Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 25 October 2016 at 13:00 GMT

US Election: 10 scenarios that could happen if Clinton wins

Head of Editorial Content / Saxo Bank

Many US election watchers are concentrating on character issues rather than foreign policy. This could prove deadly. Photo: iStock

By Michael McKenna

Democratic presidential candidate Hillary Clinton has been broadly touted as the sane choice in November’s election, the choice of those willing to work within the current boundaries of discourse, a vote for normalcy.

Of course, when you are a continental superpower in relative decline whose military is stretched over nearly 800 global bases and engaged in several bloody sectarian wars, “sane” and “normal” are relative terms. 

For this reason, the prospect of a Clinton presidency does not merely represent the inversion or absence of the (varied and colourful) risks associated with her Republican rival Donald Trump, but rather the continuation of a profoundly unsteady status quo.

While USD, Treasury bond, and equity investors (among others) regard a Clinton victory as market-positive, this sentiment is largely a creation of the “black-swan” effect posed by the more isolationist, protectionist Trump and may well shift if she emerges victorious and his policy plans fade into the shadowy realm of failed presidential candidates (quick – what was Walter Mondale’s view on corporate taxes?).

Trump aside, then, what might a Clinton presidency bring to history’s table?

1. War

The most likely trajectory for a Clinton regime, given her policies, advisors, and ideological inclinations, would be a strange mixture of the Barack Obama and George W. Bush presidencies. At home, Clinton would present as a liberal or even in some areas a progressive. Abroad, she would be a neoconservative.

Despite Trump’s rhetorical excesses and interpersonal bellicosity, it is Clinton who is the war candidate. She supported the invasion of Iraq, engineered the removal (I hesitate to use this anodyne term given the nature of his death) of Libyan prime minister Moammar Gaddafi, and continues to support the “ramping up” of US involvement in Syria, where the US has armed and supported terror groups in its continued campaign to overthrow the government of Bashar al-Assad.

In supporting the erection of a “no-fly zone” over Syria, Clinton places the US on a collision course with Russia – the world’s largest nuclear power. In terms of international law, it must be added, Russia’s actions in Syria -- insofar as they represent an allied nation aiding an internationally recognised government against terrorist and non-state groups – rest on far more solid ground than those of the US and its coalition.

The greatest risks of a Clinton presidency are those surrounding the Western policy of employing jihadist and/or terror groups, as well as Western militaries, to overthrow secular leaders in the Middle East and North Africa — from Gaddafi to Hussein to Assad. The natures of Libya and Iraq post these incursions make it difficult to accept the “humanitarian intervention” line, as does the US’ continued allegiance with the House of Saud, whose human rights abuses are legion.

To risk nuclear war with Russia over this apparent long-term imperial project seems strange and dangerous, and perhaps nearly as wrongheaded as insulting beauty pageant contestants.

Uneasy lies the head that wears the crown... Photo: iStock 

2. Wall Street boom

The equity markets want a Clinton victory. Not only would a Clinton victory represent a “status quo” mandate in terms of world trade and established mercantile norms, but there is also the issue of Trump’s repeated attacks on the Federal Reserve and chair Janet Yellen. At the first presidential debate, Trump accused the Yellen Fed of “doing political things” by keeping interest rates low, and warned that “when they raise […] rates, you’re going to see some very bad things happen.”

Since the financial crisis, US equities and the dollar have been more intimately tied to Fed policy moves than was previously the case. Where Trump may accuse the central bank of creating a “false economy” with its post-crisis commitment to low rates, Clinton’s retort that “words have consequences; words move markets” contains the notes of stability-favouring caution that Wall Street likely cheers.

On September 29, CNBC reported that Fed governing board member Lael Brainard has contributed to Clinton’s presidential campaign. In fundraising terms, Clinton campaign donations from US billionaires outnumber those of her rival by 20 to one. Clinton’s two largest donors are financial speculator George Soros and hedge fund manager James Simons. Goldman Sachs has banned its employees from contributing to Trump’s campaign (Clinton donations remain permitted).

There really is a financial establishment, and it favours Clinton.

3. The TPP revived

Clinton publicly opposes the Trans-Pacific partnership but nobody really believes her. Why would they? Clinton has long been an advocate of multilateral trade deals (such as the North American Free Trade Agreement established during her husband’s presidency), and appears to broadly support the sort of pro-globalisation, rising-tide sort of thinking that underpins such deals.

