important factors that may affect the economy.  We strongly believe this Tuesday’s US Presidential election is a critical political event that will have great ramifications for our country, the US and global economy and impact many different markets.

Disclaimer: All analysis and opinions expressed herein are those of Victor Sperandeo.  The Curmudgeon is so disgusted by this hostile and acrimonious election campaign he won’t vote for any Presidential candidate (but will vote on all the propositions and local elections).

Curmudgeon Note:  One important election indicator is currently ambivalent or has possibly broken down?  The Mexican Peso has become the forex market's de facto measure of a "Trump" victory or defeat.  FOREX traders see Trump as hostile to Mexico, given his promise to build a wall along the US-Mexican border, and his harsh opposition to the North American Free Trade Agreement (NAFTA).  Yet despite Trump’s recent climb in the polls (mostly due to FBI’s newly discovered Clinton emails), the Peso is stuck in the middle of its six-month trading range at ~19.0 Pesos/US Dollar.  Has its Trump election predictability broken down?  We’ll see after Tuesday’s election results are tabulated.

Composition and Analysis of the Parties, Main Stream Media, and Propaganda:

There are several observations that can be made about this year’s Presidential election process:

The GOP/Republicans will never be the same, because they have revealed that they are of two opposite mindsets within one name. 

1 - The "make believe faction" that say they are for "the people,” also known as the Neo-Con (Establishment) part of the party, are not conservatives. This non-Constitutional faction believes in war used for expansion i.e. nation building, with the excuse that the US needs to be a leader via the Leon Trotsky mentality.  They also believe in Welfare Lite, The New World Order, unlimited immigration (effectively open borders), and trade bills that end U.S. sovereignty.  All "Neo-Con" goals are financed with government debt, supported by the Federal Reserve, and actually controlled by the multi-national globalist corporations under the banner of corporatism.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

2 - The Constitutional Conservatives who are for small, limited government, liberty, and the Constitution, and are pro-capitalism. They are led by the Tea Party, Freedom Caucus, and now the Trump voters.                                                                                                                                                                         

In lock step with the Progressives are the so-called Main Street Media (MSM) which is nothing but a grand propaganda machine (online, TV, radio, print, etc.) for the Republican Establishment and the Progressives (a.k.a. the Democrats). The reasons are not obvious, but it is all about profits and money by restricting competition, and about corporations buying advantages.                                                                                                                                       

As Georgetown University professor and historian Carroll Quigley said in his book "Tragedy and Hope:"          

"The argument that the two parties should represent opposed ideals and policies, one, perhaps, of the Right and the other of the Left, is a foolish idea acceptable only to doctrinaire and academic thinkers. Instead, the two parties should be almost identical, so that the American people can throw the rascals out at any election without leading to any profound or extensive shifts in policy. Then it should be possible to replace it, every four years if necessary, by the other party, which will be none of these things but will still pursue, with new vigor, approximately the same basic policies." 

It might be worthy to note that Bill Clinton studied under Quigley. The election game is fixed as the bulk of the power is of one mindset, bought and paid for by the wealth and power that run this rigged game.  This is demonstrated by most of the Bush family announcing they are voting for Hillary Clinton. 

This begs the question, why do you rarely hear Progressives and the MSM talk about the $19.7 trillion government debt as a problem, or care about balancing the budget, or demand lower personal income taxes?  It is because the MSM make their money selling advertising!  ABC, CBS, NBC, CNN, FOX, New York Times, The Wall Street Journal, Facebook, Google, Twitter etc. all make money via advertising. Therefore, they believe in the economic concept of “maximizing aggregate demand.”  So by stealing (and butchering) a Keynesian economic theory, and making into a political Progressive Agenda to gain more wealth and power.

