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Brian Fallow takes a look at how the US presidential election may play out and warns it's likely to be messy, including for financial markets

Brian Fallow takes a look at how the US presidential election may play out and warns it's likely to be messy, including for financial markets

By Brian Fallow

Financial markets should be contemplating the outcome of the coming election with foreboding and dread.

Not the New Zealand election, the one in the United States two and a-half weeks later.

The risk is a disputed election and constitutional crisis, heaped atop the pandemic, recession and civil unrest which already beset the US.

A disputed election in Belarus is one thing, one in the United States is quite another.

If it is a tail risk, it is of the fat, platypus variety.

Objectively, anyone contemplating Donald Trump’s record of lethal incompetence and moral squalor would consider the outcome a foregone conclusion. And the polling indicates Joe Biden commands a substantial lead.

But a lot can happen in seven weeks. More race riots could give Trump’s law and order rhetoric traction.

On the other hand the Covid death toll could top 250,000.

So deep is the country’s partisan polarisation that more than four every 10 Americans, polling indicates, are in the “We don’t care, Trump’s our guy” camp.

And it is not a national election but a series of 50 elections for each state’s electoral college votes. Lines drawn on the map in the 19th Century seriously overweight thinly populated, Republican-leaning states, so that Biden would need a substantial plurality of the nationwide popular vote to be assured victory. Nearly three million was not enough for Hillary Clinton four years ago.

Another complication is the Covid-related boost to postal voting expected this time.

For months now Trump has been assiduously undermining confidence in mail-in voting, notwithstanding a near-total lack of empirical support for such claims.

Postal voting will widen the interval between polling day and a final official tally.

It might be further delayed by multiple demands for recounts and state-level lawsuits along the lines of Florida’s Bush v Gore cliffhanger 20 years ago.

In that case the Supreme Court found for George W Bush, but Al Gore’s willingness to accept that ruling was also crucial. Would Trump be similarly statesmanlike?

A key difference between then and now is the appearance of social media and the potential for misinformation, or malicious disinformation, to spread.

Twitter has recently toughened its rules to prohibit disputed claims which could “undermine faith in the voting process itself” such as “unverified information about election rigging, ballot tampering, vote tallying or certification of election results.”

It has also thought it necessary to prohibit “inciting unlawful conduct to prevent a peaceful transfer of power or orderly succession”.

Facebook? Not so much.

Finally there is the character of Trump himself. It is unsafe to assume that his campaign of pre-emptively undermining the legitimacy of the election is just cynical mendacity, a bid to retain power at any price.

Rather it may well reflect a deeper pathology, that in the mental universe he inhabits either winning or being cheated of victory exhausts the logical possibilities. “I lost”, like “I’m wrong” or “I’m in the wrong” violates a fundamental law of the solipsistic world he lives in.

Would such a man ever concede defeat? It matters if the answer is no and he has an entire political party in his thrall. Remember only one Republican senator, Mitt Romney, voted to remove him from office after he was impeached.

Should we care? More than financial markets appear to at the moment.

“Elections come and go and often they don’t change too much,” said BNZ senior markets strategist Jason Wong. “There’s a tendency for eyes to glaze over.”

As for the risk of a massive sell-off of the US dollar, doing unpleasant things to our exchange rate, Wong said that while there are already reasons to be negative on the big dollar, in times of uncertainty it was usually seen as a safe haven.

Underpinning this sanguine view is confidence that “at the moment the Fed has got the markets’ back”, Wong said.

When the markets freaked out six months ago, as the scale of the pandemic dawned on them, central banks responded with massive monetary pain relief in the form of quantitative easing.

The Federal Reserve in particular with its recently reaffirmed determination to get inflation higher, has signalled its willingness to do a lot more.

ANZ chief economist Sharon Zollner sees the US election as only one of the geopolitical risks being underplayed right now, overshadowed by domestic preoccupation with Covid-19 and our own election. Brinkmanship over Brexit and the ongoing relationship between the US and China are others.

But the “monetary morphine” being dispensed by central banks, including ours, is distorting the pricing of risk, Zollner said, and a day of reckoning cannot be endlessly deferred.