In August, Clinton told supporters in the rust-belt state of Ohio that “I will stop any trade deal that kills jobs or holds down wages — including the Trans-Pacific Partnership”. Speaking in Australia in 2012, however, Clinton told her audience that the TPP "sets the gold standard in trade agreements to open free, transparent, fair trade — the kind of environment that has the rule of law and a level playing field".

On October 23, Democratic vice-presidential candidate Tim Kaine told NBC’s Meet The Press that “you never close the door” to “good deals”. Weeks ago, a batch of emails released by Wikileaks contained a conversation wherein Clinton told top bankers that she has “both a public and a private position” on Wall Street reform, a statement she defended with a reference to Abraham Lincoln during the second debate.

Here on, we have published many a defence of untrammelled free trade, which contributors such as Stephen Pope regard as a force for good. But then we are not fighting tooth-and-nail against the American incarnation of the populist backlash sweeping the West.

Donald Trump
"We have the worst deals, people, just the worst, very bad deals, 
bad deals from Hillary. My deals are the best." Photo: iStock 

4. Big banks basking

In his fourth-quarter outlook, Saxo Bank head of equity strategy Peter Garnry said that a Clinton victory would see shares of the US’ big banks soar on the perception of a status quo mandate. On October 4, Garnry initiated a long position in JPMorgan on forecasts of a 2016 US rate hike and continued policy normalisation.

Obviously, continued policy normalisation or normalisation of any stripe, really, presupposes to a certain degree a Clinton White House. While Donald Trump has proposed dismantling certain federal legislation in an effort to boost big business, the current financial order rests on an embrace of globalisation that is at odds with his core message.

Additionally, the Wikileaks email releases contain materials relating to a 2013 speech allegedly given by Clinton to Goldman Sachs wherein she expressed her own reservations about the Dodd-Frank regulations, claiming the bill was passed due to a perceived “need to do something […] for political reasons.”

It is a mistake to first assume that the Democrats are “left” and the Republicans are “right”, and to then conclude that the big banks must support the right. The Democrats are a neoliberal party and the Republicans are now, under Trump, a populist one.

Bank shares prefer neoliberalism.

5. Healthcare battening the hatches

While Garnry is bullish financials in the event of a Clinton victory, he is bearish healthcare stocks due to speculation concerning Clinton’s intention to address high drug prices. As CNN Money reports, “Clinton has promised to tackle the problem of high drug prices numerous times on the campaign trail […] and pharmaceutical companies have typically taken a hit following her tough talk.”

In Garnry’s view, ”the health care sector is in for a rough ride [under either Clinton or Trump] with increased scrutiny over drug prices and the runaway inflation in health care expenses that the US has experienced over the past three decades.”

Nevertheless, the current correlations show biotech and big pharma shares responding negatively to the prospect of a Clinton victory. 

It is perhaps worth noting that the failure of 1993’s Clinton health care plan – dubbed “Hillarycare” by Beltway types – was a harsh blow for Clinton, and one that came with significant assistance from the health care industry.

6. Peso-positive

“Donald Trump doesn’t like Mexico” is Trump Coverage 101, and derives from his oft-repeated intent to build a wall along the US’ southern border, as well as a hugely controversial speech in which he stated that “when Mexico sends its people, they’re not sending their best […] they’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists”.

The accusation in that speech was against the Mexican government, who Trump essentially claimed is allowing criminals to emigrate to the US to ease its own burden. This is not without precedent; in the 1980 Mariel boatlift, Cuban leader Fidel Castro intentionally allowed criminals and mentally ill patients to travel to the US with the large crowd of refugees.

(Interestingly, Mexico itself is reportedly considering building a wall along its southern border where the UN estimates 400,000 Central Americans illegally immigrate to Mexico each year.)

These complexities aside though, the market’s bottom line is that Trump and Mexico – and thus the Mexican peso – are negatively correlated. It soars when he encounters one of his many scandals, or performs poorly in debate. And a Clinton presidency could spur the biggest rally of all.

Mexico City
21 million people in Mexico City, but you can count the Trump supporters 
on one hand. One hand with two fingers missing. Photo: iStock 

7. Oil machinations

On September 7, Fortune reported that Hillary Clinton has raised “twice as much” from the oil industry as has Donald Trump. This is something of an anomaly, as the Republican Party has traditionally been the home of Big Oil, but this is a realignment election and there are few major industries that favour populist policies over neoliberal ones.

