Last week the world watched in shock as a violent crowd broke into the US Capitol Building as part of protests to overturn the presidential election result. The scenes were sad to watch, but we think those claiming this as a signal of the permanent decline of American prestige and power (read: China and Russia) are reading too much into this event. What should have been kept to scuffles outside the Capitol Building ended up in scenes which appear quite shocking at first watch. But this was clearly a security failure if anything else. The political reality is that Trump is gone. And what is more, his behaviour last week may have killed any chance of a political comeback.
After the disruptions, Congress continued voting to confirm Biden as the next president, and nothing will stop that process from completing. The right-wing press, previously loyal to Trump, are not backing him anymore, and previous allies like Mike Pence and Mitch McConnell have also publicly denounced his behaviour and actions. Markets are not worried about these developments either, with US equity markets continuing to rise and volatility (VIX) declining.
Scenes like last week’s do nothing to improve the standing of the United States. But if there’s one lesson from the past 200 years for investors, it’s that you should never bet against America. Being long America has worked for two centuries because the US has competitive and structural advantages (rule of law, strong legal system, large resource base, lots of land, large and growing population, a culture of dynamism and freedom that encourages innovation). The US went to war with itself in the 19th century and within a few years had recovered to be the world’s largest and most dynamic economy. The US won World War II and defeated global communism without breaking a sweat. The current political problems the US faces are relatively minor in comparison.
China and Russia may point at America’s political problems and mock them, but there’s a reason why rich Russians and rich Chinese are queuing up to send their children to live in America and move their capital out of their home countries: their governments have serious corruption problems. How many Americans aspire to send their children to a Chinese university? Let alone a Russian one. The vast majority of people, we believe, would sleep easy if their hard-earned savings were located in a US bank account in New York… much less so if it were held in a Russian or Chinese banking institution. We do not see that changing anytime soon. Talk of the ‘decline of America’ is premature… probably by a century or two.
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