U.S. Elections: ripping up the old playbook | Tina Fordham, Fordham Global Foresight

David: Tina, you are a leading independent consultant and the founder of Fordham Global Foresight. You've been advising CEOs, investors, three star generals, the United Nations and many other people. And for the last 25 years, you've been working on the intersection of geopolitics, business and the drives of social change. Tina: Yeah. David: And very recently, you've been named one of the most influential women in finance. So congratulations. Tina: Thank you. David: Now, we're just a few weeks away from the US presidential elections. I think one of the most important events in the political calendar you've been following for the last five U.S. elections. And I recall in 2016 how you warned us. You want us about the polls. Can we go back to that and what you were thinking? Tina: Yes. Well, we always knew that 2024 was going to be a big year for global elections, with more than half of the people on the planet going to to vote. And the US elections, in November really being the kind of centrepiece. And now it's only a few weeks away. And so we're looking at the polls, and one of the striking things is just how close they are and how stable they are. They're just not budging. And that in itself is unusual. And I think, you know, almost whatever aspect we talk about in this year's U.S. elections, we kind of have to rip up the old playbook when we, you know, when we look at them because, it's clearly not the economy, stupid. As was famously said by James Carville, who was Bill Clinton's campaign strategist back in the late 90s, because the US economy is the envy of the world. Now, Americans may not be feeling great about it because of inflation, especially, you know, cost of living on UN basic goods. But the U.S. economy is, performing very well. The we have a bull market. And yet the incumbent, President Biden, who of course, withdrew from the race, saw his approval ratings in the tank. And so that correlation, such as it was, it has broken down. And the the dramatic developments over the summer with, Biden withdrawing from the race after his disastrous performance. the first assassination attempt against President Trump, and then Harris rising to the top of the ticket with her running mate, Tim Walls. And we're in this place where the polls are stuck. So an enormous amount of drama over the summer. And now that we're in the homestretch, the divide is just two percentage points with Harris in the lead. But what's interesting about this race, well, there are many things that are interesting about it is if you look at investor perspectives, investors have gone back to where they were in June or so, which is all in for Trump. And you can see the disconnect in the prediction markets. Which I have to kind of highlight, have historically been prone to, intervention and manipulation. And it only recently became legal again in the United States to, to invest in the prediction markets. But investors seemed to have decided that, Trump is the more likely winner. The tiny lead that Harris has has got Democrats feeling very anxious. And what it means for all of us observers is, a polling error in either direction, you know, could see a victory, and that means even a one point shift, in the battleground states or the swing states, David: Swing states, of course, seven swing states. So there's very little in it. You mentioned inflation. Can I pick your brain? Of course. There's been some interesting discussions around Federal Reserve appointments and independence of the Federal Reserve. What's your thinking there in terms of the candidates? Tina: Well, you know, we can only, observe the policies that that they, that they announce in, in the campaign. And one of the developments that I think hasn't gotten as much attention, as it might have is the idea, that Trump first mentioned in one of the debates where he said he thought the president, meaning him, should have a view, should be able to have a view, on interest rates. Now, you know, we know that that Trump is a, a real estate guy. And interest rates matter a lot for for real estate. And he does indeed have very strong views about it. But the, the concept has been developed further since, and there've been some articles about it. And what'll be interesting for, for any of your, viewers here in the UK is that it? It appears that they want to have something modelled on, what we have here in Britain, which is like a shadow chancellor, type of role, which I guess gives it a veneer of, you know, kind of, political, acceptability. It's not clear how it would work in practice to have a president who had a role in, in setting central bank policy. But at the moment, it doesn't seem to be bothering markets. I think if Trump were to win, you would see a lot more effort to understand what this might mean. But of course, it would be a, you know, huge change in, in policy and in, in practice, too. David: There's been some big developments, of course, this week in, in the Middle East. And you often mentioned a new geopolitical risk supercycle, the convergence of and structural increase in conflicts, of course. The maximum number of the historically of the number of elections in one single year, fewer buffers to mitigate those risks. Yeah. How are the developments in the Middle East changing the trajectory of of what we were, expecting? Tina: Well, the the geopolitical risk supercycle thesis is something that I wrote over, over a year ago, about 18 months ago. So before, the latest escalation in the Middle East conflict, the October 7th attacks actually happened. And, you know, you summarised it very well. The conceptual foundation of this thesis is that the drivers of geopolitical risk, continue to accelerate. And that's everything from the number of elections and possible changes in government to, more