“Credit spreads should be wider but central banks are distorting the market and there will inevitably be misallocation of resources as a result. People are taking on more risk than they would if risks were priced accurately.”

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"The “monetary morphine” being dispensed by central banks, including ours, is distorting the pricing of risk, Zollner said, and a day of reckoning cannot be endlessly deferred".

if Trump still wins this election, it only suggests that the US pretty much done because it no longer has a population base supporting a functioning democracy.


Maybe they want to follow the almighty CCP model?

Almost impossible - the US simply does not have the wealth of thousands of years historic and civilisation deposit.

This has been vividly reflected by the complete contrast of how Chinese people responded to the COVID19 versus how Americans did.


Thousands of years of history are not required - contrast how Australia and New Zealand reacted to COVID, with America.

Americans strongly believe in "freedom to", not "freedom from", and that is what prevents them from acting collectively. Throw in a vicious dog-eat-dog capitalist economy and an education system that has been deliberately undermined for decades and it's difficult to see how they're ever going to overcome their deep-seated divisions and reform.

Excellent perspective Lanth. I've never seen it expressed that way before.


Hey Xing, what are you going to do with thousands and thousands of social credits points you have earned.. Cash them in for the latest Huawei P40 PRO phone?

Um.. ..your beloved homeland was having a civil war seventy years ago.

Resulting in two very successful countries, China and Taiwan.

They are following the CCP model they now have a Dictator in power who is going to contest the election outcome and not leave office. The problem is the public over there are not repressed and controlled by the state and they are heavily armed to the teeth, what could possibly go wrong ?


LMFAO, of course Trump is going to win. I called it last times, and I'm calling it again.

Joe Biden pretty much has Ramen Noodles for a brain. Hello .. knock, knock .. Weekend at Bernie's? Donald Trump is likely to win a Nobel Peace Prize .. Joe can't identify his wife or tell you what he had for breakfast.

To quote Sleepy Joe, "C'mon Man".

I find it impressively brazen that the Republicans' primary line of attack on Biden is that he's heading toward Trump's mental capacity.

It is pretty remarkable that the Republicans and Democrats have both managed to select such poor candidates the last two elections, moreover. They should probably move to the multiple stage candidate selection process as used in some European countries.

Don't be like that .. Trump's mental capacity is far beyond Joe Biden's. Trump can rant like a fool for a hour, but it's intelligible! Joe Biden said what .. ?? Something about people touching his hairy legs in a pool and a 'bad dude' called Corn Pop?

Keep watching Fox news.

lol - I've listened to a few Trump speeches - he talks a lot but says nothing

He's a politian, that is what they do.

Hey, er, I mean, don't know what to say to that. I've watched Trump and read his words plenty.

I guess I don't subscribe to the right newsletters.


Biden is senile and he's heading downhill fast. They're working hard to conceal it, by avoiding interviews and keeping him locked up in his basement.

Trump is belligerent and a New York bullshit artist, but he's sharp as a tack. Trump is the big "f*** you" from the parts of America sick of being called racist, sexist, homophobic, transphobic etc. They tried putting forward milk-toast candidates like Romney, but he was too polite to take on the likes of Obama. If the democrats could shift away from Ocasio-Cortez and Rashida Tlaib towards a more reasonable centrist position, they might get move civil candidates from the Republicans.

Until then, it's Trump all the way and I hope he demolishes Biden (I suspect internal polls are showing this is exactly what's going to happen..)

Ocasio-Cortez attended Boston University, where she double-majored in international relations and economics. Tells you a lot about the American education system .. probably nothing new though.

More a blunt spoon than a sharp tack.

But his speaking resembles history: populist leaders have often been fine at getting up and rarking up a crowd, but have been notoriously incoherent at policy and generally dull if they try to write, paint or string longer sentences together beyond their standard, repetitive format (you'd have seen people easily churning out a string of sentences that sound conspicuously Trumpian).

It's a peculiar privilege of the populist and - especially - the dictator to make long, repetitive and nigh on nonsensical speeches to audience approbation.

