Impact of Political Risk (Trump) on your Investment Performance

Polls and media heavily support the “Trump will win” narrative but actual elections and votations ovewhelmingly show that hardcore MAGA is out of fashion.

I tend to think the second matter more than the first (partly because voters actually go out to vote while people answering to polls won’t all do - plus I’m doubtful younger generations even answer them anyway so they’re skewed toward certain demographics).

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Since people have short memories let me remind you that in 2018-2019 Trump publicly critized Jerome Powel and wanted him to resign or fire him because he dared raise the interest rates.

I think the higher risk of a Trump presidency is for the USD to become toilet paper, whatever the implications of that may have. For sure higher stock prices in USD, but will they be higher in CHF terms ?

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Came across this in the WSJ today:

(Source: Trump vs. Biden: How the Dow’s Performance Compares)

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Last time I checked, the US was already running at 120% debt to GDP and 7% fiscal deficit p.a.

Looks to me like regardless of who is in power, we might be in for a test how far the spend-like-a-drunk-sailor approach can be stretched… for the UK, we got the answer recently (under the PM who had her shelf life cut short dramatically).

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The reports of the death of the US dollar are greatly exaggerated.

Look at these recent auctions of US treasury debt:

Looks like there’s still people who bought this. As recently as … checks notes … two days ago (e.g. CUSIP 912797KF3).

Upcoming auctions include 20 year notes.

Betcha a dollar — no, let’s make it a Swiss Franc for stability reasons — that even those will sell like hot cakes, along with all the other bills and bonds that will be auctioned off.

There currently isn’t really an alternative to US Gov. bonds. Investors still treat them as risk free even after the repeated congressional shenanigans when it comes to raising the debt ceiling (or the absence of shenanigans by whatever party is in power at the time when it comes to raise taxes or keep expenses in reins in order not to have to raise the debt ceiling).

I don’t see the death of the US dollar on the short term but alternatives/competitors are raising, a change might happen in the future, at an unknown date, on an unknown pace. I don’t see that affecting US companies more significantly than other companies: the US dollar is an international reserve currency, it is widely used by a variety of companies. The good ones will adapt, others might get caught pants down.

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Lot of people have their assets tied to USD, even foreign governments. So now USD is too big to fail and it would create a big issue for countries outside US too. I don’t think it’s in anyone’s interest for USD to fall suddenly. Maybe over time.

As far as I know US bonds are owned by institutions outside US more than institutions inside US. This gives America the advantage because when they print the money, the devaluation is partially felt by foreigners.

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I’ve not really been a fan of gold, and always found that it was always ‘too expensive’ but in the end I went ahead and bought gold and gold miners back in February.

While there has been a very vocal camp sounding the death of the dollar, I’m not really in that camp, but I don’t like the direction things are going in and so opted for gold instead. I did consider long term treasuries as a bet on falling rates, but wasn’t sure I wanted to bank on a ‘greater fool’ strategy and wasn’t confident I would follow the strategy successfully.

I expect some pressure on gold and USD as China and others transition part of their reserves from USD to gold.

I would be surprised if there are more foreign bond holders than domestic.

I made a mistake in my quote
Listening to Acquired podcast about Bitcoin, there was a discussion about how USD Fiat is dominant and a lot of it is owned by foreigners. I don’t know if they meant physical bank notes or also including digital cash.

For bonds specifically - the number is between 25-30% in terms of foreign holdings.

Around 30% currently:

https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadth-of-the-federal-debt/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog

Interestingly enough the Fed is now really serious about de- monetizing - fortunately there is enough fiscal stimulus to counteract: