The word of the day is “ugly”. That’s how Steen Jakobsen, Saxo Bank CIO and chief economist describes the US presidential campaign, broken social contracts, public debt, and productivity.

Things are so ugly, Jakobsen says “failure is almost guaranteed” regardless of who wins the election.


This is a guest post by Steen Jakobsen. The original appears at US Election: Nothing to lose — #SaxoStrats

US Election: Nothing to Lose

My present macro speech is titled “Ugly: Don’t fight with ‘ugly’ people as they have nothing to lose”.

To me, this is the essence of the US presidential campaign. The ugly truth surrounding this ballot lies in the bigger picture, as whomever becomes president will go down in history as the “non-president” – the president who made us need, see, and demand something else.

For all of the colourful headlines, and the almost McCarthy-esque pursuit of Trump by mainstream media, this is not going to be about “Trump, the person” or his more or less moronic views; Trump merely represents the catalyst for change. He is the anti-establishment candidate, yes, but not our vision for the future.

Ultimately, Trump may still win despite (rather than because of) being… Trump.

That does not excuse mainstream media for not going after Clinton. If elected, she will be the least-liked president in US history, and I doubt any of her policies will do anything good for America.

More Barack Obama-type policy is not what the world needs. Obama may have created more jobs, but the average income for American has actually fallen during his presidency. What does this mean? It means he has presided over an economy that has created more jobs but less valuable ones, and growth during his tenure has been lower than during any other president, with the largest build-up in debt.

I am pretty sure that even this economist could create jobs with the amount of money Obama has spent!


Mind you I am 100% agnostic, politically-speaking. In fact, I don’t even think this election really matters! No, this is not a new trend; no, Clinton is not the answer… but what this is a generational repositioning and renegotiation of the social contract.

The last time that this happened was in the 1960s, when the children of World War II went for peace, love, and a lot of drugs. Now we have the Berlin Wall generation coming of age, and this time the focus is anti-globalisation and anti establishment sentiment… and yes, again a lot of drugs.

The real election issue in America, but also in Europe. is how to deal with a broken social contract. Society has been pushed so far away from its natural equilibrium in terms of markets, social homogeneity, equality, and productivity that the move back to “normal” will bear both a political price and a penalty in terms of growth and outlook.

Put differently, when we look throughout history we know that part of the process of evaluation is to smell, feel, taste, and experience what we don’t need in order to move towards what we do – a better version of society, but mainly a better one of ourselves.

The next election cycle is about protest; it will be followed by crisis and then new beginnings.

I firmly believe, and have repeatedly focused on the fact, that we as human beings need to fail in order to create a mandate for change. With regards to this dynamic, the US presidential campaign comes up short in many categories except one: failure is almost guaranteed.

If Clinton wins, the probability of a recession increases immediately and big business with return to a ’70s-like state under a Politburo-esque White House.

If Trump wins, we will have taken the fast track to massive political upheaval as the end of the Democratic/GOP monopoly on politics shifts towards a social agenda against globalisation, openness, and trade… the only good thing to come out of such a change would be the fact of change itself.

This US elections will not have any winners, only losers – but don’t despair. The US and the world economy will come back, and with surprising strength, but the political timeline is now finally aligned with the economics malaise created by central bankers. By this I mean that the corresponding low points in politics, economics, interest rates, and inflation, and the high points in terms of financial asset valuation and inequality, are coming to an end.

Volatility and uncertainty will be high the next over the next nine months (through the German election) but in the end, talk must cease and reality must reassert itself.

This is the best news of all. By accepting that the social contract is in dire need of being corrected, we could see a strong V-shaped recovery as early as the US midterm elections of 2018.

Voters are the ones with nothing to lose, not the ugly. This time around, change is what they crave; understand this and you will navigate the next election cycle with confidence.


Steen Jakobsen is chief economist and CIO at Saxo Bank

Mish Comments

Removal of a single word will make the title more accurate: “Failure Almost Guaranteed”.

  • Trade policy will be a disaster under either Hillary or Trump.
  • Hillary is far more likely to start a major war.
  • Neither has a realistic plan to reduce the deficit.
  • Hillary will not fix Obamacare, she will make it worse.
  • Congress might not let Trump start over on Obamacare.
  • Hillary will support freedom of choice, Trump won’t.

Not a Coin Toss

This is not a coin toss. Hillary’s supreme court nominations will be a guaranteed abomination.

This is a case of heads you lose, tails you lose more, possibly to the point of getting into a war with Russia under Hillary.

In disagreement with Steen’s assessment “In fact, I don’t even think this election really matters!” I propose the election does indeed matter, for several reasons, even though I agree we all lose because both candidates have serious issues.

V-Shaped Recovery?

I question Steen’s “strong V-shaped recovery” by 2018 thesis.

Why? I fail to see how we get any meaningful reform under Hillary. I also fail to see central banks doing anything other than repeating the same mistakes they have made for the past three decades.

Look at demographics in Europe and Asia. Look at housing bubbles in China, the UK, Australia, and Canada.

Structural problems are massive. Risk of a collapse in trade is very real. What is going to fix the Eurozone?

If the “V-shaped recovery” depends on a “crash” then we may indeed see a strong recovery, but from where to where, and what about pension assumptions of 8% annualized?

Yes, it’s ugly!

Mike “Mish” Shedlock