(NB. Trump never had to compete with Obama. He had to compete with another terrible candidate in Hillary. A South Park election.)

I don't think that is true. Some of the writings and speeches of dictators are studied long after their deaths. More so than ordinary leaders I would say.

They're studied, of course - but not necessarily for literary merit, e.g. Mein Kampf, Mao's Little Red Book. Hitler by all accounts was a creditable beerhall speaker made good (and a useful idiot lost control of), but Stalin and Hussein were known for making boring speeches no one would dare not applaud.

Vaclav Havel, not a dictator.

I could well be missing some, but seems to me Camus was pretty well on the money: "Tyrants conduct monologues above a million solitudes."

It is a sad indictment of the Democratic party that they managed to lose the election to Trump - and look poised to do it again .
They learnt nothing from their defeat in 2016 ...

They lost to Trump and then despite repeated attempts to remove him they failed again. It speaks volumes of just how bad the Dem's are.

But the Russian's hacked the US election, remember ?? LMFAO. People in America still believe Hillary lost because of Russia. What is more concerning is that people here in NZ once believed that. What is even MORE concerning is .. some KIWI'S STILL believe that.

It's mind blowing how quickly the Russiagate / Mueller scandal just went away. For months the media outlets were rubbing their hands together with glee at the prospect of an impeachment, then just like that it was gone, never to be spoken of again.

The Dem's make Labour look like mega stars of delivery.

Just Bread and Circuses, everybody knew it was fakes news, right ?? A bit of dangerous entertainment I think.

Obviously there is always going to be a segment of the population whom are highly susceptible to propaganda-mouth-pieces like Rachel Maddow, Jim Acosta, Joy Behar and their respective organisations.

I agree with all of you. The Dem's have doubled down on their 2016 loss and it was only dark forces that prevented Bernie getting the nomination. Biden is such a deeply flawed choice, I can't see the average American believing that the Dem's are worth the gamble. I read that Trump is making such big inroads into Florida voters of Cuban descent that Bloomberg has just committed to spend $100m in that state alone supporting Biden. Trump worked out that the Cubans fled socialism and they don't want a repeat.

To be reasonable, America is already a very deeply socialist state. More crony socialist, but aren't they all.

A Trump victory could lead to widespread civil unrest IMO, it could get nasty.

It wasn't about impeachment, that was the cover. The real goal was to clean-up evidence of spying on Trump's election campaign, to that end it succeeded.


Didn't go away, so much. A total of 34 people were indicted or convicted and multiple people went to jail.

Surprising the Republicans did not allow John Bolton to testify given there was nothing to see here.

That was a hoax, the commission which investigated this found no facts on this, you have not mentioned this, also the Democrats are behind this and are desperate, have started this hoax again.

If I had to choose between Trump or a chimpanzee, I would vote for the chimp.

Chump or Chimp? I think that says more about the dem's candidates than you realise.

But the “monetary morphine” being dispensed by central banks, including ours, is distorting the pricing of risk, Zollner said, and a day of reckoning cannot be endlessly deferred.

There is no oil in the CPI’s consumer basket, yet oil prices largely determine the rate by which overall consumer prices are increasing (or not). WTI sets the baseline which then becomes the price of motor fuel (gasoline) becoming the energy segment. As energy goes, so do headline CPI measurements. And that’s a huge problem…if you are Jay Powell. We’ve been making a big deal out of him making a huge deal out of this “new” inflation strategy (that isn’t even close to new). With “transitory” retired from the official vocabulary, the word “average” – as in inflation target – was meant to slide right in unnoticed to take its place.

Except, neither the CPI nor the PCE Deflator are going to cooperate with WTI futures still in contango even after one-fifth to one-quarter of domestic supply has been taken offline. In this oil case, we can more easily observe the raw economic effects of this lack of effective monetary policy in the lack of V-shaped recovery (as in oil demand) about to once more hinder the inflationary confirmation policymakers still seek (while not knowing where it’s supposed to come from).

