Ingrid: Earlier this year, we recorded one of our most listened to podcasts exploring the potential outcomes of a Trump versus Biden election. We went asset class by asset class sector by sector, and we talked about the things that investors really needed to understand. Now here we are three months later sitting two months away from an election, and the landscape has meaningfully changed.
We've seen an attempted assassination on a candidate, and we've seen the incumbent president step out of the leadership race and hand the reins over to the of Vice President Kamala Harris. Joining me today, returning Michael Craig, head of asset allocation here at TD Asset Management, and Christian Medeiros, portfolio manager. We're going to talk about the landscape. Gentlemen, welcome.
Michael: Hey, here. How's it going?
Ingrid: Terrific. Okay, so last time I grilled you and we went sector by sector. But let's start right from the very top. What is the biggest difference from where we were then to where we are today?
Christian: Yeah, the biggest difference is in the polls. So, Biden was lagging by a significant margin versus Trump and only got worse after that debate. So, you're looking at probabilities prior to the candidates switching over. It looked very likely that Trump would win. What's changed since then is that Kamala Harris done much, much better in the polls. She's polling better with key demographics, polling better nationwide and has a lot of momentum behind her.
So, what that means, that's brought us to about 50/50, both in the polls and in probability markets. And so, we're now back at a really contested tight race heading into November 5th.
Ingrid: Well, interesting thing, because when we did that podcast, we didn't, we didn't declare like you effectively did. It was a ... it was a decided outcome. We've been talking a little bit about this because there isn't really to outcomes ... there is four. Can you walk me through that a little bit and maybe talk a little bit about, you know, the way we're talking (electoral), popular vote, but maybe the Electoral College and how do we think about that?
So, what are the scenarios that we might end up with?
Christian: So, we'll talk about popular vote versus Electoral College just to start, because all of us are looking at the polls to understand who's going to win the election. But when we see the polls for the popular vote and just an average of what everyone in the country is thinking at the time, but the way it actually works is it's an Electoral college where each state is worth a different number of points.
So, kind of like playing a game of risk. Yeah, you pick up state by state and you win state by state. But those state points are not equal to the population that is currently present in those states. So, Democrats will always win California and New York by a huge margin, but they only pick up so many points. So, what that means is that the election is decided by key swing states, just a handful of them.
And those swing states are going to be the ones that get them over the line to get more than 270 Electoral College votes. So even though you're winning in the popular vote margin for a Democrat, let's say Kamala Harris is up by 52 points, 52%. That's not going to translate easily into Electoral College. So, she's going to be needing to win the polls by maybe 55 or high single digit margins.
And the percentage points in the popular vote in order for that to translate over to Electoral College.
Ingrid: Where we go sort of in this scenario basis, what's been happening in the markets as we've gone through this period from when we last spoke to where we are today. Like all the disruption we've had.
Michael: There was a clear move with Trump's probability really moving through 60, 65%. Sectors that would benefit from a Trump victory had rallied. There's interesting ... there's in the markets there's lots of kind of hypothetical portfolios of stocks and sectors that would perform with a Democrat or a Republican victory that has somewhat rolled over now. And now it's much more balanced in terms of the market probabilities.
So that's what's really changed. You really don't see it at a high level of the market, but the internals are really under the under the under the hood, under the top kind of market indices. You did see it within various sectors. And that has now somewhat reversed, particularly once Joe Biden stepped back, and Harris had this surge of popularity where she's really been able to galvanize the Democratic base and has really made that base excited about a candidate that they're far more enthusiastic about versus the incumbent president.
Ingrid: So, walk us through the four electoral scenarios that we might face.... I don't want you to assign probabilities because that's what we do as asset managers, but maybe talk about some of the scenarios, what we think. So, let's talk first about a Republican sweep.
Christian: Yeah. And the reason why this matters, and I think it's a really important point. So, the US political system has a lot of checks and balances built into it, more so than many other political systems we're used to, such as Canada. So, what that means is that what happens in Congress really can moderate the policies that you're hearing when you just listen to the debate or stump speeches.
And so that moderation, I think, should give a lot of investor confidence that you're not going to get extreme outcomes either way because there are checks and balances built into the system. So that being said, Congress has two houses - the House, the Senate and in the House, every single seats up for election. We're going into this election with it about 50/50.
