Election What-If Scenarios

We hope you are safe, healthy, and enjoying the change of seasons.  The fall colors in Minneapolis are truly breathtaking this year. 

During our recent reviews we have been receiving questions regarding potential civil unrest around the election and what would a Biden victory mean for future taxes.

Normally, we would dismiss civil unrest during and after the election as a low probability event.  We still believe the odds of major unrest may be a bit overblown.  But the recent thwarting by the FBI of the kidnapping plots of the Michigan and Virginia governors gives us pause.  We believe that the potential for violence probably increases if the presidential election is close.  If President Trump were to declare victory and then mail in ballots were counted and he ends up losing by a tight margin we believe we could potentially see large, armed protests by right-wing “militia” groups.  This would most assuredly cause stocks to sell off.  Given the polls and early voter turnout, we do not believe this is the most likely scenario, but we need to be prepared for potential violence and stock market volatility around the election and immediately thereafter.  As long-term investors this would most likely be a short-term event, however if it grew into a full-blown constitutional crisis the downside could be significant.  Again, we do not believe this scenario is likely, but the odds are not zero either.

With regards to taxes, if Trump wins there will likely be no change to the tax code, especially since it would be difficult to imagine the democrats losing control of the House of Representatives.  Should Biden win and the democrats take the Senate, it would be likely that taxes would increase for those individuals making more than $400,000.  There may also be changes to how capital gains are taxed and the estate tax.  Under this scenario, we would be busy helping clients in the higher tax brackets implement year-end tax strategies.  If Biden should win, but the Senate were to be controlled by republicans, changes to the tax code would most likely be less meaningful.

We are surprised that Congress and the President have not yet passed a stimulus bill.  As we have noted in the past, we are quite certain another round of stimulus will come as the economy copes with extremely high unemployment and certain industries near collapse.  If the democrats control the White House and Congress, we believe the stimulus plan could be significant and include a large amount of infrastructure spending.  If we continue to have divided government, the stimulus plan(s) will continue to be patchwork and most likely underwhelming.  We believe a large stimulus plan is needed to keep the economy from falling into a deep recession.  It is our opinion that the stock market is counting on a big dose of future stimulus, and if it doesn’t happen we believe we will see a significant spike in stock market volatility and interest rates will fall even further (perhaps into negative territory).

This election will have a lasting impact on our economy and our nation.  We will continue to remain balanced and diversified and hope that the worst-case scenarios do not come to fruition.  It has been our experience that more money has been lost over time by people who are worried about future events than the amount of money actually lost during those events.

The Bond&Devick Team