What a week it's been! On election night, my wife called it quits and headed to bed around 11:30 p.m. I fell asleep in front of the TV sometime around 1 a.m. And still no U.S. presidential election winner as I write this. But the path - so far - of this uniquely odd election is no surprise. We here at The Oxford Club expected it. And it looks like we will have a decisive outcome soon (fingers firmly crossed!). Politics aside, as a macroeconomic and markets analyst, I have to look at the election outcome in terms of what it means for the economy and stock and bond prices. And I think I can make the case that there are many positives there. Not So Blue After All Before the election, the hope among Democrats (and the fear among many Republicans) was that the Democrats would sweep the White House and the Senate. They were even expected to add a few seats to their majority in the House of Representatives, if only to add insult to Republican injury. This scenario is known as the "blue wave." Obviously, this blue wave did not materialize. While it's possible that Democrat Joe Biden could still eke out a win in the Electoral College, it's almost certain to be a very narrow victory if he does. Had Biden instead won the popular vote by a landslide he would have had what analysts call a "policy mandate." Essentially, such a mandate would have given Democrats carte blanche to do whatever they wanted in terms of tax and spending policies (and much else). And this was considered a real risk by market analysts and many economists, as it could have enabled the Democrats to pass a massive fiscal stimulus that could have disrupted the Treasury market and the status of the dollar as a world reserve currency. According to JPMorgan Chase, such policies could have even endangered the Federal Reserve's independence (because the Fed would have to deal with the new Treasury debt needed to finance all that spending) and made the Fed's job of managing the money supply much more difficult. That said, I do expect that another stimulus package will be negotiated between the Democrats and the Republicans in Washington, once the election dust has settled. So a divided government is likely to deliver a more modest stimulus bill. Divided We Thrive In addition, the results of the election all but guarantee that we will continue to have a divided government... and gridlock. The Republicans are almost certain to retain control of the Senate, and the Democrats the House. So no matter who wins the White House, neither party will have control of the entire government. Some may consider that a bad thing, but the markets have another opinion. They see a divided government as a check on either political party's ability to screw things up royally. For example, Biden's plans include raising the top income tax rate to 39.6% (it's now 37%) and adding a 12.4% Social Security tax on income of more than $400,000. If you add to that the average state income tax of 6%, the state and federal governments together could take up to 58% of your income under a Biden administration, as Chief Investment Strategist Alexander Green recently noted. In tax policy circles, they call that "confiscatory taxation." Essentially, the government is confiscating a significant portion of your property without due compensation. And it has all kinds of potential unintended consequences, from disincentivizing work to sending individuals and businesses offshore to avoid such high taxes. Implementing this plan would be difficult, though, without a Democratic majority in the Senate. And that's exactly why markets like divided government. Below is a great chart that shows how the stock market has performed under unified and divided governments from 1928 to 2018. As you can see, the best market returns over almost a century have come under a divided government, with a Democrat in the Oval Office and the Congress either Republican or split. And as I write this, the S&P 500 is up more than 3%. So it seems that so far, at least, markets are not overly bothered about the election's result (or lack thereof). Democracy Rules Finally, despite some frenzied predictions of election-related violence and mayhem, what we've seen so far this election has been a calm, orderly and peaceful voting process. Give your fellow Americans a lot of credit. As much as political division has grown in recent years, voters in recent weeks have shown great faith in the democratic process by getting out to the polls to cast their ballots, albeit with the inclusion of long polling lines. And this election set a record for overall voter turnout, with at least 159.8 million Americans voting. The voter turnout rate among eligible citizens was the highest since 1900. That's more than a century ago! Well done, fellow citizens! Enjoy your day, Matt P.S. As I said above, as of this writing, there is no declared winner of the presidential race. The markets have been going wild, and what we've been seeing makes going on a roller coaster seem like a pleasant drive on a country road. But Chief Income Strategist Marc Lichtenfeld, an avid boxing fan, has some advice from boxing legend Mike Tyson, "Everyone has a plan until they get punched in the mouth." This applies both in the boxing ring and in the stock market. Just click here to see how Marc is handling this extreme market chaos. | 
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