- Geopolitical Strategist
Switzerland, Intermediary
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Episode notes
Macro strategist Mike Medeiros joins host Thomas Mucha to discuss the potential market impacts of the upcoming US election. Listen to the full episode to understand how different outcomes in the House, Senate, and White House races could shape the economy.
2:25 - Market implications of major policy differences
7:15 - When will bond markets care about deficits?
9:35 - The impact of polling errors
13:15 - Key issues and the race to 270
15:25 - Potential black swans
17:15 - The most polarized time in history
20:00 - Different approaches to income inequality
21:25 - The Senate, the House, and how divided government affects markets
25:30 - The Fed, inflation, and other macro variables
27:25 - Disinformation, deepfakes, and gen AI
28:35 - Who do markets think will win?
Transcript
MIKE MEDEIROS: I think a Republican sweep would be a pretty seismic event for the bond market. Because we just went through a period during COVID where we had excess demand and constrained supply that led to inflation. I could easily see second-round impacts of that coming through under those conditions and under those policies.
THOMAS MUCHA: Americans head to the polls on November 5th to elect the 47th President of the United States, and to decide control of Congress. Whether that result is a second term for former president Donald Trump, or an historic win for Vice President Kamala Harris, and of course whether Washington gets divided government, or single-party rule remains to be seen. Now there are several weeks until election day, and consumers, investors, policymakers, and world leaders are all paying very close attention, as are we. So joining me today to discuss the election, and what the various outcomes may mean for markets, the economy, and naturally, the geopolitical backdrop, is Mike Medeiros, macro strategist, bond market expert, and one of the Wellington’s leading political analysts. He’s also one of the people that I listen to most closely here. Mike, welcome back to WellSaid.
MIKE MEDEIROS: Thomas, great to be here. Thanks for having me.
THOMAS MUCHA: Hey, there’s so much going on in the US, so much going on in the world right now, why not throw a momentous election into the mix? So, we do have a lot to get to here, and not a lot of time to get to it, so let’s just jump in. These two candidates vary pretty significantly on fiscal policy, tax policy, especially trade policy, foreign policy, regulation, immigration. So, we have a pretty divergent set of potential policy paths here. Why don’t we start by breaking down a few of these key positions, how you’re thinking about them, and what they could mean for the markets if they are actually implemented?
MIKE MEDEIROS: Definitely. I mean, the way I would think about it is, this is really a battle of the supply side of the economy. There are some massive differences that I think will matter a lot for the growth outlook next year, the inflation outlook, and the path the Fed takes over the next two years. And so, let’s start with trade. We’ve been in a more deglobalized world for the last 15 years. Global trade volumes have slowed, tariffs from Trump’s first administration played a role in that, but that was really underway from the beginning. If you look at Trump’s stated trade policy, very significant tariff increases.
THOMAS MUCHA: They mean it when they talk about these high tariffs.
MIKE MEDEIROS: Yeah, I mean I get this question all the time, you know, how much of this is rhetoric versus reality. And I think if we’ve learned anything, you know, Trump does what he says he’s gonna do. And the difference though, is that the tariffs he’s proposing for his next term, would be much more significant than what he did in the first. Ten percent across the board tariff, fifty to sixty percent towards China, obviously a geopolitical angle in there.
THOMAS MUCHA: Clearly.
MIKE MEDEIROS: And even some higher tariffs towards Mexico too, and that’s after the USMCA agreement. And so, when I add up those pieces, you know, that alone could add a percentage point to inflation next year. It would obviously work against growth, act as a tax, but a worse growth inflation tradeoff. Conversely, I don’t think the protectionism would go away under prospective President Harris. If you notice, the Biden administration hasn’t changed any trade policies that Trump implemented towards China. I think there’s information in that. And so, this deglobalization theme would continue, but it certainly accelerate under President Trump. It’s very similar for immigration. Immigration is a very important issue economically. It’s a very important issue politically that we’ll get to. But over the last year, the increase in immigration has been really important for the supply side of the economy. It’s helped increase the labor force, bring inflation down without the need for a significant rise in the unemployment rate. But that is starting to slow. There’s clear evidence that the actions taken by the Biden administration are having an effect.
THOMAS MUCHA: Yeah, it’s working to slow the number of migrants coming across the border.
MIKE MEDEIROS: Definitely, the southern border apprehensions data which I look at every month is down 50 percent from the peak, and so that tailwind for the economy is slowing. But again, very significant differences between Trump and Harris. You know, Trump has talked about significant immigration restrictions, significant increase in security at the southern border, and actual deportations as well. You know, whereas the trade policy would be more of a shock to the supply of tradeable goods, this would be a very significant labor supply shock, perhaps keeping wages stickier than they otherwise would be. Because the US, like a lot of the rest of the world, faces demographic headwinds. How do you combat demographic headwinds? You have immigration increase. And then under Harris, I think it would be more status quo, right? She talked about implementing the bipartisan border security bill, which would still be restrictive but clearly not as restrictive as Trump’s proposals. So when I take those two together, I think all else equal, Trump’s proposals around trade and immigration would lead to a hit to the supply side of the economy, worsening the growth inflation tradeoff next year. When I look out at what the markets expect for inflation, it’s very contained right around two percent over the next two years. I think that could be significantly challenged under a Trump presidency. Now, the third piece is fiscal policy. And we talk about growing government debt levels a lot. It’s on a concerning trajectory. You know, one of the things you and I have talked about is how the US pays more in interest than defense now, which is not only concerning economically, but also clearly geopolitically. And again, very different fiscal proposals from Harris and from Trump. And so, Harris has talked about an increase in spending proposals, particularly the Child Tax Credit, but other domestic proposals. Those would add up to around, over the next ten years, about two-and-a-half to $3 trillion. Conversely though, she would offset that with tax increases to corporates, to upper-income individuals, and relative to the current policy backdrop, that would roughly offset. And so, I actually see some fiscal tightening, net-net, under Harris. Now vastly different under President Trump, right? Trump has talked about decreasing the corporate tax rate further to 15%. He’s talked about extending all of the TCJA, the Tax Cuts and Jobs Act, which relative to current policy would represent an increase in debt levels above $4 trillion over the next ten years.
THOMAS MUCHA: That’s a lot.
MIKE MEDEIROS: Yeah, and so when I add up all of those pieces, I’ve said before, I think a Republican sweep would be a pretty seismic event for the bond market. Because we just went through a period during COVID where we had excess demand and constrained supply that led to inflation. I could easily see second-round impacts of that coming through under those conditions and under those policies.
THOMAS MUCHA: So, as you say, Mike, deficits could be a problem going forward. At what points do the markets rebel? And what are the signs that we should be looking for that that’s actually beginning?
MIKE MEDEIROS: One of the things we do from a market perspective is we always look for alignment between cyclical forces and structural forces. And when you typically get that alignment, that’s when markets tend to trend. And so 2022 is a really good example of that. We had thought a number of the structural disinflationary forces over the last 40 years had shifted, or were in the process of shifting, at a time of a cyclical turning point above trend growth. We saw a lot of inflation, very strong trend on the bond market with rising bond yields. Since then, we haven’t had alignment between the structure and the cycle. Those structural forces I think are still in place, but at the same time, there have been cyclical headwinds. And structurally, debt levels are the highest they’ve ever been. And over the next ten years, if nothing changes, deficits will be anywhere from 5% to 7% of GDP, which is concerning. When does the bond market care? The bond market is aware of this issue, right? We’ve had fits and starts where term premium in the bond market has risen. Q3 of last year was a really good example where the market underappreciated issuance from the Treasury, at a time when the US was downgraded. We saw a very sharp rise in term premium, but there are cyclical elements to it as well, so that started to come back down. I think where it becomes a problem, again, is if it’s Trump and Republican sweep, I do think the best expression of that in the market will be higher term premium, particularly meaning 30-year-yields sell off more. But bigger picture, when the market could start to become more concerned is if and when inflation starts to re-accelerate. The US doesn’t have the willingness to pay issues, although we do have the debt ceiling next year, so that’s always a risk. The US doesn’t necessarily have ability to pay issues, as the reserve currency across the world. And so I think it’ll probably, if we’re gonna see some sort of an impact, which I do over the next few years think we will from the deficit, I think it most likely comes along with inflation.
