We’ll find out who becomes the new US president by 3 pm tomorrow AEDT. In the last few months, my WhatsApp groups have been completely dominated by US election talk—even among my fishing mates. We’ll look at how the election results might affect us here today. In contrast, nobody seems to care too much about choosing the Australian Prime Minister. Nobody knows why – maybe we’re more confident that nothing too bad will go wrong either way. We’ll also receive the decision on the RBA rates today, but it will be during the Melbourne Cup, so nobody will be watching anyway.

We’ll cover both, but first things first.

The US election has certainly been entertaining, with some of the funniest memes and shit-talking I’ve ever seen. However, in the short term, the results will probably have more of an effect on the countries outside of the US than on US citizens. Most Americans are somehow simultaneously uninformed and passionate about their opinions. Much of this has been due to how information has been omitted or skewed in the mainstream media.

What both sides do agree on, however, is that something has broken in America. It’s not the country it was in the 1950s and 60s; it isn’t even the country it was in the 2000s. Not militarily, economically or socially. People might not be able to articulate precisely what is going on, but they know that life is getting more expensive; they see more homelessness, litter, graffiti, drug addiction, and more people on edge. A good mate who grew up with me and runs a tech company in the Bay Area of San Francisco doesn’t even go downtown now. It’s Gotham City, overrun by corruption and parasites.

We’ll come back to this later.

Both the left and the right blame each other in the usual American ‘can do!’ way, but the real story is here.

The US has added as much debt in the last four years as it had in the first 221 years of its existence.

This pace has recently accelerated, with US debt rising by around half a trillion in three weeks alone. Funding the wars at the edges of the empire is not cheap. Being rooted in a martial culture that extended from Britain, the US has been at it for a long time. Incredibly, the US has only been at peace for 17 years in the 245 years since it declared independence from the British Empire on July 4, 1776.

This ‘exorbitant privilege’ of being able to print money at will and export inflation all over the world while producing nothing is a result of the USD being the global reserve currency. This old order is now breaking down as more countries lose trust in the US’s ability to repay the debt. It’s also what the recent BRICS summit in Kazan, Russia, was largely about. That is a move away from the reliance on the USD for global trade and the rules that come with it.

When you view US geopolitics within this framework, it provides a lot of clarity about the war between Ukraine and the Middle East and the current tension between the US and China. War, of course, is just an extension of politics.

The elites will do whatever they can to hang onto power, and senseless laws have been brought in. Voter ID is now not required in 12 states, opening the door for corruption and meddling.

If you listen to retired US military commanders, they have some of the most rational and well-informed views about the situation. Most importantly, these are men in their 80s who no longer care what people think and can speak their opinions freely. They have a deep understanding of the history of conflict and first-hand experience in leading troops in war. Unsurprisingly, they are some of the most anti-war people you will find. They overwhelmingly want to end the funding for senseless wars in countries that pose no existential threat to America. This would bring a rapid end to the wars in Ukraine and the Middle East, as Israel and Ukraine rely almost entirely on US funding and weapons, and both are running short on supplies.

Which leads me to Trump. For all his many failings, he is at least fundamentally anti-war. He hopes to use tariffs and a return to US diplomacy to resolve the growing tensions between countries. Whether he succeeds in doing this with the people surrounding him is another question entirely, but at least there is a chance for an early end to the wars. With Harris, we’re likely to get more of the same. In the Western world, it probably won’t matter who gets elected; they will both have to continue printing.

We can see this clearly in the data. The average increase in the S&P500 in the following six months of a US presidential election is 6.6% compared to the average 1.5% gain in the preceding six months. This is the same whether a Democrat or a Republican gets elected.

This means asset prices will continue to rise as the purchasing power of money erodes. We have already seen gold prices climb by 33% over the course of 2024. It is a reasonable indicator that life just got 33% more expensive for everyone, which is likely the reason people sense that something is broken. Similarly, real estate prices are up by around 54%… When money printing is infinite, it is invariably reflected in the price of assets where the supply is finite.

The tariffs that Trump hopes to use to reign in other countries’ economic growth and affect foreign policy are the things that are most likely to affect Australia. But tariffs are also likely to fail. China has been our largest trading partner since late 2007. While economic sanctions placed on it have seen a drop in trade between the US and China, we almost immediately see a commensurate rise in trade between China and Mexico, and Mexico and the US. In other words, China simply sells to Mexico, which onsells the same goods to the US. The result is that Mexico gets a cut of the profits, and the US gets more expensive goods. Similarly, the sanctions on Russian oil sales to Europe since the Ukraine war have failed, with India becoming the middleman, the largest importer of Russian oil and the largest exporter of refined oil products to Europe.  

Australia, of course, is a country that supplies raw materials for production, with the biggest being:

• iron ore and concentrates (33%)
• coal (8.5%)
• natural gas (6.6%)
• education and travel (6%)
• gold (5.7%)
• beef (1.8%)
• aluminium (1.8%)
• copper (1.6%)

Our exports and trade will almost certainly be unaffected by the change in the US administration. Disentanglement of supply chains is difficult in a globalized world, particularly when the rest of the world largely relies on manufacturing from one country.

Australian exports split by country in 2023 were as follows:

1. China (33%)
2. Japan (9.8%)
3. South Korea (5.5%)
4. India (3.9%)
5. United States (3.7%)
6. Taiwan: $10.1 billion (2.7%)
7. New Zealand: $8.4 billion (2.3%)
8. Vietnam: $7.7 billion (2.1%)
9. Indonesia: $7.4 billion (2%)
10. Singapore: $7 billion (1.9%)
11. Hong Kong: $6.5 billion (1.8%)
12. Malaysia: $5.7 billion (1.5%)
13. Thailand: $4.4 billion (1.2%)
14. United Kingdom: $3.8 billion (1%)
15. Netherlands: $3.2 billion (0.9%)
16. United Arab Emirates: $3.1 billion (0.8%)
17. Philippines: $2.29 billion (0.6%)
18. Germany: $2.29 billion (0.6%)
19. Canada: $1.64 billion (0.4%)
20. Switzerland: $1.59 billion (0.4%)

OK, onto today’s RBA decision.

Although quarterly inflation has fallen to a 3.5-year low of 2.8% and monthly inflation figures have fallen to 2.1% (towards the low end of the 2-3% target band), we’re unlikely to see a rate cut today. The RBA’s stubborn refusal to look at the headline number in favor of the trimmed mean will likely see them hold again.

Without an engine for growth in the Australian economy, real household incomes have fallen 8% (the worst decline on record). Australians are burning through their pandemic savings to get by. We’ll likely have to suffer for another month without a rate cut.

With a little luck, sense will prevail, and the RBA will follow the lead of the other central banks, and we see a cut in December. If not, we’ll have to wait until February – either way, the writing is on the wall, and the next move is down. The longer we wait, the more aggressive the cut will need to be as the RBA begins to backpedal to get us out of this mess. Nevertheless, there is light at the end of the tunnel, and the first cut will see the final leg and most spectacular phase of the property market play out.

OK, that’s about all from me for today. I have to buy something for our team lunch in the office now. Good luck with the Melbourne Cup!