It's the economy, stupid !

“It’s the economy, stupid” - James Carville / 1992

GEOPOLITICS

USA

This quote coined by James Carville, Bill Clinton’s strategist, in 1992, emphasized that elections are won on fundamentals, the economy, and straying away from it puts you at risk of losing the elections. This is exactly what happened when Trump focused on inflation and immigration, while Harris focused on identity politics.

Second lesson is that Main Stream Media is dead: Harris who was widely unpopular before being named as a replacement for Biden, was then pushed as the next best thing by MSM. By painting a picture of the US population that was so disconnected from reality, MSM lost its credibility and totally lost influence on Americans. Operation Mockingbird eventually failed.

Trump’s strategy using alternative media (social media, podcasts, …)? and doing the bare minimum on MSM (debates, very few interviews) was the winning one, reaching far more people than any TV show could offer.

The influencing power is now in the hands of citizen journalism, and X has become the largest information platform.

The Democrat party has abandoned the working and middle class to become the party of the urban and wealthy part of the US population, while the working middle classes naturally move to the Republican party.

Finally the chart below that has been widely shared on social media has two possible interpretations, none of them boding well for Democrats:

• The main interpretation was to raise questions again about the 2020 election when the number of Democrat voters appears to be an anomaly
• The second is, if Republicans have lost 2 million votes between 2020 and 2024, Democrats have lost 14 million votes ! Neither the Democrat candidate, not the themes developed during her campaign, resonated with voters.

Just like DEI is dying with corporations, identity politics is dying as well.

This appears to be a global trend that the left will have a lot of difficulty to get back from, as they only interpret the results of this election under that prism, and fail to understand what just happened.

Rest of the world

The world was quite quiet waiting for an election that will reshape the state of the world, hopefully more peacefully.

Trump’s election already had significant impacts on the world scene, with contacts with Putin in Russia to discuss how to stop the war in Ukraine.

Even in the European union where it was taboo until Nov 6th to discuss any peace agreement for Ukraine, the EU position has already shifted (well, as a US vassal, they have to follow or be left completely aside. No one will ask them anyway).

As a result of the election, Xi in China expressed his willingness to work with the new administration to find peaceful solutions to the current issues with the US. However, the Thucydides trap is still active and tensions could rise again.

The real big issue in the near future will certainly be the Middle East with Trump being a fervent supporter of Israel, and a strong adversary of the Iranian regime. In this context, the Middle East is likely to remain the hottest spot.

ECONOMY

As expected, the Fed dropped interest rates by 25 bps. I still struggle to find an honest reason to do that.

The real information coming from Powell is that he will not leave if asked by the new president. This tells you who actually runs the show when Trump won the electoral college, the popular vote, the senate and the house … The deep state runs deep …

MARKETS

I mentioned many times over the last weeks/months that we would certainly be stuck in the same situation until the election when uncertainty would disappear. Well markets broke out in a spectacular way last week.

The Trump trade exploded with the confirmation of his election: Equities, US Dollar, Bitcoin, …

For Equities, sectors like Energy and Financials are seen benefiting from deregulation.

The Vix index and Move index that were on the rise over the last months in relation to the uncertainty around the election have both collapsed as uncertainties disappeared.

For Bonds/Interest Rates, Trump’s policies with lower taxes and tariffs are seen as inflationary and Bonds dropped on the news while recovering the following days.

In the battle of “currencies”, the US$ strengthened as Gold weakened.

Looking at the big picture, the US sovereign risk collapsed, which explains most of the recent market moves.

Bitcoin ETFs saw the largest inflows with a more favorable administration for the asset class.

This week was the initial euphoric reaction to a defining election for the United States.

Past this moment, the next few weeks will offer more clarity about market directions when the dust eventually settles.

Stay tuned for a real Croissant File LIVE next saturday.

You can still watch this week's video (from the beach), here.