November 4, 2016
How Unpleasant ‘Tis for Elites When Peasants Revolt

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For many months, the growing wish for a growing percentage of the American electorate is not for the triumph of one of the Presidential candidates, but that this increasingly loathsome election morphs into memory. The majority opinion is an update of Mercutio’s curse: “A plague on both your houses.”

More and more investors in both Canada and the USA tell me they are deferring portfolio adjustments until after the election. This collective waiting room for re-weighting portfolios is so over-populated that equity prices have been trading within narrow bands at a time of the year when the usual tendency is for significant moves—up or down.

Some high-paid strategists who have built their reputations largely by predicting what rates the Fed would deliver have been publishing data showing the effect on US bond and equity prices in elections over the past century, including results not only for the White House but also for Congress. Since Hillary Clinton was (as of mid-October) a sure bet, that meant investors merely had to look at polls for the Senate and the House to decide which equity groups would benefit, which would suffer, and what would happen to bond yields.

But three days before Halloween, FBI boss James Comey shocked the world when he announced his team was taking another look at Hillary Clinton’s Pandoran Computer Box. Apparently, she and her most trusted advisor were all too frequently appearing in text messages found in the notably sex-stressed computer owned by once-admired liberal Democrat Anthony Weiner. (Mr Weiner was a seven-term Congressman who also ran for mayor of New York, and had been considered by the Clintons a rising star, suitable for the hand of Ms. Clinton’s highest-ranked personal advisor, Huma Abedin. Bill Clinton solemnized those nuptials.)

Nor was the FBI limiting its interest in matters Clinton to some 650,000 Weiner e-mails. This week, the agency announced it had been investigating the Clinton Fund.

Liberals are now enraged at Mr. Comey. They had previously praised him as the greatest FBI leader in decades when he outlined a list of Mrs. Clinton’s violation of government rules on computers, but concluded she erred through lack of technical knowledge, and proclaimed the case closed.

Ms. Clinton’s once-imperious polling lead has shrunk to the 2-3% range, although the mainstream psephologists and political columnists still claim she will win. That Brexit triumphed against 5-1 betting odds might, perhaps, have cautioned America’s pollsters, but it may be that the two democracies have diverged so greatly that any polling similarity would be sheer coincidence.

I watched the BBC broadcast the night of the Brexit vote, which showed in a color map how the constituencies were voting. When it was obvious Brexit was winning, I realized I was looking at a familiar map. It was a close replica of the voting pattern of the first-ever referendum, which was for the Reform Bill of 1832, which ultimately transformed British politics and public education. 184 years later, the toffs and peasants were once again divided—and the toffs again lost.

In this election, demographic changes are challenging historic voting patterns in industrial states. Mr. Trump’s blue collar male supporters are a segment that has suffered disproportionately from Free Trade—mostly from Mexico in NAFTA and with the world through WTO, which accepted China in 2000. (Canadian factory workers have also lost jobs to Asia and Mexico, but they have not become an important voting bloc.)

The flood of eleven million illegal immigrants into the USA in recent decades—mostly from Mexico and Latin America—slashed American laborers’ jobs, particularly on farms and small and medium-sized businesses.

Mr. Trump shouts that he will tear up NAFTA and WTO agreements and build a wall to keep out more Latinos—particularly the drug dealers whose battles for power have proved so devastating in African-American communities. To the sneer that no wall has ever worked, his answer is “The Great Wall of China succeeded, and lasted for more than a thousand years—and that wall also created lots of permanent jobs for Chinese citizens.”

Like Brexit, this election has fundamentally been a fight between urban elites and traditionalists.

The main difference between these two contests is that religion played almost no part in Brexit but has been potent in America because of the rising power of politically-correct activists who use demonstrations and litigation to expand and enforce rights for gays, bisexuals and transsexuals. Some states have had their federal aid to schools cut because of unwillingness to create bathrooms and changing rooms for at least three genders.

Such sudden societal changes have produced fear and fury, and Mr. Trump made himself the standard-bearer of those who—rightly or wrongly—feel their rights have been abused.

In addition, polls show that many voters who fear terrorist attacks are strongly critical of Mrs. Clinton’s insistence that the attacks have nothing whatsoever to do with Islam. Mr. Trump has been successful in convincing them he is a realist on terror.

Finally, polls show that a majority of the electorate believes the entrenched political elites in Congress, the White House, the Pentagon, the Treasury, the Environmental Protection Agency, the regulators of businesses, banks and hospitals, the media, the lobbyists, the Fed, and Wall Street are collectively weakening the economy and undermining cherished American values. They believe their children and grandchildren will not have the opportunities they have themselves enjoyed.

This widespread loss of faith in America’s future is something new and worrisome—and is a warning that whoever wins will have serious trouble gaining support for sacrifices and wise long-term projects.



America is apparently more politically divided than it has been since the Age of Reconstruction after the Civil War.

Until last week, Mrs. Clinton had a commanding lead, mostly because of Mr. Trump’s frequently bizarre outbursts, his sexism, his dubious foreign policy proposals, and his braggadocio that included his claim that he was so smart that he didn’t need advisers.

Then came the revelations about the Weiner computer and voters once again reconsidered whether they really wanted to bring the Clintons back to the White House. Many of the records released show that Mrs. Clinton used her State Department authority to extract donations to the increasingly dubious Clinton Fund and to get astonishingly high speaking fees for both Clintons.

Of course, the whole world has watched this bizarre and indecorous campaign with astonishment.

If Mr. Trump were to pull off a Brexit-style upset, we would expect a vehement reaction in global financial markets.

Should Mrs. Clinton wins by a small margin and the Republicans hang on to Congress and the Senate, then, with all the bile spewed in the past year, it is hard to imagine that Mrs. Clinton will be able to enact a coherent budget program. Most importantly, if the Democrats should win the Senate, Bernie Sanders would be Chairman of the Budget Committee, which would make deals with the Republican House almost impossible. (Even the mainstream media assign little probability of the Democrats winning the House.)

Optimism has long been as American as apple pie. In the past, stocks have risen once the election was out of the way, and the Senate and House resumed deliberations. This time, the apple pie is one year beyond its best-before date.

The financial markets had been becalmed for weeks, during a time of the year in which big selloffs are so often the fare. However, since the weekend, signs of worry are showing: the dollar is weakening, and the VIX and Gold have begun to climb.

We strongly recommend caution.

There is no historic precedent for such an election. You should own above-average positions in cash and gold.

Don Coxe

November 4, 2016