the one election-proof industry

After one of the longest, weirdest, and most exhausting election seasons in our history, we are only six days away from (finally) choosing a new president. As importantly, 34 Senate seats and all 435 House seats are up for grabs.

Investors are justifiably nervous about the outcome. Yesterday’s selloff was probably a symptom of that unease. Betting markets currently predict Hillary Clinton has a 70-75 percent chance of winning. I suspect her odds are much better. Four years ago Obama’s five million vote victory was fueled by a 56 to 44 percent majority of female voters and an even greater 74 to 26 percent majority of Hispanic voters. I am 99 percent certain Trump will do worse with both groups. Ever since he announced his candidacy Republican leaders (and media talking heads) have known that women and Hispanics would be his Achilles heel and yet, shockingly, he has made no effort to improve his appeal to these voters. Either he is delusional about his chances or simply refuses to learn the daunting math required for a Republican to win the general election.

The Donald’s only hope is the fact middle-of-the-road voters seem to dislike Hillary almost as much as they dislike him.

In the short term, traders might buy today and sell soon after the election. Observers believe there will be a ‘relief rally’ following Clinton’s likely victory. Her win is somewhat, but not completely, priced in the market. But President Clinton II could be bad for profits of multiple industries. Foremost is healthcare. These stocks have underperformed in 2016, as investors fear Hillary will review and/or regulate price increases by healthcare and pharmaceutical firms. She might also limit the profit potential of the fossil fuel industry via regulation and environmental edicts. Lastly, Clinton will not reduce our 35 percent corporate tax rate or propose a territorial tax code that stops ‘truing up’ offshore profits when they are repatriated to the US. Add it all up and economic growth will probably continue at a subpar 2 percent (or worse) annual rate, which means it is highly unlikely the stock market will produce double-digit annual gains in any year of Clinton’s presidency.

As unappetizing as that sounds, Clinton is the devil investors know. Trump is the devil investors don’t know. If he beats the odds and wins and actually builds his promised 1800-mile wall on the Mexican border, legal and illegal immigration would likely slow to a trickle. That would kill our already disappointing level of startups, as first generation immigrants start roughly one third of all new companies. And if President Trump even so much as threatens tariffs on imported Chinese goods, we could see a full-blown tariff war and worldwide recession.

The lack of transparency by both candidates probably reveals how they would govern: opaquely and with minimal transparency. Unlike every presidential candidate in the last four decades, Trump refuses to release his tax returns. Amazingly many Americans seem not to care. I suspect those returns show nonpayment of taxes, minimal charitable contributions, and/or financial deals with unsavory Russian and/or Middle Eastern entities. Meanwhile, Clinton has hidden or destroyed thousands of emails written during her tenure as Secretary of State and also refused to produce a transcript of a speech she gave (for a six figure sum) to a Goldman Sachs event years ago.

The one industry that is likely to escape unscathed no matter who prevails is my own. Both candidates claim they will end the egregious ‘carried interest’ tax loophole. President Obama made the same pledge eight years ago. This loophole lets hedge funds, private equity funds, and many real estate partnerships pay long-term capital gains tax rates on their annual performance fees. Private equity and real estate firms are its biggest beneficiaries. Like Obama, Hillary is unlikely to pursue this change, as her connections to the avaricious, unprincipled New York investment community are well documented. At the same time, today’s politicized Federal Reserve is probably going to keep interest rates at or near zero for years. Why? Because every threatened rate hike causes a market selloff, followed by the Fed deferring rate hikes to future years. Washington clearly cares more about propping up stock prices than rewarding savers—and people wonder why populist anger has been driving the Trump (and Sanders) candidacies.

No matter what happens next Tuesday, I don’t see that anger abating anytime soon. Washington—and Wall Street—had better start paying attention to it or the next election could make this one seem tame by comparison.

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