America’s tense election and inauguration are now behind us. The last bit of U.S. election uncertainty? Gone. Next up--a toothless global political year. With few elections scheduled and gridlock ruling globally, big legislation won’t come from any major economy in 2021. Pockets of political uncertainty are small and far-flung. Enjoy the inactivity as stocks ride gridlock higher.
On November 11th, I told you that no matter who took Georgia’s January Senate runoffs, 2020’s close election meant gridlock won Washington. We are already seeing that. Six days after Joe Biden’s inauguration, moderate Democratic Senators Joe Manchin and Kirsten Sinema teamed up to torpedo further-left Democrat’s plans to eliminate the filibuster. Manchin’s opposition to $2,000 stimulus checks also slowed and watered down Biden’s “stimulus” plans.
Meanwhile, Biden was busy with Executive Orders reversing many of former President Donald Trump’s, which in turn reversed many of former President Barack Obama’s. It’s a gridlock merry-go-round of sociological orders packing just a hair’s whisker of economic punch. Anyone believing the Green New Deal or huge tax hikes may come is delusionally kidding themselves. There’s no 50%+1 appetite for controversy in this narrowly divided government.
That is bullish. Gridlock can’t kill wild political rhetoric. It may fan those flames. But talk is cheap. Action is what matters. Game changing laws create winners and losers—adding unpredictable variables businesses must plan for. Gridlock mitigates that, relieving investor fears.
Gridlock is now global and politics quieting everywhere that counts. Britain and the EU are simply fatigued after Brexit and COVID. Germany’s “Grand Coalition” of the center-right Christian Democratic Union (CDU) and center-left Social Democratic Party (SPD) meekly stumbles toward September elections. The CDU lacks any popular candidate to replace outgoing Chancellor Angela Merkel. It just elected Armin Laschet as leader. He may not even seek the chancellorship. The SPD is deeply divided. Moderate Olaf Scholz will head its ticket. Yet neither he nor anyone has enough clout to avoid another fragile coalition. Another do-little government!
Holland’s March 17 parliamentary elections are 2021’s first big political event. Four years ago, rising populism—Geert Wilders’ right-wing Party for Freedom (PVV)—splintered power across multiple parties. The Dutch took nearly eight months to form an unwieldy four-party coalition incapable of doing anything big. Its replacement will prove equally feckless. Though Prime Minister Mark Rutte was forced to resign days ago, his People’s Party for Freedom and Democracy still has a plurality in the polls. He likely gets another crack at forming a government. But PVV again polls second. No mainstream party will garner enough to form a game-changing government.
Italy’s government is stealing headlines now after former Prime Minister Matteo Renzi’s Italia Viva party left the four-party coalition government. Current PM Giuseppe Conte voluntarily resigned to avoid heading an unstable government. He now seeks reappointment atop a renewed toothless coalition. Despite hysteria, Italian politicians are desperate to avoid any vote. A 2020 constitutional reform eliminated almost half of parliament’s seats at the next election. That uncertainty makes politicians over-the-top timid.
Gridlock already reigns elsewhere in Europe. Spain’s minority government of the center-left Socialist Party and far-left Podemos is its first coalition since dictator Francisco Franco fell in the 1970s. It took them two years to simply pass a budget—despite ideological overlap. Key issues were watered down—or, like a proposed 15% minimum corporate tax rate, scrapped.
On March 23, Israelis vote—the fourth time in two years. The previous “power sharing” government between Prime Minister Benjamin Netanyahu and Benny Gantz proved so powerless it collapsed after failing to pass a budget. There is no basis for a decisive government to emerge this time
Japanese Prime Minister Yoshihide Suga’s Liberal Democratic Party has a stranglehold on the Diet ahead of 2021 elections, due by October. But with his government’s popularity tumbling terribly following several COVID-response missteps, he won’t put his leadership—or his party’s parliamentary control—in jeopardy with big legislation.
To find areas of political risk you must dig down smaller. Scotland’s May 6 parliamentary election could spearhead independence referendum chatter if the Scottish National Party retakes its majority. Hong Kong’s legislative elections, delayed amid COVID concerns, are due in September. Fears of China interfering there swirl after several January arrests of opposition politicians. But neither Scotland’s nor Hong Kong’s votes pack the punch to hit global stocks hard.
Confrontational American and overseas political chatter surely will garner sensationalist headlines—and stoke, well, more pugnacious chatter. It usually does. But remember: False fears are bullish, always, everywhere. Appreciate relatively placid 2021 worldwide politics, a tailwind that should further warm sentiment onward and upward in this late stage bull market.
