Since I returned to the U.S. after 25 years abroad, I’ve struggled with the fact that Americans no longer inhabit the same reality — at least when it comes to politics.
Segregated into separate info bubbles, we no longer agree on basic facts, much less a common course of future action as a nation. The current presidential election cycle, however, challenges those bubbles. Plenty of people inside the “right” and “left” exclusion zones are seriously unhappy with the candidates who emerged victorious from the primary season.
Even those perennial purveyors of political prognostication, the cable networks, can’t decide what version of reality to push. It’s easy to fall in line when the candidate is truly your guy or gal. Karl Rove infamously tried to bend reality to his pro-Romney desires on election night 2012, accepting facts only after Megyn Kelly frog-marched him to the Fox News statistician’s office.
Faced with a choice between Donald Trump and Hillary Clinton, on the other hand, many people just can’t force themselves to accept something they instinctively don’t want to believe — that their traditional party’s candidate is really going to win. Only a few diehards express that old Rovian confidence in their preferred outcome.
Everyone else is uncertain … and nervous.
Let’s Face Facts
Hillary Clinton is going to be the next president of the United States. It gives me no joy to say that. But Donald Trump will not win sufficient votes in enough states to become president. I stake my reputation on it. (I don’t think he even wants to be president.)
What does that mean for you — and your assets, investments and living standards? That’s the only thing that matters at this point. Here’s my take:
- There will be no substantive change on anything important under a Clinton presidency. Forget campaign promises designed to appease Bernie supporters. She’s not an economic radical, and even if she were, she won’t get anything out of a Republican House … except, perhaps, things Republicans also want.
- What are those things? It depends on which Republicans we’re talking about. I predict that the Trump-aligned right wing will be humbled and the GOP establishment will reassert its authority. That establishment shares with Clinton a desire for a much more aggressive foreign policy, for some infrastructure spending, for corporate tax reform — and above all, for maintaining the broader status quo in the U.S. corporate and financial sectors.
- That means we can expect more foreign military adventures and domestic spying, an attempt to lower U.S. corporate tax rates and eliminate loopholes, and some federal investment in our crumbling infrastructure. That implies a larger federal deficit, probably based on long-term borrowing.
- On the other hand, the root causes of our ongoing economic malaise — the combination of a Fed-led, finance-oriented approach to economic policy, an overstrong dollar and an unwillingness to harm the short-term interests of Wall Street — will remain unaddressed.
- Ergo, extremely low interest rates will continue, encouraging more borrowing by everyone from the federal government to ordinary households. The urgently needed rebalancing of the financial sector — reducing debt loads, discouraging asset speculation and redirecting capital into productive, job-creating investment — won’t happen. Instead, private sector debt — mainly corporate — will continue to accumulate, whilst the real economy stagnates. Prices in crony-capitalist sectors (health care, I’m looking at you) will continue to rise. That will squeeze people living on fixed incomes even harder.
- Then there are the social consequences of maintaining the status quo. It’s pretty hot out there on the streets … and it’s going to get hotter. After eight years of promises and no action under Obama, the poor and minorities aren’t going to be patient for long just because a woman is in the White House.
Sounds Like (It’s Time for) a Plan
If there’s one thing on which most of us agree, it’s that we have to take matters into our own hands — politicians won’t solve our problems for us. So what does a personal “solution” to President Hillary Rodham Clinton look like?
First, assume that the real economy — production and consumption of goods and services that people want and can afford to buy with their current incomes, not debt — will remain extremely weak. Real incomes won’t grow, and U.S. consumers won’t be able to sustain the global economy. The threat of asset bubbles will remain strong, since there won’t be other sources of yield. That will reinforce the ongoing long-term accumulation of debt overhang in the U.S. and global economy.
Second, assume opportunities for investment yield will remain limited and restricted to short-term bull markets, specific growth stocks and dependable long-term holdings. Overall, though, those yields won’t be spectacular. That implies that folks living on fixed incomes will continue to suffer. Ordinary 401(k)s and IRAs will muddle along without much growth, and people will be tempted to take capital distributions earlier than they should in order to survive retirement.
Third, assume that the chance of a sudden collapse of the global debt system is about one in two in the next four years and three in four in the next eight.
Based on that, the savvy planner will:
- Pursue a balanced investment strategy like the one I recommend in the March 2016 issue of The Bauman Letter. That involves diversifying into rare tangible assets, as well as acquiring an appropriate stock of bullion — 10% long term, 3% to 5% speculative holdings.
- Set up a self-directed IRA, as I explain in the May 2015 issue of The Bauman Letter, and use it to diversify your holdings away from U.S. equities. A self-directed IRA allows you to invest offshore and in foreign currencies.
- Acquire an offshore financial account either in your own name or through an offshore asset-protection vehicle like a trust or limited liability company (LLC). Note that this isn’t just a way to hedge against wealth confiscation … it’s also a way to move assets out of the dollar, which is critical.
Now if those recommendations look similar to those I’ve made over the last few years, they absolutely are, because nothing substantive is going to change under a Clinton administration.
Except, of course, the risk level … after all, the longer things carry on as they are, the worse it will get.
Editor, The Bauman Letter