So, whoever wins the top of the ticket can easily win the House. So that's going to probably flip with whoever wins the White House, the Senate, only a third of it is up for election every time. And this time it's just a really unfortunate matter for the Democrats. They're defending seats. They can't really pick up any seats.
Right now, It's 51-50. Joe Manchin, a famous Democrat, is resigning. He's in an extremely red state of West Virginia. That's going to slip red. So, we're starting 50/50. Democrats are defending across the board ... not looking good. So, it's quite likely that the Senate will flip Republican. So, what that means is Trump's able to win the election. They will flip the Senate.
Simply get the House means he has to sweep. He can pass what he wants legislatively. So that's one scenario. Yet Trump has three policies that I think matter for markets. One is tariffs. One is immigration. And then to some extent, taxation. So, we can talk about those in detail.
Ingrid: So, in my mind, that's wanted to go because I want to be able to take our listeners back a little bit to what we talked about earlier this summer and then really highlight what might be the differences. So, let's talk about tariffs, because that really has an impact across the board in the markets.
Christian: Yeah, So Trump's .... Trump 1.0 when he was in office the first time around tax and tariffs and tariffs was a huge priority for him and he was able to do quite a bit tariffs on China. He renegotiated US Mexico-Canada agreement used to be called NAFTA, and that was a really big change in the US political economy, putting tariffs on countries to try and balance out trade still a huge priority for him.
So, a huge priority for all of his advisors. So, what he's proposed on the stump is 10% tariffs on all trading partners, especially those that have a trade surplus with the US. And then 60% tariffs on China are those are numbers that he's going to end up with? Probably not. But what he is trying to do is reorient the US trade relationship with other countries.
And then in this case of China, he's concerned about national security issues. They perhaps want to decouple from China, but really challenging that trade relationship. So, this is a big deal. Why does it matter for markets? One, reversing years of globalization. And just in time supply chain dynamics sounds inflationary, probably will be inflationary. And the other way in implementing huge tariffs can also be kind of quite disruptive for growth.
So, there could be some growth headwinds as well. It's challenging for relations with foreign nations and this. And then lastly, I'd say he also believes that tariffs are a way to raise revenues to kind of offset some of his, you know, tax initiatives. So, there's a lot of different dynamics going on with tariffs, but the bottom line is probably inflationary and probably hit a hit to growth.
Michael: And we should, we should take it seriously. There will be a lack of moderating voices in his in the executive right this time around. You're not going to get.
Ingrid: In a Trump win scenario.
Michael: And just on those surpluses, it really is about like Canada has a trade surplus with the US. Yeah. When you actually look, when you break it down, much of that is energy. I don't think he's too focused on that. It's really about manufactured goods, you know, higher value-added items that were and that puts squarely the risk on to China, Japan and Western Europe.
Those are the three areas where there is significant economic risk with it. It was an increase in tariffs, which in many ways is a backdoor sales tax, but really just focusing on imported goods.
Ingrid: So net negative then contrasts on the subject of tariffs for a Harris win.
Christian: So, a Harris win is much more of a status quo, kind of like Biden and her views on trade. And the Democratic views on trade are much more targeted, but still similar. So, they still want to have prioritized their domestic manufacturing, to still want to, in some ways decouple from trying to do the national security interests. But the way that they're going to do it is, if they can legislatively, it's by prioritizing domestic industry like what they did with the CHIPS Act and an Inflation Reduction Act, which focused on bringing industrialization back home.
And they're also going to focus on very targeted tariffs on high tech manufacturing in China, and they'll do so in a more multilateral way. What you don't get in the Harris administration is you're not going to have tariffs on the EU, Japan and a lot of the key surplus nations that Mike was talking about. So net, when you compare that to a lot less bluster and volatility on the trade side, if Harris was in the presidential seat, not as much volatility and aggressive, obvious actions and you're not going to get the headlines.
And also, can have much more leniency on key allies like Europe, Japan, Canada.
Michael: But no matter who wins, yeah, both are moving away somewhat from open border globalization, right. You know, frictionless global - frictionless global economy, where capital Wolff will go to the point where it's treated, where it's not efficient to invest.
Ingrid: But a Trump win is more net negative for some of those global regions.
Michael: Have 100%.
Ingrid: Okay. Let's talk about some of the places Harris is speaking now around taxation policy. Can you give me the contrast there between a Harris and a Trump?
Michael: I think with Trump, I think it's more of a spend on the on the top line with is pending it will come down I have no doubt that Trump will try to really shrink government agencies to fund government agencies, etc. But on the tax policy, he will continue on with cutting and or extending the Trump tax cuts from 2017.
Harris came out yesterday with ... which is the first real policy I think she's spoken about in her campaign where she'll be increasing capital gains tax to 28% for those earning more than $1,000,000, as well as raising taxes on corporate. So, there is ... you are starting to see someone on the Democratic side, an emphasis to raise revenues, which is not surprising, however, about the increases of about half of what Joe Biden was pressing.
So, it's actually a step moderated. It's moderated from what where Joe Biden's position was earlier this year.
Ingrid: The third pillar then you talked about was immigration. Can we talk about the impacts of a Trump policy versus a Harris policy on immigration and what that means for the markets?
Christian: Yeah, so Harris is still going to be very similar for Biden. Was doing proposing. So, they've cut back a little bit on some of the inbound asylum seekers, some negotiation with Mexico, but it's still a status quo immigration regime. Trump much, much different. On day one, he'd want to end a lot of the asylum programs and people crossing the border legally as well as illegally.
And he'd also want to move towards deporting many people that are in the country illegally. He's mentioned up to 20 million, but you could get hundreds of thousands to millions a year of deportation. And that's important because labour is like any economy of supply and demand, you decrease the supply of labour in America, wage prices will probably go up.
So that's going to be inflationary under a Trump administration. I think that the immigration angle is one that's underappreciated, and I what I really do want to highlight too, is both tariff and immigration. The two big policies for Trump that I think are most disruptive, they don't really require legislation through Congress to get done. They're able to use executive orders and existing measures to kind of push these policies forward.
At least in the initial stages. So, if Trump does win, regardless of scenario, you should and will expect tariff and immigration action to happen.
Michael: And a shrinking, you know, identity of GDP growth is labor force growth times productivity. Let's just take productivity aside. If we are going to shrink your pool of labor, that's a tremendous headwind to growth and from economically that actually reduces the potential that your economy can grow because got fewer people. So, I think in many places this is actually popular policy.
I think many Americans are quite upset with their borders being as porous as they have been. It will have ... be a definitely negative to industry in terms of a shortage of workers.
Ingrid: I think we'll come back to that inflationary conversation when we talk about fixed income markets. Let's go back now. And I'm thinking as a Canadian investor and we think about our market dominated materials, financials, energy. Can we talk a little bit about the landscape for the Canadian market generally under a Harris or Trump? And then maybe a little bit more at a sector level, we'd start to talk a little bit....
Michael: I think there'll be noise with a Republican victory, but I don't think the Canadian economy is nearly at threat versus other surplus nations like Western Europe and Japan. We already have the USMCA. We are already a major importer of high value U.S. goods. So, within that sense and within the energy, I don't think Trump would want to disrupt energy flow. Within Canada, you know, with Harris, I think there is a bit of a relief globally. With Trump, there is going to certainly be a less focus on regulation that should be beneficial to financials in North America and generally especially financials with a U.S. footprint. So that would be a positive second thing with the biggest, I think wild card is the currency where that you could see some material movement in the [USD/CAD] exchange rate with the Trump victory.
I think initially it could be positive for the US dollar, but over time, without reduction in potential growth, that will weigh on the dollar and all else being equal, you could see the Canadian dollar appreciate over the coming years and that for investors and we'll have to take that into account in terms of their allocations outside of Canada and in terms of the currency impact.
Ingrid: That's really interesting narrative. And we talked about this in the first podcast - there are those investors who want to understand that my investments will be okay and what should I do in the face of this? And there may be other investors who are saying this is a moment of volatility. What are my opportunities to profit from a moment of volatility?
I think just there's a great example. We talked about currency in the short run, currency in the longer run, right. I think it's the same thing.
Michael: From our standpoint. The way we would look at this is that near term volatility is typically a gift. It doesn't feel great. And you know, earlier last month, even earlier this month, we had some material market volatility that was quickly reversed. So typically, from our perspective, we always look at this as opportunities to add to things that we like rather than get worked up about the technical nature of a volatility rising where it matter is longer term policy.
But that's like now we're really talking about, you know, driving a supertanker like it takes time for these things to play out. And so, we tend to spend ... about what does it mean or likes to do kind of five years and where do we want to shift our portfolios to take advantage or to protect? You know, that's kind of how we think about it in the near term and short term in terms of what do I do today?
I mean, for us, it's there's really no obvious. You don't necessarily want to run to the hills and worry about some big market of and you say, well, if there's some volatility take advantage of it. But at the same time, I mean it's not like a big call to do anything right now. It's you wait back and see, you know, when we think about what Trump might do, I think tariffs are more likely on the immigration side.
It's going to be tricky. It's not that straightforward, particularly if you start getting sanctuary cities and, you know, you get a bit of a there's a lot more friction involved in that. So, do we perhaps put more weight on the tariffs side and less on the immigration? But these are things to kind of consider after the election and see where we're at versus trying to game it beforehand.
And I still think that's a wise way to go about it.
Christian: And a really important point as well as on the fiscal side. So, we talked a lot about the tax plan spending plans. We have a debt ceiling negotiation again next year, too. So, all of that's going to be a debate for 2025. What are they going to be able to get away with on the spending side? Can they offset that with tax?
That's a negotiation back and forth in Congress and that's going to play out over the course of 2025. So, we're not going to know on election night, we're not going to know on inauguration. It's going to be something that investors will have to grapple with in 2025. So, you know, people sitting at home, investors sitting at home and worrying about the election outcome, I wouldn't be freaked out about any spending or tax proposals that you're hearing on the stump speeches, because this is going to have to be hashed out over quite a long, quite long period.
Michael: But the longer-term issues with debt sustainability is a challenge and that has major implications, really only a couple of ways you can work around that. You spend less, which is negative for growth in their term. You increase taxes, which is also punitive to growth in their term, or you inflate your way out and you use financial repression whereby you have inflation higher than the cost of borrowing, which is the third way.
These are all things that we are kind of focused on, but that is really a medium-term issue and neither candidate so far has really come across with any kind of credible solution to this level of budget deficit right now in the US.
Christian: But the vast majority of the deficit, the vast majority of the debt is caused by entitlement spending, which they can't change Medicare and Medicaid. These are social services that are not on the table to because.
Ingrid: The variables here.
Christian: As well as interest rates, because they're paying a lot of interest on the national debt, only a small part is discretionary spending. And that's what it tends to be talked about when we talk about these budget battles. So, if we're worried about the overall stockholder that there was talk of the deficit, no one has the deep cuts on the table or talking about those as a policy outcome.
So, I wouldn't expect that to change.
Ingrid: The key theme of markets for the last three years has been inflation, rates, the fixed income market. So, if I'm looking at a Harris versus a Trump government, how am I thinking about that and what's my outlook, let's say, for the bond market? And is there any key distinction there that you would say one versus the other? What I'm thinking about rates in the fixed term is...
Michael: Probably a little bit of a knee jerk reaction to higher yields or the Trump victory.
Ingrid: In the short run, in the...
Michael: Near term, in the near term, longer term, the curve, the longer-term rates have underperformed near term rates lately. I think that continues and I think that is somewhat reflective of currently where we are economically, but also in terms of, you know, if that is, if you do have lower growth, that tends to lead to lower interest rates over time.
So, I think that there is probably a case to see a steep... we have been in an environment now for the last couple of years where the curve has been inverted, where short term rates with higher and longer-term rates. I think that's likely to ... that has now normalized are now basically flat. I would think that will continue to steepen and that would align with our fixed income team's view, partly because rate cuts are coming, but also because there is a bit of uncertainty about that long term funding in terms of debt sustainability.
And so, a steeper curve is probably the way to go from fixed term investors and that's a lot of technical jargon. It's actually a very accretive environment because you get higher yields, but you also get the puzzle, a much nicer carry profile. And so, from a fixed income standpoint, far more sanguine backdrop versus the one we've seen in the last couple of years.
We've had an inverted curve and a pretty rapid repricing of interest rates, which is have been a bit, you know, historically epic in terms of.
Ingrid: In either scenario or more dominantly in one versus the.
Michael: Other. I think Harris will likely be better for the bond market longer term only because there's less likelihood, you're going to get rapid tax cuts. And that is fine. It's cut taxes if you get the growth to pay for it. I'm not certain that you're going to see that scenario with a Trump victory.