When the government cuts spending and tries to balance the budget it often causes a downturn in the economy.  The first thing that companies do in a recession is stop or slow advertising, which is the mother’s milk of the media’s profits. Progressives, or the so-called Democrats, always want more spending, which means more buying, which means more profits for MSM and more revenue for the government via taxes. Also, the executives of the MSM make their payday owning stock options and paying capital gains rates (which are currently 20%). So individual tax cuts, which generate growth and some inflation, mean higher interest rates and therefore lower stock prices in the current environment. As stated by Rich Miller in his Bloomberg piece "Fed Inclined to Lift Rates If New President Adds Budget Bump," monetary policy won’t need to be as expansionary in that case. 

"Shift in policy mix could prove troublesome for markets The Federal Reserve is inclined to raise interest rates higher than otherwise if the next president pursues a more simulative fiscal policy. U.S. central bankers say they would welcome such a step as shifting some onus for supporting the economy away from the Fed. But they suggest they would offset the extra demand that a bigger budget deficit would spur by making monetary policy less simulative. The reason: With the economy already operating close to capacity, it’s not in need of an added boost right now."

Put another way, as explained by Federal Reserve Bank of Boston President Eric Rosengren: “If we have more expansionary fiscal policy, we don’t need as expansionary a monetary policy.”

Federal Reserve policy of zero interest rates (ZIRP) has proven to be a windfall for corporate America since March 2009, but has not helped small business and workers in general.  Why would the elites dare risk higher interest rates and lower taxes on a Trump victory?

Corporations buy tax loopholes through campaign and foundation donations, so they pay an average corporate income tax rate of 12%.  Lower taxes across the board eliminates their advantage and upsets their apple cart.  Thereby, not one of the Fortune 100 CEO's supports Trump!  Neither does the GOP establishment, lobbyists, Union leaders, and many others who profit from this manipulated political system.

An amazing visual is to see the supposedly unbiased press universally attack Mr. Trump with malice, while protecting Mrs. Clinton. To understand how the media manipulates people by this process I suggest you read "Trust Me, I'm Lying - Confessions of a Media Manipulator” by Ryan Holiday.

As stated by G. Edward Griffen in his piece “The Age of Propaganda is Upon Us:"

"Future historians may well describe our present era as the Age of Propaganda. Never before have the forces of government and communications been so completely unified into a single machine, and never before has the truth been so twisted and filtered on its way to public perception. This is a byproduct of the fact that most people still believe that democracy is a magic force that allows the common man to select his leaders and, thereby, determine his own political destiny. That being the case, political leaders must master the science of "public-opinion engineering " so the illusion of the ballot box can be maintained while, at the same time, candidates and policy issues can be selected by power brokers behind the scenes."

The world’s stigmatized bad guy, Russia’s Vladimir Putin, recently asked a profound question: "Is the US a Banana Republic?" Putin says there are "two sets of laws, one for elites, another for the rest of America.”  A banana republic is essentially a politically unstable, lawless, corrupt country with a ruling class of elites who exploit the government and economy for their own ends. This is what we see every day playing out over scandals like Hillary's email abuse and her tax-free foundation used for selling favors or access in exchange for contributions.

Assessment of Clinton and Trump:

This brings us to the analysis of the two candidates’ essences.  The country is in a managed decline that will turn into a death spiral. Look at Venezuela, and you'll see the USA in 20 years at best. To some political factions this is a good thing. The far left's goal is to get rid of the US Constitution, which is a liberty document based on the rule by law. I believe ending the Constitution is Hillary's desire. The left always calls our political system a "Democracy" or rule by majority, where the minority has no power. Our second President John Adams said "Democracy...while it lasts is more bloody than either aristocracy or monarchy. Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself." Like in Central Planning, rules are a problem, since you can't change them easily to suit your wishes, or adjust them when the plan fails (see Obamacare/ACA).  

Hillary Clinton said she is not opposed to the 2nd Amendment if it can be "regulated.” As reported by CNSNews.com:

"Do you believe that an individual's right to bear arms is a constitutional right?" ABC's George Stephanopoulos asked Democrat Hillary Clinton on Sunday's This Week TV program.  "If it is a Constitutional right, then it, like every other Constitutional right, is subject to reasonable regulation," Clinton said.

