In the global economy the qualities desired above all others are predictability and consistency. Those two qualities are what keep America on top of the global economic pile. When investors want to put real money on the line in a foreign country, they want to know that those investments are going to be safe. They want to know that the leadership of that country is stable and will do the right thing.
For decades the United States was that island of stability and predictability for world markets. That’s why the 2008 banking crisis ripped across the entire planet. Banks and investment houses around the world put so much faith in U.S. banks and rating agencies that they gladly accepted what turned out to be toxic assets. That wasn’t the first time the U.S. economy tanked world markets, but it was the most blatantly deliberate. When no one went to jail for one of the largest financial scams in history, the U.S. started to lose credibility. Today, with our reputation already tarnished, global market uncertainty has a new source.
Our Toxic Election
The negativity and divisiveness of our current election has given some of our most loyal trading partners cause for concern. The rhetoric is so toxic that one elementary school took the unusual step of canceling a mock election. Just the idea that a significant fraction of American society wants to build walls between themselves and the rest of the world is putting global markets on edge.
United in Name Only
The bitter partisan divisiveness of this election is having an impact on both foreign and domestic markets. The narrowing race has triggered a fourteen percent spike in the VIX, the so-called fear index. All the major market indexes have been down for a week as time seems to creep by the last two weeks of the election. This is one of the first times in recent history that Americans on opposite sides of political issues have started to see people on the other side as an enemy. It’s easy to understand how an election that’s visibly pushing the U.S., one of the largest economies in the world, toward what looks like another civil war could terrify global markets.
We Just Want it to be Over
As the number of days left until November 8th clicks down with agonizing slowness, many Americans have already voted by mail or through early voting. For them the partisan bickering is just corrosive background noise, and the wall-to-wall negative ads on television are merely an ongoing annoyance. Even people who study presidential politics for a living are tired of it. But the constant flood of negativity, insults and outright threats on social media is making it difficult for people to see a way forward.
The One Good Thing
Every dark cloud of division has a silver lining and, in this case, the lining is both gold and silver. Despite the fact that the Fed is “really, positively, we’re-not-kidding-this-time” going to raise interest rates in December, pricing for both gold and bonds have shown unusual strength. With oil prices in freefall and the bond market on fire, it’s not surprising to see investors taking shelter in gold and silver. The traditional harmony between gold and oil prices is now completely disconnected, as OPEC and Iran turn traditional market forces on their head. Your decision on gold should be made independently of other commodities.
If you’ve already been keeping a percentage of your wealth in liquid hard assets like gold and silver, then neither the current market decline nor the outcome of the election would concern you. If you haven’t been doing that, then perhaps this is a good time to start.
Experts suggest that, if you’ve already voted or even just made up your mind about the election, just start muting the campaign ads. You’ve done your part, and there’s no point aggravating yourself by staying connected to a process that’s becoming increasingly divisive.