THOMAS MUCHA: So Trump should be more afraid of the bond market?
MIKE MEDEIROS: I think so, yeah. I think everybody should be afraid of the bond market.
THOMAS MUCHA: Of course you do.
MIKE MEDEIROS: I think 10-year Treasury yields are the most important asset in the world.
THOMAS MUCHA: All right, so everything you just laid out, Mike, is a pretty divergent macro policy, fiscal outcome here, all of it’s gonna depend on who wins. Control of Congress, right, so let’s dig into the nuts and bolts of the race right now. So first, you know, given the deep divisions that we have among the US electorate, you know, it’s probably no surprise that the polls are showing a very tight contest, particularly in the swing states that will matter. My question for you now is, given the history, given the past inaccuracies in some polling, how much stock do you put into the polling process this time around?
MIKE MEDEIROS: I love polls, love ’em. As you said, if you go through the kind of seven swing states, right, so --
THOMAS MUCHA: You’re throwing North Carolina into this now, is that your seventh?
MIKE MEDEIROS: Georgia, North Carolina which is neck-and-neck, Pennsylvania, Michigan, Wisconsin, Arizona, and Nevada.
THOMAS MUCHA: Right.
MIKE MEDEIROS: All of those states --
THOMAS MUCHA: It’s like a mantra.
MIKE MEDEIROS: Yeah, exactly. We’ll be at 50 soon. All of those states are within two percentage points, which is nothing from a polling perspective, right? I think a lot of people want polls to have a hundred percent hit rate. The standard error is three to four points, so that is more than within the standard error on all of these polls.
THOMAS MUCHA: Right.
MIKE MEDEIROS: Now, what’s fascinating is that, yes, there are polling errors. But I think instead of complaining about polls, it’s important to examine the polling errors. And right now as it stands, if the polling error was the same as it was in 2016 and 2020, Trump would win every swing state. Because the polls underestimated him on average two to three percentage points. That would be enough for him to win all of those states. Conversely, which I think is less discussed, is the polling error in 2022. Now that was a midterm election, not a presidential election. But those polls dramatically underestimated Democrats and Democratic turnout. If the polling error from 2022 holds, then Harris wins every single swing state. And so, what’s the difference between 2020 versus 2022? A lot of it, and we’ll get into this a little bit with the issues, is around abortion. And the Dobbs decision from the Supreme Court. Right, that was a very significant event for turnout in the Democratic Party, and the polls were not able to capture that. Now I will say, like if you look at, even national polls, they’re also neck-and-neck. Trump’s probably pretty close to his max position, right? Trump is someone that has a pretty high floor, but a very low ceiling. He’s never been above 50% in the national vote clearly, but even across many swing states. There’s probably more room for Harris to expand between now and Election Day. And the important piece is that Harris does have some momentum, I think more recently it stalled a little bit. But there’s still about 3 to 5% of voters who are undecided. Now I think the debate helped close that gap a little bit. But she probably has a little bit more room to expand from here. And Harris has really closed the enthusiasm gap that was present when President Biden was the nominee. Meaning, Democrats are a lot more excited to vote now than they were when President Biden was the nominee. And the enthusiasm gap shows voters likely to vote in their enthusiasm or excitement to vote. And historically, that’s a very important proxy for base turnout as well. And so that’s where we kind of stand with the polls. And so, the polls aren’t really giving a probability either way. It’s pretty close to 50/50, which is exactly where the markets are.