What is crystal clear in the Bill of Rights is it says throughout phrases like “Congress shall make no law" and “Shall not be infringed.”  Does that sound like an exception for “reasonable regulation?”  And who decides what is reasonable?  This is the mentality of a statist.  It isn’t just about the 2nd Amendment; it is about twisting the law away from liberty.

However, Hillary is more than a statist. In the words of Newt Gingrich, she is a criminal.  "This is a giant criminal enterprise disguised as a foundation and [[in turn]] disguised as a campaign” Gingrich said on Fox News.  "This is a level of corruption that permeates the Federal government.”  Of course, this is all based on circumstantial evidence so far, so the public can't fully condemn her.  But her "honest and trustworthy” ratings are the lowest in history of any major Presidential candidate.

What does the mentality of a criminal look like? That is best answered with a quote by a superior criminal mind - Arnold Rothstein. “If a man is dumb, someone is going to get the best of him, so why not you? If you don't, you're as dumb as he is.”

Hillary has seen and done it all. She is the consummate politician, and will keep the same game going. She has more than thirty years of experience and is worth (with her husband) somewhere between $30 and $45 million dollars, not counting the estimated $2 billion controlled through her tax-free foundation. Not bad for a couple that has never done anything but "Public Service" in their lifetime?

Donald Trump has a narcissistic ego that is rarely seen so openly in the political arena. Here is the dilemma: the public abhors politicians, who are actors and tell people what they want to hear (lies) to get votes. Trump - like Don Rickles - enjoys insulting people who are at odds with him. Unlike a comedian, Trump is disliked for it. But there is the irony, as he is not a politician or a phony, which is typical for a person running for office?  He is The Donald: honest about his feelings, but abrasive to a fault. Which do you prefer?

Trump is a terrible intellectual communicator. He has very little understanding of the Constitution, save the 2nd Amendment. His major problem is he comes off as an authoritarian because of not enough knowledge in the "law of the land.”  An example is he says “we should have taken [[the Iraq]] oil.”  That’s Imperialism 101!  We can help or save or protect a country (as we did with Kuwait), but not "take" its assets.

Also, most people are very misled, and lack an understanding of the concept of "Free" Trade. It is true that the US is getting crushed on trade. Lowering taxes (which Trump has proposed), ending regulations, and stopping mandated benefits to workers would make the US more competitive. He does not explain his trade policy well, as he proposes a protectionist viewpoint. Most Adam Smith economists like Milton Freedman have explained this concept to where few would not desire free trade.  However, the TPP is not about free trade. To call something a name does not make it so. The "Affordable Care Act" is not at all affordable for those who don't get a subsidy. The TPP is an extremely favored grant in the form of a special privilege between government and big business, i.e. "Crony Capitalism" to multi-national corporations, especially drug companies.

Trump has many other problems, but the Congress would never let him get away with what the current President does with his executive orders/memos and his "phone and pen." Because Trump is disliked by so many he would be impeached if he tried to be above the Law.  An African American or a woman would never be held to the law, as President Obama has shown. 

Therefore, I believe change can only come with a Trump. He owes no one anything, funded his own campaign, and could care less about the Establishment. So the choice is simple: if you like the trend of the US today vote for Hillary. If you want to change its course vote Trump.

In the short run it does not matter who wins.  There will be economic pain whoever is elected our next President, as stated in my recent Curmudgeon commentaries.

End Quote:

This quote by the famous George Bernard Shaw (1856-1950) captures the essence of what voters must decide on Election Day (Tuesday, November 8, 2016):

"You have to choose [as a voter] between trusting to the natural stability of gold, and the natural stability of the honesty and intelligence of the members of the Government.  And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold."

Good luck and till next time...

The Curmudgeon


Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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