Christian: I think in the Trump scenario, more isolationist environment or isolationist political economy is what's more disruptive and would mean push us away from the current regime. And that's again because of tariffs and because of immigration. So that will maybe give us more concerns about long term inflation. So, over the long term, that may result in a bit more concern on fixed income.
Michael: Or still stagflation or a risk. I think with the Trump victory, if you don't get the growth to offset some of his policies.
Ingrid: Another theme in the markets has been concentration. And, you know, the “Generative AI” - the tech boom over the last 18 months. Anything on that front, like when we look forward and we look at certain sectors of the market in a Harris versus a Trump look in the US market what would we be thinking about? So, anything notable there?
Christian: The concern there would be on antitrust action, antitrust under the Biden administration within the court has been very aggressive. I don't expect that to maybe materially change with center with Harris becoming president. She was from San Francisco, from the Bay Area. She's more comfortable with technology. Maybe it could be a little bit less regulatory. It's really going to depend on who she appoints to key positions.
We don't know that yet. I don't really expect a material headwind from that.
Ingrid: I think they're different between what a Biden versus a Harris government would have looked like?
Christian: She might be a little bit more favorable, maybe moderated a bit on that was.
Ingrid: One of the differentiators that we talked about last time. Yeah.
Christian: And then on the on the Trump side, in theory, Republicans are quite against antitrust, more open to competition, deregulation, but all of advanced and Trump have said in the past can be quite negative towards some large tech companies. And so, it's a bit of a wash and it's really going to depend on who is going to be the key personnel in those regulatory positions.
And we'll see that after January.
Michael: And a government has you know, there's only so many things it can focus on. I'm not certain these things are going to be top of the list. Day one in terms of tariffs, immigration, I don't think, you know, antitrust versus tech is going to be top of mind. I think J.D. Vance has talked about that more so than Trump.
But how much influence we have in the White House, it's yet to be seen. So, again, this is after the election. You kind of see where the priorities get set versus what was what was talked about during the campaign.
Christian: And the key thing when we talk about like sector implications is that end of the day earnings and company performance is primary as well as valuations. And then policy can play a role. And so, policy is not going to necessarily overwhelm fantastic companies with great earnings quality balance sheets. We really have to kind of take policy as a little snippet into the mosaic about the company performance...
the fundamentals will generally win out.
Ingrid: And I think, you know, back to, you know, why are our listeners listening? They're looking for those nuggets to say, is there something different? What should I be thinking about? Let's talk about our relations with our global partners or the US relations with global partners under a Trump versus a Harris government, that kind of stability because we talked about that social construct last time, you think there and think about it in terms of volatility, right?
Michael: You know, we've lived for the most part of our lives in one where the US is kind of guaranteed global security. The US neither has the resources, materials, money to play that role anymore. So, the question then becomes, well, what rate and what concentration do they step back from, from world affairs? Where are they going to spend their energy where they want to withdraw from?
And I think in that situation, both candidates are going to put their focus towards Asia. I think Trump will have less worries about Europe than the Democrats, the Middle East. I think both too late to pull back but are continuing being pulled into the Middle East. But and with Trump, it's very transactional. I mean, if you actually go through his approach in foreign relations, it's a similar one where he kind of goes these seven steps of the deal.
And ultimately what he wants is a deal. But it's very transactional. It's and it's not always put into context of the greater, you know, the implications of what the second or third order impacts are, or I think the Democrats will be a bit I'm not to say they've been perfect. They have made plenty of mistakes for the last few years they’ve had power but will likely be a bit more cautious and mindful about their role in foreign policy.
So that net a world that is more multipolar, a world where regional power is getting more influence or where they're part of the neighborhood and one where it is more fractious is more, you know, without that kind of overriding force, kind of keeping things in order, you should likely see more various types of conflict, whether it be economic or military.
And I think that's just the state of affairs that we're going to be living in, going forward.
Ingrid: We talked a little bit ... in preparing for this. We talked about, you know, that morning in November and what do we wake up to after the election. It's kind of our worst-case scenario of a volatility standpoint?
Christian: Worst case scenario is if we don't have a clear answer on election night. So, it would mean it's extremely tight in a key swing state, maybe in a key county. And we still have we're still counting the votes, we're still deciding. And a good example would be in 2000 Gore versus Bush. It was extremely close in Florida, and it became very fractious on how they're going to recount the votes, what the recounting will look like.