There is also a Syria tie-in here, although we doubt this is as much a factor as the aforementioned populism… thing. That said, Zero Hedge reported this morning that US interests have longstanding plans to run a pipeline from Qatar to Europe that would lessen European dependence on Russian oil and gas – and boost its dependence on oil producers that are more closely tied to Washington.

One could not run such a pipeline through Assad’s Syria, particularly as he and his Russian allies have another such project in mind, this one designed to run from Iran to Europe. 

But what if Assad’s Syria were to be dismantled, or fragmented in some way?

8. Hemispheric trade

The Wikileaks email releases are among the most contentious elements of this campaign, with the Clinton machine largely sidestepping their content (the “Lincoln defense” of her public/private dichotomy above was an exception) and concentrating instead on their source, which many claim leads to Moscow.

Whatever the nature of Wikileaks, we prefer to concentrate on the emails’ contents rather than their origin (for a thorough defence of the journalistic ethics involved in our decision, see Glenn Greenwald’s wonderful piece at The Intercept).

In any case, among the emails’ contents was a paid speech ostensibly made to Brazil-based Banco Itau in 2013, wherein Clinton told her audience that “my dream is a hemispheric common market, with open trade and open borders […] powering growth and opportunity for every person in the hemisphere.”

When one examines Clinton’s career, one finds that sentiments like this mesh far more nicely with her actions than does her recent opposition to TPP. This candidate is a free-trader who places an apparent emphasis on increased cooperation with South America.

9. Manufacturing hit

Among the main planks of Donald Trump’s protectionist, isolationist platform is the decline of the US manufacturing sector, the offshoring of the many secure, well-paid jobs it once offered the US’ working class, and the uncertainty and poor compensation of the service-sector positions that have replaced them.

On the campaign trail in places like Michigan and Ohio, we have seen Clinton attempt to address the issues facing the US’ working class, and particularly those once employed in manufacturing jobs. That said… this candidate is a free trader. How might US manufacturing jobs, for instance, do in a “hemispheric free market”? At present, union workers at the US’ “Big Three” carmakers make between $50 and $60/hour.

In Mexico, the Big Three pay workers $8 to $10/hour.

10. Legitimacy crisis ('the people are revolting!')

And this brings us to the big one, the final one, the one that extends the instability promised by a Trump presidency beyond even his loss.

Trump has spent October telling his voters that the system is rigged, that the polls are shifty, and that a corrupt establishment are attempting to pull a fast one in favour of Clinton. Last week, he told supporters that 'I will totally accept the election results… if I win”.

The US is now such a polarised society that the preferred visions of the populist right and the neoliberal… well, not left, but somewhere to the left can in many areas not be joined by policy. As in Europe, there is a perception that elites committed to the Davos consensus intend to achieve their desired world order by whatever means necessary, and in Trump’s recent rhetoric, we hear the sorts of words employed by people who believe themselves to be under siege.

Is it true? Well, Brexit happened. The ostensibly all-powerful elite class certainly didn’t want that one, but it passed. On the other hand, and sticking with Britain for a moment, the chair of the Smartmatic voting machine company, Mark Malloch-Brown, sits on the board of top Clinton donor George Soros’ Open Society Foundation, and his firm has machines in 16 states, including the all-important battleground of Florida.

Among Trump partisans, such fears barely need to be voiced – they are part of the landscape. To Clinton supporters – even those who alleged fraud in 2004 when top Republican contributor Diebold controlled most US voting machines – they are simply the paranoid fantasies of a madman.

Hillary Clinton
"That's crazy. That's just crazy. Don't think about things like that. He's crazy..."  Photo: iStock

And this is America in the final run-up to its 58th presidential election. It is a country where about half of the people (and a vast majority of the media class) see a competent administrator facing off against an absurd, malevolent clown, a bronze-baked incarnation of the American id set loose on the public stage and trashing the place.

The other? They see an unlikely man having seized the firebrand's mantle of invective and risking his all to retake their country from a coalition of shadowy Fabian technocrats who, whatever the ruling party, have shifted things in their preferred direction with nary a peep for decades.

Want to know something else?

This is what America will be on November 9 as well.

Michael McKenna is an editor at
Jim Earls Jim Earls
System isn't just rigged, the system is a massive debt bubble that is completely unsustainable. It doesn't matter who wins this election as this bubble is going to be processed one way or another.


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