THOMAS MUCHA: Your point about Trump’s position with the polls and with the American electorate’s an interesting one. I don’t think there’s a single American that doesn’t know or have a view about Trump.
MIKE MEDEIROS: Yeah, yeah.
THOMAS MUCHA: Obviously there’s a lot more educational aspect to Kamala, because not as many people know her. I’m curious to dig into the abortion rights issue a little bit more with you. Obviously, it’s been a pretty clear factor in the races where it’s been on state ballots before. We know which way that’s been going.
MIKE MEDEIROS: One direction.
THOMAS MUCHA: One direction. How do you marry this -- and I have to do this -- bring in the Taylor Swift piece of it. But how do you marry this issue with that specific demographic? Do you think that’s gonna be meaningful in these swing states?
MIKE MEDEIROS: Absolutely. And I think the polling would show that. Because if you look at kind of main, quote-unquote, “issues,” voters think are issues, number one is the economy. And we were talking about earlier how that’s always an issue. “It’s the economy, stupid,” right? Immigration’s a big issue, and Trump has an edge in both of those.
THOMAS MUCHA: Although she’s narrowing the gap.
MIKE MEDEIROS: -- although she’s narrowing big-time on the economy. Where Harris has the advantage is on issues around democracy and women’s reproductive rights. And so, if you kind of dig into her support across gender lines, it’s actually astonishing how much she’s grown the gender gap. And I think, abortion is not the only factor, but it’s certainly one of them that’s pushing that.
THOMAS MUCHA: So, we’ve got a close election, we’ve got these issues that are very front-and-center. So what do you think the secret sauce is here then for each campaign to get to the 270 electoral college votes that they need? Is it winning over a handful of undecided voters? Is it about turnout, you know, motivating the bases? Is it about single-issue voters like abortion rights? I mean, how do you think the two campaigns are gonna address this in the truncated campaign season that we have left?
MIKE MEDEIROS: Yeah, I mean it’s probably gonna come down to less than 75,000 votes, like it did in 2020. And it’s gonna be close, we may not know the night of the election. I think shifting a few more undecideds will matter enormously. It’s pretty clear, based on polling data, that both bases are gonna turn out in spades. And so I think at this stage, it’s less about that, and it’s more about the marginal voter. But the thing I’m thinking about is with 50/50 polls, is there a surprise? And no one better to ask about something out of left field than you. So, is there anything I should be watching between now and Election Day from a geopolitical perspective?
THOMAS MUCHA: So it’s no surprise to any listener of this podcast that we’re living through the most dangerous, the most chaotic, the most unpredictable geopolitical environment in decades. We currently have the biggest war in decades in the Middle East, the biggest war in decades in Europe, and potentially, you know, significant conflict across the Indo-Pacific. So the geopolitical environment is pretty unstable. In any of those areas, we could have a geopolitical crisis that spirals out of control that would force the administration to act, could even lead to US military action in a significant way. That I think in such a close election would be one variable that we’d have to study. I think in this case, the Middle East is the most urgent issue given the amount of escalation channels that are existent, given the fact that we have so many US troops in the region. And so I’m watching that very carefully. I’m also, you know, looking at some indications that I’m hearing from my national security sources about rising terrorism risks particularly inside the United States. And in some cases potentially tied to the southern border. So if we had an event like that, that would be another potential black swan that I’m watching. Particularly if it’s through the southern border, so there’s a lot happening on the geopolitical side that I think we have to factor into how we’re looking at the individual pieces of this election.
MIKE MEDEIROS: Definitely, I mean we’ve already had, you know, a sitting president step down from the ticket, we’ve had two assassinations attempt on a former president, and the current nominee for the Republican party. We should be very open-minded about some surprise happening in the next six weeks.