And it took them until, I think, December to figure things out. And it actually requires a Supreme Court ruling. The positive, though, is that each state has their own election laws for how recounts take place. There are clear rules of procedures that they need to follow. Then eventually there is a court apparatus that is able to decide whether a recount should happen or not, what the outcome would be.
So, I think the positive thing is that there are systems in place to deal with this.
Ingrid: What's happening to the market while that's going on?
Yeah, it'll definitely be volatile.
Michael: Volatile? Yeah.
Ingrid: Yeah.
Michael: Absolutely. There'll be a period of uncertainty and look, certainly a sell off would be likely, I think in the stock market if we have uncertainty, particularly, you know, as one thing in 2000 where it was close but there wasn't this, there wasn't this polarizing, you know, backdrop in many ways. Gore eventually said, just backed off for the good of the country.
Michael: He said, okay, I'm going to just concede. I don't see either candidate....
Ingrid: Don't see that outcome ...
Michael: ... conceding if there's anything to fight for in this time around. And while this is all happening, there's the multiple realities we live in now with social media where no matter what happens, there will be many who are on both sides who don't believe ... the result is If the result isn't what they want, they won't put any stock in it.
So, it's a real uncertainty. You know, this is where ... this is where I think the market is a little bit too relaxed right now about this type of risk in terms....
Ingrid: ... of what's the safe haven. Right. Because we talked a little bit about this, like where are the political places? Okay. And are there sectors that are unaffected that are just sort of neutral or that are a safer place?
Michael: I actually… think that ... I wouldn't say safe haven is probably too strong a word, but the sectors that are not as affected by this will be markets ... will be non-U.S. equity markets in many ways because that's where, you know, they're cheaper for a reason. They have less growth potential. They don't have as much. You know, when people think about risk, the first thing they tend to sell is their liquid asset.
In this case, it'd be the S&P (500 Index). So, we've actually ... full disclosure ... we've actually been pulling back some of our U.S. holdings and buying a bit more international and a bit more in Canada, balancing out our risks because of this scenario. [Stewardship] And I think that is kind of for us, that would be I would expect to see non-U.S. markets outperform if we go into a period ... and this would be a we're not talking about multiple years or probably talking weeks, but it would be my expectation, although I do remember 2016 election night very well when Trump won the first time, a good friend of mine had positioned for this by buying gold.
And that worked for about 2 hours. And by about 1:00, once Trump started speaking - gold collapsed, bonds yields rallied and stocks took off because he actually said (in) a more kind of conciliatory tone, not saying it's going to happen this time. I'm just saying that sometimes we have these great plans. What happens, what we're worried about happens...
... but those had just ... so we do have to talk about the talk about us with a bit of grain of salt. I'm just saying like there is a risk that we actually might be right about this, but it actually isn't what occurs.
Ingrid: Flipping it on its head. A decisive Harris win. Right. So clean cut, no volatility related to the unknown. And likely we're in a place where Trump isn't coming back again for another run. Like what does that look like?
Christian: Personally, I think that's much calmer for markets because you take away the risk of disruptive tariffs and immigration policy. Yeah, and hopefully it maybe does lead to a period of more political calm in the US where you maybe have more different views on both sides of the aisle, maybe more debate, more, more open policy as different people come to the fore, and we move beyond the past generation of politicians.
So, I think it could actually be quite positive. I don't think Trump will be very conciliatory on election night, but if he in a face decisive victory, I have a hard time believing there's anything that can be done about it. And I think hopefully America can move forward beyond a period of quite fractious politics.
Michael: It will be fascinating to see where the Republican Party goes because, you know, DeSantis tried to be Trump 2.0 and failed. J.D. Vance has struggled out of the gate. There is really no Trump heir apparent. I would say he's got a certain quality where he's been able to captivate voters. And really, no matter what happens with everything else going on, he still has this tremendous brand appeal.
It will be fascinating to see where the party will go afterwards. And what if you took a Republican 15 years ago and told them more traditional conservative Republican and show them the party now, I think they'd be like a little bit surprised and see where the party it kind of evolves towards. On the flip side, you know, the Democrats have really moved left and moved quite progressive.
