The fourth Republican presidential primary debate obscured more than it clarified the main issues that investors and financial markets care about most, from candidates’ positions on economic issues to their views on major financial institutions.
The debate also didn’t reshuffle expectations going into the early primary voting season:
- Former UN Ambassador Nikki Haley likely continues to ascend into the top “not-Trump” slot: she was unbowed even though she took plenty of shots from her competitors right out of the box. So, she achieved what she needed to in this debate.
- Florida Governor Ron DeSantis performed similarly to his other debates: as a whole, he didn’t have a moment that changed perceptions or earned another look. So, he wasn’t successful.
- Former New Jersey Governor Chris Christie will remain becalmed in the polls, but he played three debate roles: the Trump attack dog, which he embraced with verve; the common-sense guy, the political version of a Cheers character, and the supplier of the coup d’grace to rival Vivek Ramaswamy, whom Christie called “the most obnoxious blowhard in America”, and who did his best to live up to it.
Yet financial markets don’t have a better sense now of how these presidential hopefuls intend to attack the issues that concern investors the most, including the U.S. debt, budget deficit and fiscal spending.
There were a few platitudes, a few nods to Republican spending rhetorical orthodoxy, but little more. This followed the pattern of earlier debates.
The candidates spent more time attacking each other and attempting to differentiate themselves on social issues — in part because both the news cycle and the moderators encouraged it — than discussing economic specifics.
Foreign policy also largely took a back seat during this debate, an indication that geopolitical risk that’s the highest in 50 years and remains unsettled nonetheless has become conventional for primary campaign purposes.
This relative lack of economic talk from the candidates says a lot about the political and economic environment in Iowa and New Hampshire, the early primary states that start voting in six weeks, chiefly:
- Bidenomics is going over like a lead balloon, not convincing voters of any political allegiance that the economy is anything but the top tier issue that polling says it is.
- The Bidenomics flat tire won’t be a surprise to those who read national papers or political coverage — it’s covered extensively — but it’s apparently backed up by the candidates’ campaigning experiences, otherwise they’d be working harder to make the anti-Biden economic case.
- As a result, these Republican candidates think that all they have to do to check the economic box with voters is to be critical of Bidenomics, show common sense and empathy about the immediate economic challenges everyday Americans are facing, and promise focus and solutions.
Markets must also feel whipsawed about Republican attitudes towards major Wall Street banks — concerned and not sure quite what to believe.
- During the day, Senate Republicans voiced support for major banks in their quest to stop the Federal Reserve from imposing increased capital requirements.
- At night, Republican presidential candidates took shots at some of those same institutions, claiming their increasing support for Haley was an attempt to purchase and control her, and pinning on those institutions both real and perceived woes of environmental, social, and governance (ESG) investing.
“The other candidates wish they were Nikki Haley and had her donors as supporters. ”
This discordance likely is much discussed on Wall Street, but should be dismissed as situational. First, Senate Republicans operating in a policymaking and oversight role are skeptical — and rightly so, in view of the Fed proposal’s overkill — of further raising capital requirements at a fragile economic time with barely tamed inflation.
Second, Republican presidential candidates operating in political mode were using increasing Wall Street support for Haley’s candidacy, and roping in broad concerns about ESG, as a way to stop her from becoming the leading not-Trump candidate before the first votes are cast.
Bottom line: none of the three serious presidential candidates remaining — Haley, DeSantis and Christie — would adopt a confrontational posture towards major financial institutions, and would likely be similarly skeptical on hot-button economic issues like bank capital requirements.
Haley’s response to the criticism is worth remembering: the other candidates wish they were Haley and had Haley’s donors as supporters. Because they don’t, they criticize Haley using whatever argument they can muster.
Beyond those issues, the most direct economic discussions centered around the candidates’ bemoaning the loss of the “American dream,” using the soaring cost of homeownership as a prime example. The candidates discussed homeownership problems with facility — the average age of first-time homeownership in the 40s was noted — but there wasn’t much talk of compelling or focused solutions, preferring to save themselves for the social issues’ red meat.
Haley talked about the multifaceted nature of the housing problem, citing supply chain, insurance, and bank lending issues. But she ducked discussing specific solutions, pivoting into broad platitudes about growing the economy and controlling spending, promising to veto any spending legislation that didn’t return fiscal spending to pre-Covid levels.
Haley’s spending pledge is more ambitious than anything being discussed in Washington today. The most “extreme” House Republicans want a fiscal rollback to fiscal 2022 levels and put a 1% rollback in this spring’s budget legislation, something that almost certainly becomes moot when full-year spending legislation is adopted in 2024.
But even Haley’s pledge is a drop in the bucket. The financial markets have a growing sense that Washington’s not up to the challenge.
DeSantis made a bit more headway on economic arguments with a mix of the obvious — lowering spending — and couple of achievable crowd-pleasers, including the need to “open up domestic energy” and dealing with student loans by requiring universities to back them, presumably by using their endowments.
From now until the New Year, markets should pay no attention to Republican presidential politics. Forget the blather that the next 40 days are the most important. Enjoy the holidays: Iowa and New Hampshire voters will. Refocus when those voters do, on January 2. The last two weeks before the votes are counted will be intense — particularly in Iowa, because the Iowa caucuses have produced surprise winners for the past 20 years.
Finally, remember this is a real race:
- Trump is preferred by less than half of early primary state voters.
- Most Republicans already want someone other than Trump as their nominee.
- The Republican field already has winnowed down more quickly than most thought.
- It won’t take much — a little more winnowing, some Trump underperformances — to make the Republican nomination look quite different than it does now.
Markets will know in starting in mid-January how Republican voters are aligning. The combination of disquiet about a Biden vs. Trump race, and the restiveness that’s producing strong interest in third-party candidates, is a harbinger of an unsettled electorate fully capable of acting on those feelings.
Terry Haines is founder of Pangaea Policy, an independent policy and political forecasting and analysis company for financial markets.