One the underrated challenges about investing in the US election year is a underlying tension between risk and uncertainty.

Risk is when you can at least try and assign some probabilities of an event or outcome coming to pass. So, for the next interest rate hike (or cut) you can both see where the market is at and also come up with a model or projection of how it could go differently (or not).

Uncertainty is something else entirely. That is where it is nearly impossible to know what will occur. John Maynard Keynes put it this way. Uncertainty is when there is:

"No scientific basis to form any calculable probability whatsoever."

The US election is one possible candidate for serious uncertainty.

The issue isn't so much who will win - though that is still uncertain right now with so much time to elapse. But still, you can watch the polls and other metrics and put some probabilities around it today.

But that isn't uncertainty.

What is truly uncertain is what comes after that. That is where the real "unknown unknowns" come into play.

The questions are endless:

Would a second Joe Biden term be good for stocks? For economic growth? For productivity? Is Donald Trump? What are the likely outcomes on inflation or the deficit or even the country's commitment to global free trade?

Those are hugely loaded political questions which passionate believers on both sides but they are also hugely loaded economic questions as well.

It is simply very, very hard to know what to expect.

We have talked about some of this before. For instance, we wrote a whole piece about how higher tariffs are very likely no matter who wins in November.

That seems still true but also is hardly a shock. Most people expect that to occur: Tariff Man (!) is back in Western politics.

But a certain policy unity over tariffs isn't the only area of agreement. In fact, to our eyes, there is quite a bit of commonality between both campaigns and far more than the candidates would ever like to admit.

So, it isn't just tariffs either. Either a second Biden or Trump campaign will likely mean:

• Greater fiscal spending.

• Further erosion of the global trade system and also fracturing the global internet, the so-called "splinternet" (see next story).

• Greater unilateral executive action by the president to avoid Congressional oversight and input.

These 3 issues (4 with higher tariffs) have numerous implications other than they the obvious one that they are (mostly) very bad. For instance, the constant effort by both the Trump and Biden presidencies to act unilaterally and either expand the scope of the regulatory scope or dredge up some ancient law and then re-apply it in a modern context all ends up in the courts.

This puts tremendous strain on the court system and the legal branch of government because it means that the courts rather than Congress are de facto debating policy.

It also politicizes the courts, of course.

But away from this example these issues have one big implication in common:

They are all inflationary.

Massive government spending has numerous downsides (crowding out, higher taxes etc) but one of the most basic points is that constantly running high deficits is also inflationary.

Under both a re-elected President Biden or a second President Trump spending will remain high.

One of the reasons you can feel confident in this is, they have already done it!
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After the pandemic struck, presidents Donald Trump and Joe Biden unleashed about $10 trillion in new spending. Nearly all of it ($7-8 trillion) was AFTER the pandemic lockdowns in early 2020. Further, current government spending is already around $2 trillion higher than the pre-Covid trajectory.

Our deficit is already nearly 6% and only likely heading higher no matter who comes out on top in November. If one side is more fiscally responsible than the other there is precious little evidence for it. The nonpartisan Congressional Budget Office forecasts that the deficit will increase from 5.6% of U.S. gross domestic product at present to 6.1% in the next decade.

If you are wondering why this is still happening, we would be right there with you. But regardless, all this spending does have an impact.

Whether it be as a % of GDP or how much it is contributing to growth, government spending is at an all time high. Therefore our fiscal stance is out of line with long-term fiscal sustainability. Something will have to give.

By that we mean: government spending may have accounted for as much as a third of GDP growth in 2023. You might not feel it but economically speaking we are still, quite literally, riding a wave of government largesse.

Ditto tariffs which raise the cost of basic inputs that then filter through the economy. President Trump has threatened massive tariffs, especially against China which would be hugely inflationary. But do not underestimate the impact Bidenomics attempt to build a “bottom up, middle out” economy that reprioritizes American workers and certain types of American industry.

You can see this in the Biden administration's opposition to Nippon Steel's attempted purchase of US Steel. We are already massively supporting the US steel industry with your tax dollars and so not surprisingly, the Japanese would quite like to get involved. They like the idea of trying their hand at a more efficient (US based) business and also one that comes with a set of subsidies, tax breaks and patriotic glamor that would make an Asian despot blush.

All of those subsidies and protectionism increases costs, directly or indirectly.

That isn't all however. Both major parties are now trying to do as much as possible via the executive power of the presidency. Whether it be the Trump White House trying to steal the election or build the wall or the current administration trying to cancel new fossil fuel projects with old regulations or break up Big Tech with old antitrust laws, we are all voting for imperial presidencies now.

There are various problems with the imperial presidency and this isn't the space to get into all of them but when you can start re-imagining old laws to forgive tens of (if not hundreds of) billions in student loans or ban imports of various types then you realize that their inflationary impact might be underrated.

So, while you rapidly get bored and then exasperated and finally sickened by the wall to wall coverage, the choices, the talking points and perhaps the candidates themselves, just keep in the back of your mind that no matter what occurs in November certain things are likely to continue as is.

• Spending.

• Splintering.

• Single executive.

All three of these have consequences, for the country and also for the stock market and your personal finances. The big one is: inflation will likely stay stickily high no matter who comes out on top. This is one big reason why we feel sure that the 1-2% of 2010-2020 will be replaced by 3-4% going forward.

You might feel that one candidate will be better or worse for one or all three of the above but it is very difficult to feel very confident that either of the current choices will adopt a radically different line.

That is something to prepare for.

It is also frustrating. if only because elections are supposed to be about choices and what if one of the reasons so many Americans are in a sour mood, about this election and about the direction of the country overall.

There simply isn't much of a choice, after all. That isn't a disaster but it does have consequences - including for you financially.

There are other surprising areas of agreement.

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