TOPSHOT - US President Donald Trump arrives to speak during the Republican Party of Iowa Annual Dinner at The Ron Pearson Center in West Des Moines, Iowa on June 11, 2019. (Photo by MANDEL NGAN / AFP)MANDEL NGAN/AFP/Getty Images

I have just returned from a week in London, where I attended an interesting lunch with a group of high-level investors. One of the main topics of conversation was the trajectory for the markets amid Donald Trump’s trade wars and increasing tensions with China. Most people agreed that the markets were now discounting good news (like the tariff “deal” with Mexico) because there’s no trust left in what the president may or may not do from day to day. The group also felt that given Trump’s personality, he was likely to become much more volatile if the market went down, lurching into even more protectionism in order to protect a fragile ego and stoke the base. It’s still incredible to me, though it shouldn’t be, how we all have to spend as much time analysing this president’s psyche as his policies. I keep feeling that newspapers should start employing psychologists as political commentators — is China really all about daddy? How did that nasty business in military school inform the president’s love of autocrats? 

From all this, two questions followed — first, where do you invest in the midst of Trumpian chaos for the next 18 months? Popular answers included 2-year Treasury bills, gold, emerging markets that still do business with both China and the US, and as one investor put it, “anything but US equities”. I’d agree particularly with the latter, given that both the left and the right increasingly view multinational companies as traitors to economic “patriotism”.

The second big question was, can Trump be re-elected? There was much disagreement about this one. Some cited the poll numbers showing all Democrats running ahead of Trump. Others said that demographics and too many interest groups were simply against him at this point, and that once the inevitable market correction came, he would, like all presidents, have to take the blame for mismanaging the economy.

But I’m not so sure that’s true. Ed, as I mentioned briefly in a response to a Swamp Note that you wrote a week or so ago, the 46 per cent or so of Americans that seem to be with the president no matter what he does aren’t the people who hold stocks. The 12 per cent of the population holding 84 per cent of equities live mainly on the coasts and in big cities, and less so in the red states and rural areas that may decide the election outcome. The Trump base simply won’t be as affected by a market crash as they would be. 

Some in the room argued that this wouldn’t matter if the market crash led to a recession, which many felt it would and for which we are certainly due. If companies tightened their belts and stopped hiring, the base would eventually blame the president. But there again, there’s some reason to think that this time might be different. As I’ve written in previous columns, the shift from a tangible to an intangible economy has resulted in dramatically less job-creating capital investment already than in past recovery cycles. Many blue collar, and an increasing number of white collar, jobs are being replaced by technology, so it could be that, for the Trump base, the effects of any capex slowdown are already baked in. I’ll caveat that by saying that the exception to this might be the slowdown in the housing sector, which would affect the building trades, where he certainly has a fair bit of support. 

The bottom line is that I wonder if the election will be all about “the economy, stupid,” to quote James Carville, as has always been the conventional wisdom. Ed, do you have thoughts on this point? 

Recommended reading

Can James Daunt, the British banker turned high-end bookseller (his namesake bookstore in Hampstead was always one of my favourite hang-outs when my kids were small) save the Barnes & Noble chain as he did Waterstones in the UK? My colleague Fred Studemann explores the question in this sharp Big Read here.

I very much enjoyed this Vanessa Grigoriadis profile of “Madonna at 60”, in the New York Times magazine. The ageing pop star’s “meh” attitude towards haters and her inexhaustible self-reinvention and energy to continue self marketing were oddly inspiring. Also, the pictures are pretty great, particularly the one of Madonna tenderly embracing her younger, more naive self. 

One of my favourite writers, Elizabeth Kolbert, explores why facts don’t change our mind, a topic quite relevant for our era. 

Edward Luce responds

Rana, I wrote a Swamp Notes a couple of weeks ago on whether it's the economy stupid, or whether there's a Trump X factor that means he'll lose anyway. I ended up agnostic as any self-preserving journalist should be. So I've nothing significant to add to what I said then. For what it's worth, however, I agree that the preponderance of US stockholders tend to live on the liberal coasts. However, money does influence votes in flyover America. I don't think you can map economic geography on to political outcome. There will be a tonne of money behind Trump, some of it from Wall Street, some of it from special causes, such as the NRA and various evangelical groups. If the Democrats nominate a redistributionist, like Sanders or Warren, otherwise liberal hedge fund and private equity money will back Trump. When the choice is that stark, plutocracy votes for self-preservation (see Howard Schultz).

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