Should WTI remain somewhere around $37 (perhaps less, perhaps a bit of a rally from here), what that would mean for the chain of pricing from oil to gasoline to energy to the headline CPI is the opposite of average inflation targeting. Link

I think its safe to say neither party will accept the result come election night.

I think it's ALSO safe to say, if ANY country can't determine the winner of their own national election .. the claim of being a democratic country is brought into question.


What a biased, anti-Trump article. Now write it with Biden and the Democrats refusing to accept the result when Trump wins. The rioting is all from the left in the US. You don't see Trump supporters smashing buildings and lighting fires. This model, has been right 25 out of 27 elections and is predicting a 91% chance of a Trump win.

Well, Trump has repeatedly stated he won't accept losing and touted a third term. And created heaps of excuses as to why he's allowed to. Hence the article being about that.

You know he comes up with stuff like that just to taunt the press right? If you take it seriously you are a moron, or you're reading fake news (probably both).

If he 'jokes' about starting a dictatorship just to wind up the press, he's unfit to be president. But we already knew that.

Oh please. He's joking! He's joking! has been the get out excuse for the past 4 years. He's joking, until he isn't. It's as lazy as labelling any bad press as "fake news".

No, no, his eyebrows weren't raised. It's not the first time he's overestimated his own power, either. E.g. his assertion that his powers as president were total and outweighed states' rights

(President Donald Trump declared at a news briefing Monday, "When somebody’s president of the United States, the authority is total."

However, you and Rush Limbaugh are probably right that he does not believe the conspiracy theories he feeds his devotees (unfortunately, many of the same theories infecting NZ's Facebook "just questioning" folk).


It’s worth notice that a lot of the riots etc are sponsored by the Dems. Go figure ...

A full blown fact but those who swallow the mainstream media won't swallow it for a second Tradersam.

yep, have to agree. This election, no matter what outcome, has the potential to send an enormous shudder around the globe.

There is a real danger Biden could win up to 10% of the popular vote , and still lose the electoral college.
And its not just the imbalance between population and states electoral votes , in some cases individual counties could decide the state electoral vote. Hence the very targeted campaigning. Trumps support is overwhelmingly rural, and some small counties get a vote in the states electoral vote. Only a few states split the vote according to the actual % each party gets .

Voter suppression will likely be a big issue in these counties and states - the online corporate run voting systems in place are a doozy - US democracy is a joke.

I don’t understand how those states are still united! If I lived in the US somewhere decent like California or New York and had to put up with an idiot president voted in by less than 50% of the idiot population I’d be pretty pissed.

The Presidential Election is not 1 nationwide vote. It is 50 separate elections to produce the electoral college. It effectively deliberately reduces big population states and increases small population states. Otherwise the small population states would never have joined the union, if they were going to be bossed around by the East Coast and latterly also the West Coast. It was a compromise. Anyway its democracy and I'm sure Republicans weren't happy when Clinton or Obama won. But they accepted it. They did not rage for 4 years, forming a resistance and riot in the streets burning buildings down. They were adults because they believe in the system.

Yeah but what’s in it for California etc? Their government is much more right than most other advanced countries due to the hillbilly vote (even their Democratic Party would seem right wing in most countries). They used to be the most advanced, free country in the world, now they have trade wars to protect their backwards technology, are well behind the times in terms of social policy, they have a president who is nuts. Why wouldn’t they pull out?
As for comparing trump to Obama, well Obama was fairly centrist. If he say wacked a $3 a gallon environment tax on fuel or banned guns I reckon there would have been rioting.

If Biden wins and Hilary becomes Secretary of State again, I wonder if people will condemn them if they start to invade countries again and advocate regime change?

Trump to his credit has been restrained on this. First president in North Korea and just pulled off a peace deal in the middle east.

Why would they make Hilary Secretary of State again?
North Korea , that's just 2 egotists massaging each others egos. Middle East peace , , you realise there are more than 3 countries in the Middle East, right???

That's a very favourable (by omission) account of Trump's military operations. In fact, before removing reporting to reduce visibility Trump was conducting more drone strikes than Obama did in his entire term in office.

