Kaiser Blog Nov 9, 2016: Implications of the Trump Victory
The much feared market meltdown in the event of a Trump victory did not materialize the morning after and gold gave up its overnight gains. Base metals, however, which started trending higher last week as the LME conference wrapped up, continued to push higher. During his speech Tuesday night where he effectively conceded that the election process was not rigged, Trump did not repeat any of the stupid, mean-spirited messages whose failure to lose him the election underline the truth of his assertion that America is no longer great. He is, of course, not referring to greatness in terms of GDP, military supremacy and cultural influence. In those terms America is greater than it has ever been. He is talking about the wounded spirit of modernity as represented by the United States.
In January 2008 I took note of a message painted on a landmark rock in the town of Moraga where I live whose scrawls usually aspired to the level of "Please Betty Jane Shave your Legs". When I suggested that the emergence of Obama as a contender for the Democratic nomination was an important development, Rick Rule personally assured me that the Clinton machine will crush Obama. Rick Rule turned out to be very incorrect, but what puzzled me very much was that this apparent proponent of market fundamentalism and Ayn Rand ideology seemed so cocksure about the dynamics of a party whose ideology was the antithesis of that embraced by the audience to which he pandered, namely wealthy Americans supremely confident about the "merit" foundation of their personal success. I was familiar with how hard Frank Giustra had worked to rehabilitate former president Bill Clinton after his presidency ended in disgrace when his two term limit ended in 2000. I had to laugh in 2009 how frustrated Giustra must have been when the asset he was cultivating as a direct channel to the next presidency via a cuckolded spouse got vaporized by an "agent for change" that materialized out of nowhere. It is doubly funny that another "change agent" as dubbed by Fox News has once again thwarted the ambitions of the machine.
At no time was I ever under the impression that Frank Giustra is a champion of libertarianism, but eventually I started to understand that neither was Rick Rule, that in fact he may have penned the lyrics to Pink Floyd's Welcome to the Machine. Donald Trump comes across as a total buffoon, but that may have been the price he had to pay to singlehandedly strip naked the "machine" that lurks behind the two major American parties. Most of the focus has been on Wrecking Ball Trump's impact on the unsound principles of the Republican Party which he has cranked up to their logical limit where they explode from sheer absurdity. Less attention has been paid to the similar allegiance to an oppressive status quo practiced by the Democratic Party which Glenn Greenwald articulates in Democrats, Trump, and the Ongoing, Dangerous Refusal to Learn the Lesson of Brexit (a hat tip to the painter of the above Moraga Rock for sending me this article).
The world and many Americans are aghast that half the American electorate voted for a candidate who never answered a debate question about how he would deal with a problem, who found it necessary to insultingly conflate fat people and hackers, who boasted about being a sexual predator, who called in question the legitimacy of American democracy, who promised to annihilate freedom of the press in the manner that every authoritarian leader has done and continues to do, including his idol, a super thug called Vladimir Putin, who threatened to jail any politician who opposed his will, who bragged about circumventing the spirit of the law by exploiting its letters, who pandered to fundamentalists by rejecting science, who has made an art out of emptying the pockets of anybody stupid enough to follow rules about fair play and honesty, who thought it wise to retweet the support of Neo-Nazis, who had no compunction about accepting dirty capital from third world kleptocrats, who thought it smart business to screw business vendors out of their promised payment, who thinks he can map his strategy of threatening the backers of his failing business ventures with default to the debts of the United States, who threatened to undo the devil's bargain whereby jobs were shipped abroad in return for goods at drastically lower prices than if made at home, and who thinks nuclear weapons should not exist if not deployed to press one's advantage over the competition.
The market did not tank the morning after because it interprets the election result as a protest vote which does not give a House, Senate and Presidency now controlled by the Republican Party a mandate to implement the bad ideas Donald Trump hijacked and cranked to their logical, catastrophic limit. Unlike Great Britain whose lost glory is an indisputable fact, the American half that voted for Trump did not jettison its moral compass because an end-timer mentality was justified by the circumstances. Most Americans do not know who Frank Giustra or Rick Rule are, but at least half voted against the machine personified by Hillary Clinton. They did not vote for Donald Trump; they voted against the status quo represented by the powers behind the Republican and Democratic Parties.
Donald Trump behaved himself on election night because he understands that he did not receive a mandate to pursue the stupid things he promised to do during his candidacy. He understands that it is not just half the American population that is today ready to stand up with fist poised to strike in the face anybody who dares to decree the bad things Trump promised. As musician Harry Belafonte so eloquently articulated the day before the election, What do we have to lose? Everything, the half that voted for Trump voted for the restoration of the meaningful will to dream about a greatness toward which America has been projecting since its formation on July 4, 1776 while the other half endorsed this dream as never lost. Trump's victory is not a mandate to roll back the clock to an imaginary golden time. In a very odd way it is in fact a warning not to regress to the badness of a past that has been well documented by historians who are truth seekers rather than apologists for the ever-present machines personified, in the context of the resource juniors about whom I am supposed to advise my audience, by the likes of Rick Rule, Frank Giustra and their support troops.
