By Michael Every of Rabobank

As we enter the final week of the US election -we hope it’s the final week, not a 2020 or 2000 rerun, as the Nevada, Pennsylvania, and Virginia supreme courts already feature- things are splenetic. However, parsing the early-vote data, Trump continues to have a spring in his step; or a Springtime in his goosestep, say some US media in a manner that won’t help political stability if he wins a week from now. (Remember when New York loved this show?)

USA Today just refused to endorse a presidential candidate, and the Washington Post’s refusal to do so either saw key staff threaten to quit and 200,000 subscribers cancel, prompting owner Jeff Bezos to pen an unapologetic op-ed that states: “In the annual public surveys about trust and reputation, journalists and the media have regularly fallen near the very bottom, often just above Congress. But in this year’s Gallup poll, we have managed to fall below Congress. Our profession is now the least trusted of all. Something we are doing is clearly not working… Presidential endorsements do nothing to tip the scales of an election. No undecided voters in Pennsylvania are going to say, “I’m going with Newspaper A’s endorsement.” None. What presidential endorsements actually do is create a perception of bias. A perception of non-independence. Ending them is a principled decision, and it’s the right one.” The whisper is that Bezos is preparing to hire more conservative journalists to balance out the paper’s coverage: what does that suggest about which way he sees the political winds blowing?  

It’s also the time of the election cycle when policy promises get wilder. We’ve had $25,000 cheques for first-time homebuyers (to push up the prices of new homes by $25,000); tax incentives for small businesses and young families; massive US tariffs (which ‘may remove income tax’!); 10 new US ‘freedom cities’ on federal land; mass deportations; slashing the federal payroll like Musk did at X; reworking America’s food and pharma industries; no tax on tips, overtime, or social security; and Trump just freewheeled that, “They have them paying tax on crypto and I don’t think that’s right. Bitcoin is money and you have to pay capital gains tax if you use it to buy a coffee? I was talking with a friend, he said, “It really shouldn’t be taxed,” and I agree. Maybe we get rid of taxes on crypto and replace it with tariffs. No tax on crypto but only on tokens made in the USA. We want tokens made here at home; we don’t want the Chinese tokens. We say get those Chinese tokens out of here.”

On one level, the entire US election echoes The Simpsons: “OK, here’s what we’ve got: the Rand Corporation, in conjunction with the Saucer People, under the supervision of the reverse vampires, are forcing our parents to go to bed early in a fiendish plot to eliminate the meal of dinner. We are through the looking-glass here people.”

On another level, it further backs the view that huge structural changes loom for the US and global economic and financial architecture if what some see as a coin-toss election comes up either heads or tails, depending on your call.

What if Trump introduces ‘US crypto’ and ‘foreign crypto’ is banned alongside high tariffs? It amplifies what I’ve been warning since 2017: a US trade decoupling from the rest of the world chokes off dollar flows to global exporters, making the buck hard to get offshore. At the same time, it would be easy to get onshore if Trump decides he sets rates along with the Fed; and if he opts to use a ‘Trump-coin’ as a new form of US-only liquidity, the US sees an even bigger inflationary boom as the rest of the world sees deflationary doom.

Think about that, and it’s not a total surprise that although oil was up and US 10-year yields marginally down this morning in Asia, yesterday saw oil plunge while US yields moved higher. Understand that could be just a precursor of what lies ahead as the international political-economy pivots or even fragments, and, yes, we are through the looking-glass. It’s just that some people don’t want to look.

On that note, German auto giant VW is to close three plants there with the loss of thousands of jobs and cut salaries by 10%. Recall the “slow agony” Draghi warned of (which we had flagged much earlier), and the immediate German reaction of “Nein, danke”? It’s happening, just not as slowly as slow learners might have kidded themselves.

Meanwhile, as Chancellor Scholz’s team hit India to try to find a new basket to put its economic eggs in, Economy Minister Habeck received public criticism from Commerce Minister Piyush Goyal, who stated, “We should stop buying German equipment now” given a German firm making a product in China which India wants to import can’t supply it as China won’t allow it: Habeck was forced to say, “I think I should listen to you.” A balm might be if German firms open in India with technology transfer, as in China; but that will create clashes with their China arms; and in another few years, workers at firms in Germany might have to take even larger pay cuts. Foreign Minister Baerbock also looked surprised on landing in India to what looked like no official welcome, but finding her way to the meeting, she told the press Germany has a “great need” for skilled workers, and India has a great many of them, which is a “win-win-win”. Just not for Germans then told they are losing their jobs, getting 10% pay cuts, or young and without skills.

That headline just ahead of the VW news should make markets think about how well the populist right-wing AfD and left-wing BSW are going to do in the next election, so what any future German government will be able to do. That might be a problem soon as the Frankfurter Allgemeine Zeitung reports severe tensions in the coalition, and that “the three alpha males [in relative terms given Germany is a geopolitical beta] are now merely playing to see who loses their temper first… There is hope that this government will end at the latest in three weeks.”

Whenever the German election held, it won’t see the panoply of wild election promises the US has, many of which are extremely bad for Germany. In fact, without moving towards the ‘Draghi revolution’, or away from a Germanic monomania for balanced budgets as the roof falls in, what can any of the mainstream parties propose to voters that differs from what they have been doing so far? ‘We prefer the red deckchairs on the Titanic.’ ‘The green ones are nearer the orchestra.’ ‘But the yellow ones have the best view!’ All populists have to do is wait, perhaps.

Markets observers are trying to look at similar themes in China as Bloomberg reports ‘Xi Stimulus Clues Found in Protest Data Showing Economic Stress’. In short, some money managers are using data put together by a Chinese ex-dissident living in Canada tracking social instability. The view is that when the number of these incidents rises too high, the government will open the stimulus taps: “Somebody got grabbed for wearing a Scream mask! Go long stocks!” This flows from the same China-watching talent pool that won’t read Marx, Lenin, Mao, or Xi Jinping Thought, as I‘ve warned repeatedly is necessary in this political-economy; so thought Common Prosperity was a “regulatory shift”; and are here projecting a model onto China (“When the people get unhappy, the government spends big!”) that they reject as the policy solution in Western democracies. China has scheduled its Standing Committee of the National People’s Congress from November 4-8 to review the State Council report on financial works. That this overlaps with the US election should not be taken as coincidence.

The irony is if we were to see huge Chinese stimulus, and then a Trump one, the inflation that would result would ensure the rates and market shocks we got in 2022-23 –and the Western populism seen so far– would both look like warm up acts.