Investment Note November 2016



Welcome to Florida


“Good morning. I’m Al Gore and I’m the former next President of the United States.”  -  Al Gore, Tokyo, 2006
                                                                                                                                        
As ice-breakers go, I can’t ever think of a better one as we took our seats at a breakfast meeting with Al Gore. It was six years after he lost the 2000 US election to George W. Bush in a controversial and dramatic climax but the joke was still not lost on those assembled. 

The result could not have been much closer. The election essentially came down to the Florida vote count.  Of the 270 electoral votes needed to win, Bush had 246, Gore 255 and Florida was worth 25. As the polls closed, all the major TV networks forecast a victory for Al Gore based on exit polls.  However, vote counting in the small hours showed Bush ahead and the major networks declared him the winner.  Then, as dawn broke, this was also withdrawn as Bush’s winning margin of 2,000 demanded a recount be taken.  Gore managed to get a hand recount which ultimately brought the margin down to about 300 votes; a ridiculously small margin. 

The elephant in the room, however, was the 70,000 votes previously rejected by vote counting machines. These were votes cast using hole-punch voting machines which voters found confusing and difficult to use.  Some hole-punch machines didn’t work properly and many remember the hanging, dimpled or pregnant chads which were the names given to the square hole punches still clinging onto the form, rendering the vote invalid. A further recount was finally stopped by the Supreme Court meaning the original certified total should count. I guess the joke, “Is the death penalty still legal in Florida? I heard they stopped hanging chads”, didn’t make it into Al Gore’s repertoire.

The inauguration of George W. Bush, the 43rd President of the United States, took place on 20th January 2001.  The record books record that Al Gore polled 50,999,897 votes nationally; 543,895 more than Bush; the first time the winner had failed to win the popular vote in 112 years.

In today’s election there are half a dozen or so swing states that really matter.  Clinton starts with a presumed advantage that affords the loss of some but not all.  Trump must win Ohio and a few others besides.  But by far the most important is Florida with its 29 Electoral College votes up for grabs.  Only the swing states of Ohio (18) and Pennsylvania (20) come close. 

So, it looks like we’re back in Florida for the final countdown.  It will be one of the first polls to close at 7pm local time (midnight GMT) but the count will likely be one of the last to be known.  In 2012, it took days, so don’t stay up (!)  The last poll by Trafalgar Group showed Trump improving +4 points to draw level with Clinton. 

As final polling gets underway, the national polls for the popular vote also have it neck and neck but markets yesterday in New York, and today in London, are tentatively pricing for a Clinton win. The US stock market is not too far off all-time highs, the US dollar is above the summer highs with the Mexican peso, a currency bellwether on the US election, trading up from its September lows. 

We have been adding to FTSE100 large cap stocks in TAM client portfolios and have hedged some of the currency exposure in the US investments. Overall, we are now mildly underweight equities (stocks). We cautiously added bonds to most portfolios after yields rose throughout October.  In addition, we have higher cash balances than normal, firstly as a defensive measure but also ready to take advantage of any opportunities that arise. 

Like the UK referendum, this election is really too close to call when it comes to investing.  We believe that taking more risk on the assumption of a Clinton win is more like gambling than investing.  Many clients will notice that we have added gold to portfolios.  We have done this in past years as an insurance against a dramatic fall in the US dollar and we deem it appropriate now both as a hedge against the US dollar and for the longer term outlook generally.

However, whilst we have taken some short term measures to limit any impact should the markets reverse on the back of a Trump win, the majority of client portfolios are invested for the long term and, whatever the outcome tomorrow, we expect investors are looking forward to investing in slightly more predictable markets rather than having to position themselves for binary outcomes which are impossible to call.

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