What will Wall Street look like on November 4?
Relative to every other presidential election I’ve witnessed in my decades as an adult, I don’t know that I’ve ever wondered about the answer to such a question. But what happens to America in less than 80 days could have wide-ranging repercussions – potentially quite negative – on the economy, our currency, and the financial markets.
Polls predict one result; belligerent tweets, another. A naturally purple country now cleaves apart under the addled stewardship of blue and red extremists, meaning that government no longer reflects average Americans and that there’s a non-zero chance that whatever side loses will revolt. Such chaos would certainly play through Wall Street and the greenback.
Which means now is probably a good moment to at least consider some portfolio insurance.
We can try to play the momentum game for long as it lasts. We can all keep betting (irrationally) that the AMFAA gang (Alphabet, Microsoft, Facebook, Apple, Amazon) will, alone, propel the Dow to a bazillion. We can hang in and hope to catch that final dollar of S&P profit.
Or you step away from the lemming-like frenzy and the subjective cheerleading, and look around at the real economy Wall Street is ignoring, and pay attention to what’s actually being said about election risks, and you think, “hmmm…. What if?”
Back in the earliest days of the Street’s Covid fears, as the S&P sank, one particular asset rose: the Swiss franc, which in this instance means the stand in I’m using – Invesco CurrencyShares Swiss Franc ETF (FXF).
During the Great Recession a dozen year ago, it was the dollar that investors wanted. Today, however, we live and invest in a very different universe. The dollar is now part of the problem, given the trillions that Congress is spending and the trillions the Fed is using to buttress Wall Street, in part through the historically novel approach of buying stocks and bonds. That right there tells you the underlying structure of Wall Street is corroded – but we’ll skip over that to focus on the election.
If Nov. 3 births a contested election, or if a losing side rebels because of claims of voter fraud or voter suppression, Wall Street will not react with the same disregard it exhibits today. Stocks would suffer. More relevant, the dollar would likely suffer. And while that doesn’t mean you should exit the stock market and trade in all your greenbacks, it does mean that you might want to own a bit of insurance in the form of the franc. It’s one of the two best currencies in the world, a true safe-haven currency, and managed by a central bank that aggressively asserts control over the franc.
The dollar … not so much, really.
Obviously, our Benjamins remain a global juggernaut among currencies. But size doesn’t define health, and the buck is unhealthy. American debt has now reached 154% of GDP – a huge number. Worse, it’s guaranteed to rise further as government adds trillions more for new stimulus plans (entirely funded by debt) and as the economy continues contracting amid the resurgent pandemic and collapsing businesses.
You can see in this chart from the last six months why it is you want to own the franc at a moment like this. As the dollar (in blue) sinks, the frank (red) rises.
We face a one of the most unique elections in American history – one that, theoretically, could see a sitting president refuse to hand over power peacefully, a banana republic-like event that would have dramatic consequences socially, politically, financially, and economically. And as odd as this is to say about America, of all places, it’s not a negligible risk.
You insure your house. You insure your care. You insure your health. Probably not a bad idea to insure some of your wealth, too – just in case Nov. 4 and beyond launches the US into political and Constitutional crisis that rips through Wall Street and the dollar.