structural, themes or even, you know, climate change events that translate into factors like, more migration, more conflict. We can see this in the data. The international crisis Group shows that since 2012, there has been an increase in the number of conflicts, the duration of conflicts, etc.. The purpose of international institutions like the United Nations or central banks, the IMF and the world Bank, of course, is to try to to mitigate and moderate the impact of these kinds of developments. But they have less backing and, less, there's less international cooperation. So we're seeing what the implications of that, is. And that's more risk events. David: More risk events. And of course, yeah, you know where we are at LSEG and at FTSE Russell, you know, we capture all this data. We are very good in data analytics. We look at the Russell 2000, the 100, 50. Tina: Well, so you're going to be asking, how do I see this in the data? And, and this is a question that, that I have very often throughout the course of my career linking it back to the Middle East conflict. This is the, you know, the biggest instance of escalation in the Middle East since 2006. But in contrast to to that period, the impact on oil prices has been, modest to negligible. About two weeks ago, we had, a relative spike because we've had this, cycle of escalation between Israel and Iran that, is getting more serious, with the suggestion that Israel might attack Iran's nuclear facilities, which would be a massive risk event that has since, receded to perhaps attacks on military installations. But if there was an attack on, Iran's energy facilities or indeed, if we look at the Ukraine conflict, if Ukraine were to attack Russia's energy, infrastructure, which it has done, some of, in either case, there would be an impact on markets. And when we talk about geopolitical risk, at the first order, we're talking about, systemic impact. And that means either through the commodities price channel or in the form of a growth shock. So when I talk to, you know, people who are on the on the younger side, they say geopolitical risk, we don't see it doesn't really matter. Tragic and concerning, but no market impact. What I would suggest is to have to, global conflicts, both of which can be, potentially become systemic. First of all, we haven't been in this place, at any time in the last couple of decades. And again, if you know, my, analysis of buffering factors, international institutions and, financial institutions is is correct. If these conflicts were to get out of control, there would be an impact on markets. But the next point I would make is that it isn't just the direct market impact. Usually geopolitics has, more pronounced second and third order effects. And so that can be things like risk aversion, or also in the Middle East case, the supply chain impact. I work with a lot of corporates, and they are definitely feeling the impact from the disruptions in the Red sea, a by-product of the conflict in the Middle East. So we shouldn't take an overly narrow view of why this, level of heightened geopolitical risk matters or doesn't matter for markets. It's it's very much influencing the environment. David: And it can be through different transition mechanisms. We need, commodity prices affects markets, of course. Tina: Currency markets are the, are the the quickest, quickest way to respond to respond that which then equity markets and equity markets are the least sensitive to geopolitical risk. But I would argue that because of the way, you know, that equity markets work, that there is nevertheless that impact in terms of risk appetite. David: But you speak to CEOs, CIOs. Do you notice a difference between the people in Europe versus the U.S, how they think about risk? Do they think about risk in terms of a central case? Maybe, base case and then the downside or how do they talk about in terms of your framework? Tina: Well, it depends on who you're talking to. Right. So if you're talking to a head of trading. You get a different conversation than with, a CIO, or a CEO. And as you suggested, there are definitely regional differences and, generational differences. Right? So, you know, a 40 year old head of trading, tends to be quite dismissive, about geopolitics. Not only that, but about elections. I spoke to one head of trading at a European bank who said, I'm not worried about U.S. elections. If Harris wins, you know, there'll be more spending, that'll be inflationary. Well, in fact, of course, the Congressional Budget Office has scored the policies of the two candidates, and it's Trump's that are more inflationary. But that's what I meant about the old fashioned, perspective. Just kind of going on the, you know, the kind of, stereotypical view of Democrats and Republicans might leave some market participants unprepared for the extent to which, you know, old is new and change is is a goal in itself. And nobody's really sticking to the historic policy positions Harris needs to distinguish herself from her boss, Joe Biden. And her way of doing that appears to be kind of finding a middle ground between Biden's positions and Trump's. But it seems to me that one of the almost coping mechanisms for investors in more, you know, geopolitically influenced times is to tune it out. If you can't see the direct impact on the asset class that you look at or you know the stock that you're trading, it's noise. I think there is something in between the signal and noise construct and the base case, and tail risk idea. We've talked about this before. You know, that I advise, my clients to think in terms of plausible hypothetical. And that means a 20% probability event. It does happen every day. That happen all the time. But the view by most investors tends to be unless you're telling me it's 90%, I'm not going to plan for that. I mean, I'm simplifying quite a bit, but that 2016 