THOMAS MUCHA: I think so too, and you know, we’ve had these political black swans happen which I think makes new ones even more likely.
MIKE MEDEIROS: Yeah, definitely. And the other piece too related to that is, kind of the social backdrop in the US. This is something you and I have been talking about for eight years.
THOMAS MUCHA: A long time.
MIKE MEDEIROS: Yes, this notion of polarization, right? And you said it at the outset, the country is very polarized. Now that word gets thrown out a lot, particularly more recently. But one of the things I’ve done to try to quantify that, is to look at how members of the opposing parties have voted through history. And so going back to 1789, just looked at how often you know, now would be Democrats and Republicans, and other parties in previous centuries, voted together. Meaning, if they vote together more, there’s less polarization. If they vote together less, there’s more polarization. So it’s not perfect, but it’s a good proxy. What’s interesting is that right now, members of the Democrats and Republicans vote together the least amount of times in history. And that includes the antebellum period immediately preceding the Civil War. And so, even though polarization gets thrown out often, I think it’s still underappreciated just how polarized the country is.
THOMAS MUCHA: And that increases the probability of a contested election, and particularly if we have one that’s so close. And both sides are preparing legal teams. They’re expecting legal arguments. What’s your concern level about a contested election that stretches out days, weeks, even longer, that may impact the markets? I mean, what are the variables that you would be looking for to raise the probability of that outcome?
MIKE MEDEIROS: I think it’s probably more likely than not at this stage. As you said, both teams have significant legal resources for a challenge. We’ve seen a contested election in the last election, and so it is relatively fresh. And it comes at a time when the country is so polarized. So I think it’s more likely than not that in some form or fashion, it is contested. Now, on the positive side, after the events of January 6, there were measures passed in law to try to prevent a significant contested election from happening again.
THOMAS MUCHA: The Electoral College Reform Act.
MIKE MEDEIROS: The concern though is that we do still have divided government.
THOMAS MUCHA: Yeah.
MIKE MEDEIROS: Where the House is under Republican control, the Senate’s under Democratic control. I think it’s one of the kinda underappreciated lame duck risks that are out there.
THOMAS MUCHA: And unfortunately, there’s a piece of this in my world too, which is if we do have an extended period of political chaos, let’s call it, to be polite, that does increase the probability of geopolitical mischief.
MIKE MEDEIROS: Yeah.
THOMAS MUCHA: Right? And, you know, I’ve already mentioned that we have such a complex geopolitical backdrop. If you have a very divided United States, with two people claiming to be president. And potentially the risk of more domestic political violence, or foreign election interference, it can get pretty unstable out there. And so, again, there are a lot of variables here that we to need to consider and prepare for.
MIKE MEDEIROS: Definitely, and the positive case from polarization, is that it requires action if you can identify the underlying cause. And I say that because, I think one of the main drivers of the polarization is inequality. Income inequality. And there’s a body of research that suggests when income inequality rises and hits a certain threshold, that leads to anger throughout the population, it leads to resentment, polarization. And what both parties are really trying to do, I think in their own way, is solve for that issue. Right? Trump has his own way of solving for that issue. That is close off the border, prevent immigration, blame other countries such as China and Mexico and increase domestic spending, cut taxes, infrastructure, onshoring, et cetera. The Biden administration, you know, as I said before, they haven’t changed anything on the trade policy. But they’re approaching it more, and you can see this in Harris’s economic policy proposals, they’re coming at it more from a bottom-up perspective. With more, on the spending side, more on the onshoring side. Government investment, things like that. And so, they’re both actually trying to tackle the same issue, just through very different ways.
THOMAS MUCHA: So, most of what we’ve talked about here so far, is dependent upon Congress.
MIKE MEDEIROS: Yeah.