During Mr Obama's eight years in office, 1,878 drone strikes were carried out, according to researchers. Since Mr Trump was elected in 2016, there have been 2,243 drone strikes. The Republican president has also made some of the operations, the ones outside of war zones, more secretive. As a result, things have different today: under Mr Trump, there are more drone strikes - and less transparency.


President Donald Trump has revoked a policy set by his predecessor requiring US intelligence officials to publish the number of civilians killed in drone strikes outside of war zones.

So, more assassination, less transparency. Including assassinating Iran's top general for political gain.

Trump Inherited the Drone War but Ditched Accountability:

He eliminated the Islamic Caliphate, something that festered under Obama's gross incompetence.


Seems like a long fought campaign of international forces and the Iraqi army. What specifically are you suggesting Trump did?

It's very odd seeing the level of emotional investment a bunch of Kiwis seem to have in Trump. Very strange indeed. Perhaps I'm not on Facebook enough to catch the right talking points?

I'm not sure if I would describe Israeli intelligence co-operation with Saudi Arabia to suppress Yemen in order to keep access to the Red Sea, a peace agreement as such..

The very thought of Hillary coming back will win the election for Trump.
But I read that Kamala is already calling it a Harris Presidency. More votes for Trump.

"And the polling indicates Joe Biden commands a substantial lead"
yeah right
(next Tui ad)

Well, all the polls do in fact show Biden with a substantial lead.
Problem being that that doesn't guarantee a win, because of the totally cooked Electoral College system.
The vote of a Nebraskan is 'worth' far more than a vote of a Californian. Ridiculous system in a country that claims to have perfected democracy.

You need to study history. The electoral college was put in place to stop large population centres dominating. Otherwise they could not get the new (empty) states to join the Union. It was a way of balancing electoral power. The US in it's current form simply would not exist without it.


Most armchair commentators in NZ only have a superficial understanding of how the American political system works. United States is not just what they call themselves - it is literally a Union of States. Their entire system revolves around the balance between State and Federal governments. Completely foreign to a country like NZ.

Very true.

Always found it an intriguing discussion of the gradual change in the own language, from "the United States are" to "the United States is".

Oh, I know why it exists. It doesn't mean it's a good idea. Not worth it when a few rubes can hold the country to ransom.

Utter rubbish - if you take out CA and NY from the popular vote tally in 2016 Trump win easily. You are correct - Trump didn't win the battle that wasn't being fought- he won the one that was. If you took illegal aliens out of the CA districts more will fall to Repblicans.

Utter rubbish - if you take out CA and NY from the popular vote tally in 2016 Trump win easily. You are correct - Trump didn't win the battle that wasn't being fought- he won the one that was. If you took illegal aliens out of the CA districts more will fall to Repblicans.

I listened to Leighton Smiths Podcast about why the polls are skewed in favour of Biden winning, he interviewed a polling company predicted trump would win last election, and they also predicted that Brexit would win by 3%, Brexit won by 4%. So...Mainly it's women that answer the home phone, which are more likely to vote dems. Also 77% of those that back trump dont share who they vote for, where as 52% of those that vote Biden dont share who they vote for. There were other factores which I cant recall. So it looks like the pools favour Biden which isnt acurrate.

See this model:
91% chance of Trump win.

Geopolitics improving in the Middle East with Israel reaching agreement with several Arab states - under Trump
The Democrats seem to be the ones keen on starting warfare

I think it's a bit disingenuous to claim that Trump is working to undermine the legitimacy of the election when the DNC has hired 600 lawyers to contest the election results in every state.

The US really needs some 'impartial observers' sent in to monitor the legitimacy of their elections. Much like the UN has done before in, eg, East Timor. No matter what happens, the legitimacy of the outcome will not be accepted; and Trump has already said that the postal votes are rigged (before they've opened) and actively encouraged his fans to vote twice.

So I live in the US. Ask me anything about the current political/Covid/Social situation (It’s a mess for sure) Happy to give my view.

is Kim still with Kanye?