election that you're, you're talking about, I mean, I think I was the only, kind of sell side research analyst on the street saying that it's it is very plausible that Trump wins. Nobody had it as a base case. But the investors that I had talked to about that were at least less surprised. And that's why the, you know, the motto for Fordham Global Foresight is, from Louis Pasteur. Fortune favours the brave but chance favours the prepared mind. And it's why I think the plausible hypothesis construct is a more useful way than base case and tail risk, because we're talking about even nuclear conflict has more than a tail risk chance of of happening. David And even if the risk is small. Yes. The consequences disastrous. Yeah. That by itself should adjust people's risk framework. Can we switch to manipulation? Because you mentioned that at the beginning. Now, FBI Director Christopher Wray, names effectively rogue states interfering in the 2024 elections and a reported 2019 report, bipartisan Senate Intelligence Committee report found actually evidence of false reports and transparency theories. So, so how do you think about, social media, the potential for manipulation in your world of, geopolitical analysis? Tina: Well, we always knew that in, in an election where the global consequences are so significant, the potential for, for foreign, for external intervention was going to be high. And this has been the case for the last couple of elections, but of course, social media means that these efforts can really take place on steroids. And it's extremely difficult to, trace and to track, what the impact is. We saw this in this country with the, the far right riots, you know, that were supposedly about immigration, the role of social media there, disinformation and misinformation a bit different from the manufactured stuff. And it is an enormous worry. And I, I think sometimes that that it's not as clear as it might be why interfering in elections, is so significant, and I would I put it this way because doing so undermines our faith in an institution system. So, and if people don't believe that, that they, you know, these institutions are legitimate, they don't believe in the outcome. They don't trust, their neighbours and their, you know, fellow citizens. At the moment in the United States, we have record low trust in the media. That's not not so new. But on a related point, we have record low trust in the Supreme Court, and that matters, considering that the Supreme Court might have to adjudicate, in a close race or if there are recounts and everything else. So I feel like there's a lot of denial going on, and the other element that I think is elusive about this, foreign interference in elections is why would why would they do that? Why would Russia or China or North Korea or Iran, interfere in U.S. elections? And we know that there was external interference in in the Brexit referendum and elsewhere. In the case of U.S. elections. It's pretty simple, because casting doubt on democracy as a desirable system is very much in the interest. David: The house divided cannot stand. Tina: Yes, yes. And casting doubt is, a much lower cost way of projecting power, which, after all, is what geopolitics is. It's projecting power. It's not current events. Then going to war. David: Yes. And It's cost effective. Tina: Low, relatively low risk doesn't trigger a military response and big impact, relatively low cost and causes people to doubt, you know, each other, and, and the system. And so with that in mind, it seems to me it's, it's only likely to be, something that's used more often. And we need to get smarter about it. I mean, you know, our kids are being taught in school how to identify misinformation and disinformation, and I wish, you know, my aunts and uncles and cousins and people on, on Facebook had this training because you can see how quickly it's disseminated. David: Now, in this year, we're talking about with talking about US elections. What else are you monitoring? Of course, this is the big event that everyone is focussed on. Tina: Do I, do I have to be doing more than that of the most important event? I mean, conflicts are very much front of mind and, how to how to think about them. From a business and investment perspective, try to identify where they might go and the trajectory of escalation. But still, the outcome of the US elections matters a lot. And we spoke earlier about regional different differences. One of the facts is that being here in Europe, as we are, we're very exposed to what might happen next in the Ukraine conflict. So if U.S funding for Ukraine is stopped or ceased or paused or whatever might happen, the question becomes, can Europe do more work in Europe, take responsibility for security on the European continent as a whole, which of course has been shared by NATO for quite a long time. And that's a huge question, especially when we look at this state of, political stability in the two biggest EU member states, France and Germany. And, the inroads, you know, being made in other European Union states that are amount to blocking support for Ukraine and of course, in the U.S, there's a much more active dispute about, you know, is it in US interests or values. So conflict is the quickest route to disrupt the other means that we discussed like intervention in, you know, in by social media and disinformation are less pronounced but also quite disruptive. And the bottom line is you can't just look at your PNL and predict what's going to happen. David: Absolutely. And, of course, we will closely be monitoring all the developments through the navigator. And for those who haven't been following Tina yet, you can go on Spark and follow her navigator regularly. And with that, I would come to an end. I'd like to thank you for the exchange of thought. Fantastic talking to you. Tina: Thanks. Thanks for having me.