THOMAS MUCHA: Right, can you get these things actually into the real world? So let’s talk about the Congressional piece of this. And you’ve been a big proponent for a long time of divided government, in terms of what that means to markets. How are you thinking about the current situation, the current races, and what’s your sort of feeling about the potential for divided government versus a clean sweep? And then how are the markets going to respond to this?
MIKE MEDEIROS: Yes, so typically, markets do like divided government, because it provides a cross-check on more extreme or significant policy changes and policy volatility. If you go back to 1994 or 2018, 2022, those were all years where the bond markets sold off pretty significantly. Those selloffs ended within two weeks of the midterm elections, and all of those midterm elections represented shifts from full control to divided government. Now conversely, bond markets hate full control, right? We saw that in 2021 with the Democratic sweep after the Georgia elections. We saw that in 2016. Largely because of the fiscal implications. I don’t have much pushback to the Republicans taking the Senate. They’re gonna --
THOMAS MUCHA: Just the way it lines up?
MIKE MEDEIROS: Yeah, just the math, the Democrats are defending twice as many seats. But there are some nuances, because the Republicans are going to pick up West Virginia, right? You know, if that’s the only state they pick up, then the Senate shifts to 50/50, and the vice president would break the tie. Outside of that though, I mean public polling in Montana shows incumbent Jon Tester down four or five points. I’m not sure how reliable polling is for the state of Montana, and he’s pretty popular in his home state, although that is clearly a Trump double-digit state. And so, that I think gives the Republicans the edge in the Senate. That being said Sherrod Brown is up five points in a state Trump won by nine.
THOMAS MUCHA: Ohio.
MIKE MEDEIROS: Ohio. And races in Florida, Texas are a lot closer than the Republicans would like. And so, if you look at betting markets right now, it’s about the 90% chance the Republicans take the Senate, that it feels like the Republicans are favored, but there are definitely some nuances. A polling error like 2022, and you know, we could be talking about a Democrat in Texas, or a Democrat in Florida.
THOMAS MUCHA: And if it comes down to this turnout issue that you mentioned before, then maybe we will get some surprises down ballot in Florida, in Texas, in other places that are traditionally Republican.
MIKE MEDEIROS: Yeah, definitely. Now moving to the House, I think the Democrats, who only need to pick up a handful of seats in the House have a pretty good shot, because they’ve had some favorable redistricting, and a lot of the vulnerable House Republicans are in left-leaning states like New York and California. I would say the House is most likely to go the way of the top of the ticket, or the White House. But either way, pretty narrow majorities, which as we’ve seen when the House is in a narrow majority, it’s harder to govern. I think if it’s Trump, then it’s probably a Republican sweep, but a very narrow one. Very significant implications, you know, ’25 and ’26, for the bond market, for growth, for inflation. Like I think the biggest mispricing under a Republican sweep is the amount of cuts priced for the Fed next year, and in 2026, which could potentially come out. And then, if it’s Harris, I think it’s most likely to be divided government.
THOMAS MUCHA: So I want to get to the Fed in a minute. But before I do, given the potential closeness of the Senate and House, which of the down-ballot races are you most closely watching?
MIKE MEDEIROS: First in the House, a handful of seats in California, in New York, that are in 50/50-type districts in states that are Democratic-leaning. In the Senate, I would say, if we’re talking about Florida presidential polls in three or four weeks, then that’s a big concern for the Republicans taking the Senate as well. And so, the top of the ticket does matter in terms of the down-ballot effect.
THOMAS MUCHA: All right, so obviously, the number one issue is the economy; you mentioned that already. Now after the Fed’s 50 basis-point cut and some improving economic metrics, it looks like we might be sticking the soft landing here, potentially avoiding recession. Consumers might be feeling better about jobs, rates, inflation. So how important do you think this development is to the outcome of the election? And beyond the Fed, what are the other key macro variables that you think will matter most between now and Election Day?
