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Clinton presidency and SA risk

Image from the New Yorker (http://www.newyorker.com/news/john-cassidy/hillary-clinton-should-play-to-her-strengths) Image from the New Yorker (http://www.newyorker.com/news/john-cassidy/hillary-clinton-should-play-to-her-strengths)

Trump has made a speciality out of the outrageous, upset many people, but kept coming on. However, scaling up from petty outrage among the relative few 13 million early followers, it is a different challenge entirely when preparing for the final massive November contest when needing over 65 million votes.

Though many voters may also not like Hillary, she at least is conventional and acts presidential. A strange combination to put you over the top in America, where "personal like" rates high in doing anything. But with 100 days to go, and the Trump bloopers multiplying, just not looking presidential and in control of his actions, what exceptional turn of events might still allow one more Trump recovery? An invitation to henceforth focus on a Clinton Presidency, the original prediction but now by a landslide (indeed taking how many Republican senators down, too?) With what risk implications for us?

Last week, one bland US investment report comment included the references "polls indicate Democratic President and Senate, Republican House, gridlock to continue". That says it all: a Hillary Presidency, with Senate in tow (but critical?) and House Republican gadflies swarming all over, assuring little gets done that's ideological (which in modern America is pretty much everything...)

What would that leave us?

Hillary Clinton is in the mould of Bill and Barack, only more feisty and assertive? More gaffe-prone than Barack, much less personally disastrous than Bill, more feisty than either globally (or would the presidency sober her?)

Continuation of domestic US gridlock merely means the present anger unlocked under Trump (and Sanders...) will be kicked down the road to the next election joust. Though Hillary will be socially ambitious like Barack, she will probably get as little done domestically, and reminding of her time with Bill after 1992. There will be many, also in her own senatorial ranks, watching her carefully and deciding what they can live with and what not. Only very adroit dealmaking would allow her to achieve, compared to trying the so beloved old ideological steamroller.

How much of the Sanders goods will survive remains to be seen. Addressing student debt? Wall Street? Health care? Long lists, many divisions, diversions, little gets done?

She probably will go with the Fed Yellen, and obtain budget space for some pet project stimulus, but continuous budget resolutions (padlocked and gridlocked) await anything too flourishing.

That leaves us the Commander in Chief. The world better take another look, because if Trump was for burning, Hillary isn't exactly for burning candles. She is assertive, may listen more to her own inner advice, and be less careful than either Bill or Barack. The challenges are huge in the Middle East with human suffering further to climb, while the big huns in Russia, Turkey and China will need special handling. Merkel in Germany may be under heavy siege by next year, so will it be Hillary at the White House, Theresa in Europe and Christine at the IMF that will form the global power triumvirate? Facing off the old bullies Putin, Erdogan and Xi. Oh, it will be bruising.

So geopolitically a lot more jousting ahead with Hillary as active quarterback. Economically and financially it is a more difficult call. Trade-wise, Hillary won't be as damaging as Trump would have been (but will there still be monkey wrenches?) her fiscal tax cuts won't be as disturbing (or as uplifting) and Yellen won't need to scramble the Fed unnecessarily.

So instead of suddenly lifting the US yield curve and Dollar, and disturbing the rest of the world hugely, we may look forward to a more benign Yellen-led pace at the Fed, not straying/diverging too far from the wolf pack ECB, BoE and BoJ while these central banks remain for now super supportive, given their internal challenges. And of course not wanting to detonate China (Yuan) into the bargain and make roadkill anew of much else besides. It wouldn't serve US interests to become too disruptive globally, staying constructive up to a point, as long as her domestic engines can handle it.

But that doesn't mean idling forever, and offering indefinite risk reprieve to the greater world. Be that as it may, as gentle Ben Bernanke would mutter, watch the incoming data. The US data is robust in an underlying sense, in the way of a locomotive making steam, readying for a long pull. The Fed will need to stay abreast of that beast while at the same time not unhorsing the world.

So fine financial challenges for Fed chairman Yellen, feisty geopolitical challenges for Commander in Chief Clinton, and the US economy must broadly continue to recuperate under its own direction, like a free mustang on the prairie, free of reins, though with many parasites eating its innards. The usual in the wilds. Happily, American society remains a youthful, creative, adaptive bunch that can reinvent. Something never to be underestimated.

What's in it for us?

The Yellen Fed 2016 standoff is getting long in the tooth, with equity and bond prices at record levels, frothiness to the gills, and labour resource reabsorption proceeding apace. At her crucial Jackson Hole address in two weeks time, expect a bit of a Gettysburg reminder. We are here for a reason, with a job to do.

Even if markets continue to believe rates will not lift materially, in any case not enough to threaten equity and bond price levels. It is a very strange set of circumstances.

With Trump expertly burying himself, and the Clinton 2017 world demands taking shape, the Fed might as well not wait too long while steams builds. So start massaging that relief valve (interest rates higher)? But gentle, ever so gently, because we don't want global panic. Wall Street may even choose to interpret gently rising rates as proof of a reviving economy, in which case the market party may intensify, giving her yet more leadership sway over world markets.

But the risk reprieve search-for-yield window may already have seen its best moments. It is going to whither, hopefully only slowly, perhaps still lingering for a while, not completely shutting off as greater global confidence reasserts (on balance) rather than panic reintrudes.

From September, the northern world will be back from summer holidays and will be freshly grounding nuts. Rethinking what should go where. That will bring its own upheaval. Into this project the Yellen/Hillary combo against a very lively global backdrop.

One can see the SARB will have its work cut out plotting an even course, among all these global monster waves, and our own many domestic foibles. But it need not go wrong. So rate upside potential remaining but not as yet intimidating, and Rand firming potential possibly starting to reach reprieve design limitations.

Volatile stuff ahead stretching through 2018.

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