I assume so. On a positive note ‘Keeping up with the Kardashians’ is getting cancelled. Best news out of 2020 by far....

I assume so. On a positive note ‘Keeping up with the Kardashians’ is getting cancelled. Best news out of 2020 by far....

Hi Paradox, where in the US are you ? over there, each state or even county has a different "mindset" or vibe.
I think Trump will get back in, as long as the southern and mid-west states come out in force to vote.
Also just a quick USD ? ......I am holding some USD's right now, so either do I wait a little or change to NZD now ?
Thank you CH

So I am in Pennsylvania which will be a battle ground state. Trump won it by 1% in 2016. Polls are in Biden’s favor but there is a lot of mistrust in polls from 2016. I think the debates will be very important - especially how Biden debates (commentary around cognitive ability). On USD it’s a toss up but I’m holding tight. USD certainly has some weakness to it currently but if RBNZ goes negative on rates it will push NZD down. Also if NZD tends to follow S&P500 down (global economy) and it feels over cooked + a Biden win will likely push equities lower. So long story short I am holding USD currently betting on RBNZ and a Biden win.

Paradox thanks for your reply. My business is next door in MD, near Annapolis and I was there for the November 2016 election, when Trump got in ....the whole neighborhood was in deep mourning and no one spoke to each other for days - but it's a very DEM county.
Thank you for your thoughts on the USD and totally agree with you, as when he DOW goes down the USD strengthens, because as many people down here don't like to admit it, the USD is still the world "reserve" currency and when things get "shaky" everyone will still rush back to the USD. Cheers CH

On the USD. I'm taking some on but not in an NZ bank as I'm reasonably certain that they would part of an OBR event.

I think the debates will be very important - especially how Biden debates (commentary around cognitive ability).

Have they been scheduled - do we have actual dates yet?

I'm wondering whether anyone is offering odds on them actually taking place, or not. I've had a premonition. Biden will suffer sudden-onset laryngitis and Kamala will be proposed as the stand-in. Trump will refuse to debate her. And poof - no debate.

See Zollner last quote. Then look at what people extending their indebtedness are doing.
Yes indeed.

Both Tzar Putin and Chairman Xi want DT to win, as they believe DT will speed up America's decline - whether their viewpoint is right or wrong is a different discussion

I totally agree that the markets are simply not pricing in the risk of a disputed election. Nor, in my view, are they pricing in the reaction to a Biden win which I believe would be viewed negatively by the markets. Much as I despise Trump and everything he stands for, the stockmarket would see a win for him as 'good' for the market and win for Biden as negative.

I continue to do what I have been doing for over 2 years; selling into strength. I have been taking money out of my best performing holdings and keeping it in cash. I now have much more cash that I have ever had-some 30% of my total portfolio-shares, bonds and rental property. I have no idea what will trigger a big sell-off, or when, but it will come and as the dust settles, i will be ready to start buying back in.

Trump may very well win again and this time also by a majority of the electoral college votes. If that happens, it will be a good tonic for the market, From now to the election though, the markets may go many ways, on a daily basis. As for America, Go(l)d Bless them.

Regardless of the election outcome the 20th century was the US’s built on war - the 21st century is China’s built on business.

Not sure if I would describe South China sea, Xighur suppression and belt road initiative as purely 'business', unless you subscribe to that idea that war is merely the far end of diplomacy..

Watching the US right now is like watching a train crash in slow motion..

They said the same thing last time and Trump came and speeded up the train.

I blame the Simpsons. Bring back the Road Runner. It's predictable as opposed to predictive.

“If the definition of “smart,” at least for this purpose, folds in raw intelligence, street smarts, intuition, real-world experience, business success, job creation, wealth creation, a fighter’s instinct, and knowing when to roll the dice or to bluff, then Trump might stand relatively high on the presidential “smarts” pyramid.

Just the fact that he got himself elected president of the United States on his “first try,” as he says — on his own, against all odds, as an outsider with zero political experience, amid ridicule and attacks by both political parties, the mainstream media, Hollywood and academia — should get Trump honorable mention for top billing.”