Why The US Election Does Not Matter

It was only last year that I dropped the obvious, that is, the US Federal Reserve Bank of New York (Let's get real here...) was going to raise interest rates. Well, here we are! 25 basis points higher! It seems like our regular pundits have found a new reason to think that the Federal Reserve Bank of New York takes instructions from the US Government in the making. Ridiculous! 

 

Let's look at the worse case scenario, that is a Trump White House... An unlikely possibility but none the less worth considering for the sake of Hill Billy country at the very least. If that was to happen, we can expect no change to the movement of financial assets, investors won't run for cover, construction won't start on that Mexican wall and there will be no World War 3. Why? Well, there is such a thing called Congress. So, sorry to disappoint, it will not be the free for all that the media is portraying. 

 

Back to reality... The White House is likely to be a Clinton one, seeing the Governor of Virginia is her VP ticket and he has those all important 13 delegates. Away from politics, the markets are focused on the issue at hand that is, the next rate hike at least if you are a Dollar bull. Well, here is the thing, the FED has been tight on rates since 2008 and it has been 8 years later, every little hike puts money in the pocket of the FED. The reality is rates are still pretty low and there are doubts that the environment will ever exist where rates are back to 5%. So another 25 basis points is not going to hurt anyone considering in 2006 rates where at 500 basis points relative to the mere 50 basis points today. In my opinion I believe the FED will move for that 100 basis point by 2017 end. This will be wise just in case the next recession hits sooner, I doubt even the FED would want to weather another 10 years of these low rates regardless of what the American people think. After all the FED is not elected by the American people.  

 

So time for a reality check. The American election does not matter, what matters is what the FED will do after that election. Yellen is likely to stay on, that means a Hawk in office. If that tune was to change then I will get concerned, for now let the foolish pundits keep calling Gold higher, sooner or later dreams will be broken and all that glitters will not be Gold as the FED does business as usual with the US government. Always room for surprises I guess!