MIKE MEDEIROS: So one of the things from a macro perspective we talk a lot about is level versus rate of change, right? And what matters more from a stock versus flow argument to the economy. When you look at the economy as it stands today, inflation’s come down very significantly from the peaks. The unemployment rate’s risen, but it’s still low. And the rise in the unemployment rate has not been driven by layoffs. And so the misery index is pretty close to 6, which is a very good level, and something that most presidents would be launching themselves into reelection. The issue is that if you look at the cumulative change in the price level over the last four years since Biden took office, it’s actually three or four percent above all presidents who have lost reelection. I look at inflation in terms of the second decimal on a monthly reading, for example, right? The average voter thinks about it in terms of how much more am I paying in level terms for goods and services relative to four years ago? And that, I mean that will take a long time for that sticker shock to come off. And so, from a growth inflation labor market perspective, things are in pretty good shape. There’s obviously signs of slowing. But from a level perspective, that’s why voters are still so concerned with inflation and quote-unquote, “the economy,” is because the lagged impact of all of the inflation from ’21 and ’22.
THOMAS MUCHA: Are you concerned about the information environment in this election? I mean there’s a lot of rhetoric on both sides that, tell this story one way, tell that story the other way. We’ve seen already the use of deepfake videos and some other AI-related technologies that are making it easier for foreign adversaries to come in and disrupt the process potentially. How do you think about that in terms of an outcome?
MIKE MEDEIROS: Yeah, I mean I’ve been super worried about it, particularly the rise of generative AI. I’ve been surprised that it hasn’t really been an issue yet, to be honest. I mean there’s very little discussion about deepfake videos or foreign interference. There’s always foreign interference, but at levels that are concerning. And so, yeah, I would certainly put that in the bucket we talked about earlier around the kind of black swan-type events is something comes out along those lines.
THOMAS MUCHA: Yeah, it’s something that’s of grave concern in my national security circles, obviously.
MIKE MEDEIROS: Yeah, I would imagine.
THOMAS MUCHA: All right, Mike, last two questions. First, I want to put you on the spot, Mike. What’s your call, who’s winning the presidency? Who’s taking the House, who’s taking the Senate? And then second and related, you know, what can investors expect in the following months or quarters after we get this outcome?
MIKE MEDEIROS: Yeah, so the way I think about it is, I typically look at where the markets are priced, and see if there’s a skew with my own probability assessment for the election.
THOMAS MUCHA: Okay.
MIKE MEDEIROS: And right now, I don’t have a big skew relative to what the markets think, right? You can easily make the case that Harris can win, and you could easily make the case that Trump could win. And so, you know, in 2020, we had pretty strong conviction of a Democratic sweep. And in 2016, we thought Trump was underpriced relative to what the markets were saying. This time as of right now, I don’t have a huge skew on the outcome of the election. And so, we’ve been thinking much more about, like, what are the implications under Harris versus Trump, et cetera. And I think if you take the top of the ticket, for Trump, I think the market very quickly goes into price worsening fiscal deficits over the medium-term because of the tax policy, but also potentially higher inflation in 2025 and 2026 from the immigration and trade proposals. Under Harris, I think the kneejerk from the market will be to show some concern around higher taxes, particularly corporate, and upper individual income taxes. And this is at a time when the economy’s already slowing, although I do think there are some green shoots given what the Fed’s done over the next few months. And so I think we get the opposite reaction, more of a counter-cyclical move, higher recession odds, et cetera. Now in reality, I think her spending proposals would offset this, but that’s at least how I think the markets would initially respond. Senate, as I said before, I think Republicans are favored, and in the House, I think it goes the way of the White House.
THOMAS MUCHA: All right, well we’ll have a conversation on November 6th. We’ll see if we were right about any of this. And Mike, thanks again, it was a real pleasure to dig into these things with you. Once again, Mike Medeiros, macro strategist here at Wellington.
MIKE MEDEIROS: Thanks, Thomas. Great to see you. Thanks for having me.
Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced September 2024.
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