An election period is coming, which has never happened in our time

We are concerned that elections in the United States represent the greatest political risk in decades, because beyond the end of the business cycle, we also have inequality, social unrest and market madness due to the political response to the current deep economic crisis: zero interest rates and endless support from the government and central bank. The extensive security net of demand and job guarantees in a world of state capitalism means markets and personal freedom are now more at risk than ever.

About the Author

Steen Jakobsen, Chief Economist and CIO Saxo Bank. Djoined Saxo in 2000. As a CIO, he focuses on developing asset allocation strategies and analyzing the overall macroeconomic and political situation. As head of the SaxoStrats team, Saxo Bank's internal team of experts, he is responsible for all research, including quarterly forecasts, and was the founder of Saxo Bank's outrageous forecasts. Before joining Saxo Bank he cooperated with Swiss Bank Corp, Citibank, Chase Manhattan, UBS and was the global head of trade, currency and options in Christiania (currently Nordea). Jakobsen's approach to trading and investing is thought-provoking and is not afraid to oppose consensus. This often causes debate among the global market community. Every day, Jakobsen and his team conduct research in various asset classes, covering major macroeconomic changes, market movements, political events and central bank policies. With over 30 years of experience, Jakobsen regularly appears as a guest at CNBC and Bloomberg News.

In nature, a pandemic or an ecological crisis would lead to an adaptation process. However, in man-made systems, we provide all kinds of artificial stimuli in a vain attempt to pretend that the status quo can be maintained. It was brutally brought out in the form of candidates for the presidency of the United States: two very old men deprived of any vision of the future.

As the Saxo Bank group is more practical, we envision three clear scenarios and probabilities between today and the inauguration of the new president on January 20, 2021:

# 1. Contesting the election result

Probability: 40%

The results:

• A sharp increase in volatility,
• Stock sell-off due to uncertainty,
• USD depreciation,
• Strong gold.

# 2. A definite win for Biden

Probability: 40%

The results:

• Discounted stocks, especially in the technology segment (tax increases, pressure on monopolists),
• A boom in ecological ("green") actions,
• Higher interest rates - Controlling both houses of Congress creates a fiscal bonanza.

# 3. Trump's victory

Probability: 20%

The results:

• Increase in volatility - four consecutive years of disturbances in the world order,
• Increase in tension between China and the United States,
• Hossa as a result of investors' relief,
• Likely split in both houses of Congress, which means little potential for fiscal stimulus.

At the time of writing this forecast, our probability estimates differ from both the results of the polls and the bookmakers' data. The Biden-Harris pair is widely assumed to be victorious, perhaps even complete, if the Senate and Congress could also be won in addition to the White House. Mathematical estimates are extremely unfavorable for Trump - even more so than in 2016 - but when we talk to investors from around the world, we get the impression that the overwhelming majority still “feel” and think Trump will surprise everyone once again.

We must take a scientific approach, although this kind of science is not without its drawbacks. Our task is to define a consensus in relation to reality, and in this context we have the impression that the market is insufficiently pricing in both risk of contesting the election result - the greatest threat to the markets, whether it is the settlement itself or the protests by Trump and attempts to undermine the legitimacy of such a move - and a definite win Biden. Since both of these outcomes represent a risk, they can cause volatility to increase dramatically.

In the United States, there is a voting system through the Electoral College, whereby the winner must obtain 270 of 538 electoral votes (except in two insignificant cases, a candidate with a state majority wins all the electoral votes of that state, which explains why in 2016 Trump won despite failing to obtain a majority of the actual voters' votes.) The latest polls indicate that Biden can get 210-230 electoral votes, Trump at least 110, and the rest will be decided by the so-called "Undecided states" swing states or battleground states).

Trump should not be written off yet, as he can win if he can win votes in key states: Wisconsin, Pennsylvania, Florida, and Michigan. In the opinion of some observers, the presidential race is so even that up to ten electoral votes from Wisconsin may be decisive.

I don't think I need to warn my readers about polls and the dangers that come with them after they missed the final results in 2016 in key states so badly. However, as our analyst Anders Nysteen explains in his analysis of the pre-election polls, research centers are reportedly refining their technique this time to better take into account previously under-represented groups such as uneducated white men. Only time will allow us to assess the reliability of the current polls - the difference is that Trump is no longer a complete unknown.

The number of active voters will be decisive for the result of the elections in the United States. Remember that only about 55% of Americans vote in elections. If women, and especially young people - now an even larger group than in 2016 - decide to register in their constituency and vote, Biden-Harris 'chances will increase significantly, as was the case with the Democrats' solid victory in the 2018 semi-election

Our main message is that the US elections will increase volatility and risk. The very person of the winner will not significantly on the direction of the United States in general. Both candidates will spend huge amounts of money, relying on support by Fed loose financing conditions and avoid deep reforms. Therefore, both presidential candidates are, to a large extent, the opposite of what the United States needs.

The 2020 presidential election is the twilight of the political cycle driven more by the ability of central banks to maintain the status quo through zero interest rates and negative real interest rates than real political reforms. Central banks are increasingly powerless, which means politicians will be personally responsible for carrying out the structural changes required in a world of excessive debt and inequality. Neither of the two candidates nor their political promises can meet this requirement, but whether they want it or not, changes will eventually occur and will certainly be the last election in the United States to win a president without any vision.

My personal hero, Groucho Marx, gave the best definition of politics:

"Politics is the art of looking for problems, finding them, misdiagnosing them and misusing inadequate remedies.".

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