As a natural born pessimist who strives to be an optimist my instinct is to fret that we have embarked on a thirties Germany style slippery slope where a charismatic leader will end up being commandeered by intrinsically evil technocrats who enlist a threatened establishment to collaborate in a campaign that ultimately dooms America. This is the gambit of Putin, whose goal is to egg America into adopting policies that cater to the demands of extremists and lead to the balkanization of America, turning it into the Dis-United States. When you look at the electoral map above, and consider that Texans have been agitating for some time to separate - from exactly what is unclear - it becomes pretty obvious that the west coast has no more reason to be part of the rest of America than France has with the rest of Europe. The Electoral Map closely resembles that of the Jesusland map which, interestingly, merges the west coast and northeast coast of America with Canada. On election night the Canada Immigration and Citizenship web site crashed, which could be characterized as a DDOS attack engineered by the ever manipulative Russians, but which probably was a kneejerk reaction by frustrated Americans. While hitherto unthinkable, it is plausible that parts of the United States could separate from the rest and merge with Canada to create an awesome nation worthy of the rest of the world's respect.
Nobody is talking about it yet, but if "red" America attempts to impose a nasty version of Christian fundamentalism on America's west coast, it will collide with an invisible fist that is already poised to strike back. The apparent polarization of America is such that it is reasonable to question the sustainability of the union. The geographic polarization is not of an economic nature; it is a deeply philosophical-moral split. In thirties Germany the Nazis rose to prominence by isolating and targeting the Communists within the German population. It was an internal ideological power struggle which the left lost. The ideological distribution in the United States has a profound geographical distribution, punctuated by a rural versus urban divide. Physical separation is a realistic response to any attempt by the Republican political triumvirate to impose a Christian version of Sharia Law on all of America.
In 2011 a phenomenon called Occupy Wall Street flared up and quickly vanished. It was a trial balloon supposedly engineered by the likes of anarchist David Graeber which appealed to the split between the 99% and 1%. Paradoxical as it may sound given everything Trump has indicated he stands for or against, Trump's victory is a rallying cry by the 99% against the 1%. Occupy Wall Street's timing was wrong, which is why it retreated into the woodwork. Protest marches are already erupting in places like Chicago and Oakland. The post 2016 election environment offers conditions much more conducive for a spontaneous flowering of an Occupy Wall Street style protest movement. The trend of jobs marching to China courtesy of globalized trade which enable capital to seek out the lowest cost jurisdictions in terms of labor and emission control costs is coming to an end. As China grows stronger its people become more demanding; the next big trend is the increasing automation of production, not just of the goods produced by blue collar workers, but also the services produced by the white collar knowledge workers. The two most pressing questions are, what will the worker of the future do to "earn" the income needed to consume the output increasingly produced by the machine world, and how will the benefit of the machine world's output be transferred to a retiree generation which has the greatest longevity expectation in the history of mankind? This is in the back of the mind of every American who voted, and certainly those did not or could not. Don't think for a moment that Trump does not understand this.
Donald Trump may have a narcissistic impulse of the sort described by Barbara Oakley in Evil Genes, but he does not (yet) have command of a power hierarchy in the style enjoyed by a Mao Zedong during his reign of terror. It is thus reasonable to predict that he will not succumb to the demands of the Republican wingnuts to which he appealed during his campaign. It was very important that in his election night speech he focused on the idea of making America great again through infrastructure renewal spending. Fiscal stimulus in the form of infrastructure spending is a Keynesian response to an economic downturn for which Obama pushed throughout his two terms, but which was resisted thanks to the Republican control of the House and eventually both the House and the Senate which insisted on "austerity" as a form of biblical punishment for past excess, even though the suffering landed on almost anybody put the perpetrators of the excess during the Bush-Greenspan reign. The sneering joke making the rounds Tuesday night on Democrat network stations such as MSNBC involved the unlikelihood of Trump getting a goahead for a plan that not only cranks up fiscal debt by slashing taxes for the one-percenters, but also cranks it up by building stuff which generations of 99-percenter Americans will benefit from. Good luck getting the Freedom Caucus (aka Tea Party) to agree to that!
The market thus should have dismissed Trump's talk about infrastructure renewal as nothing more than stinky gasses dissipating from a surprisingly large and active orifice. But it did not, and the result was stronger prices for base metals such as copper, nickel and zinc. If we continue with the notion that Trump is not the evil moron implied by his emanations, that he is in fact a sophisticated Face Dancer, or a "performance artist" to use a more contemporary term, one can adopt the view that he will adapt quickly to rational behavior buttressed by the wisdom of experts in matters such as geopolitics. This reduces the risk of security of supply style disruptions, which is a negative for optimism about stronger raw material prices. At the same time as Trump avoids stirring the international pot, he can focus on getting a mandate for infrastructure spending, which he could get from both Republicans and Democrats if both sides accept that the two party system is no longer sustainable.
My suspicion is that Trump understands that he a tightrope walker who needs to garner support by splitting the two party system into three parties: a right wing party that holds all the religious fundamentalists and all the groups Fox News entertains, a centrist party that captures all the moderate Republicans and Democrats, and a leftist party which attracts young people and ideological purists of the Bernie Sanders style. The market responded positively to base metals because it is wagering that Trump's ego is so massive that he will comprehend his role in a historic existential rethink for America that leads him to do the "right thing" with the help of moderates from both parties. On the other hand, even as he boosts total demand for raw material because America starts rebuilding production capacity, there is a risk that although Trump behaves himself on the geopolitical front, aspiring super-powers such as China or Russia will push the envelope so as to force a confrontation that escalates into the curtailment of raw material supply. Metals thus have a double whammy upside potential: either Trump drives demand growth that boosts base metal prices, or supply disruptions boost the prices of metals, or both happen. And none of this requires any of the terrible things Trump has blustered about during the campaign to be turned into policy. The market does not yet share this view, but its eventual adoption makes the current stall in the rally that began at the end of January 2016 an excellent buying opportunity.