So, they're kind of moving much more on the political spectrum to the leftward than they have been historically. So that's also with a big, big win for the Democrats that will kind of vindicate that move. Yeah, and that's also, I would say being I always think I speak for Christian, we're probably more centralist in our views. That's not great either.
And so, the irony is you might have the Republicans be pulled to the center, but the Democrats really move leftward, which means more regulation, bigger government, more government actions within the real economy. And that also has implications longer term.
Ingrid: What would you say to investors about the next 3 to 4 months and what would you say to investors about where we will be two years from now in either scenario?
Michael: Well, the next 3 to 4 months.
Ingrid: Hold on.
Michael: Well, not so much. Hold on. I just think, you know, the greatest amount of where investors lose tremendous potential and future wealth is when they manage in the short term, and they forget about where they're going the long term. Look, if you think about just simple compounding, I mean, that is really the path to being financially comfortable or wealthy, what have you.
And so, first thing is the world is not coming to an end and don't short circuit that kind of longer-term goal because you're seeing, you know, headlines on CNN or FOX about, you know, some this horrible, you know, riots in the streets or I just think that's to be faded and ignored. So, yes, maybe some volatility, but longer term doesn't really matter.
Probably not on the two-year view. Look, I think that we have just exited the (2010’s) or a period of very low growth, very, very tepid growth, very, very low interest rates into a world where I think you're really starting to see investment happen again. And I would expect to see a backdrop of higher growth.
Higher growth means typically higher earnings. It's very supportive for stocks, but also for companies that don't invest, they tend to disappear. They don't have the cover of very, very cheap monetary conditions to stay alive. And so ultimately what you get is overall higher revenues, higher stock markets, but you get some failures, which is fine. That's what capitalism is all about.
But for investors, and particularly investors who invest wisely, it'll provide a far better environment to earn returns because ... kind of go into a higher growth and you think about what's required and think about energy transition, climate infrastructure needs, all the things food security, biotech, robotics, AI, all these amazing innovations. This is great as an investor going to invest because that's where you're going to earn return.
So, we can't lose sight of what is probably the most exciting environment for investment since probably the early nineties. The last time we went through a major productivity shift higher. And so longer term I think we look at and say, you know better for Christian because he's got a lot more career than I do, but I think it's going to be a pretty interesting backdrop.
One that's far more ... I think will reward investors but ultimately it will differentiate because I don't believe that everything is going to work in this environment. So, from our perspective, from the...
Ingrid: Backdrop for active, yeah ...
Michael: That’s a far better backdrop for active than one has been when you've got, you know, cheap money and poor growth and everything just seems to work.
Ingrid: At the risk of coming off of a high of Michael's optimism. Any other closing remarks?
Christian: Well, I think the short term or long term is such an important point. Yeah, it doesn't make sense to bet the farm on the election because there's so much uncertainty that we've talked about. It takes place over a long period of time. And I think the best examples when we look at sector ideas, a lot of people have Trump trades, Harris trades, what would be it right?
Christian: And that happens every election. When you look at the performance of those trades and might work really well from Election Day to inauguration, financials might really outperform if a Republican wins or traditional energy or renewables, you have it might work in the short term. But we look over the four years of the presidency, often the exact opposite happens.
So, what we saw during Trump, and we saw during Biden was the opposite of what you expected. A great example we like to look at is renewables versus traditional oil. You'd think that traditional oil would have done incredibly well under a Trump administration. Renewables were done terribly and vice versa ... under Biden, we had the complete opposite. And the reason why that happens is because policy is just one input.
So many other things happen, the economy changes, the business leaders make different decisions, competitive dynamics within those sectors change. And that's not under control of the president. They're not omnipotent. They don't decide what stocks win or lose. That's up to the markets. It's up to the economy. So, take policy as one input into your process, but don't make it the entire process and definitely don't bet your portfolio on one outcome on November 5th.
Ingrid: That's a great message. And you know, for our listeners, this is what you've got. This is who you've got managing your assets, your asset allocation, navigating your portfolios through this. So, thank you, gentlemen, and I hope to have you both back come November. And we can talk about this again and see where we wake up post-election. For our listeners, please feel free to follow us on - Spotify, Apple or Amazon and on www.tdassetmanagement.com. You can listen to our previous Trump versus Biden podcast and get some of the background and we'll keep coming back to you with more content. Thanks everyone and take care.
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