The upcoming U.S. presidential elections will almost certainly have an impact on the various categories of alternative investments, real estate particularly. But what will be the effect on precious metals, collectable coins, artworks, and others? Assuming that one of two current front-runners in each major party ends up in the White House, what might the prospects be for those who have a high stake in the non-traditional financial sector?
Here’s a rundown on the effect that a Democrat or Republican win might have on several popular alternative investments:
Most U.S. real estate analysts think the sector is already in a mild recovery. A Democrat win, with either Hillary Clinton or Rep. Bernie Sanders as the eventual victor on Election Day, might be seen as a continuation of current policies: both have been vocal about their agreement with President Obama’s treatment of real estate taxation.
A win by either top Republican contender, Sen. Ted Cruz or Donald Trump, would likely see real estate markets enter a faster growth period, as both have expressed their wish to “unleash” markets in general, with lower investment taxes for consumers. Trump in particular has a long history as a real estate entrepreneur and understands the burden that investors often feel from the restrictive rules and regulations in that segment.
The metals markets are always tough to call, especially in turbulent times. But, all other things being equal, a win by Republicans would more than likely be a boom to the traditional stock market and thus be a damper on metals. Trump and Cruz both favor low capital gains tax rates, which are usually a precursor to traditional market growth. The result is a movement away from so-called “safe haven” investments like gold, silver and other precious metals.
A Democrat win in 2016’s election might mean good things for the metals markets and not-so-good things for traditional investors in stocks and bonds. Hillary Clinton has a long history of working to increase taxes on securities transactions, which might cause a flight away from those sectors and into precious metals. Look for all the major metals to rise after a Democrat win and fall after a Republican victory.
Wine, Art, and Classic Cars
Specialty, so-called collectable alternative investments are a unique case. Their percentage of overall market share is so small as to be almost insulated from general political and economic trends. However, each of the three reacts to major elections much the same way precious metals do. Everyday investors tend to sniff out things like gold, investment-grade wines, auction-house artworks, and classic cars when other, more mainstream investments begin to deteriorate.
For that reason alone, one can expect a flight toward the boutique portfolios when a liberal Democrat wins and a flight away from such investments if a conservative Republican wins. It is worth noting that Hillary Clinton, for the purposes of this analysis, might be considered a moderate Democrat, while her primary opponent, Rep. Bernie Sanders, can be considered a very liberal Democrat. A self-avowed Socialist, Sanders is a pretty sure bet to seek tax increases for traditional market investments; and thus could be seen as quite a boon for the entire spectrum of alternative investments.
Other Collectable Investments
An even more specialized segment of the alternative investment sector is so tiny as to be considered virtually immune from any “election effect.” This segment features things like specialized coin investing, premium stamps, high-end antiques and other, almost unique areas where some people park large amounts of money. Collectable coins and stamps vary in price based upon trends within their own insulated world. In much the same way as a pebble on the bottom of the ocean is not tossed or upended by a storm on the surface of the water, these tiny corners of the economy are typically untouched by large events and general financial trends.
Private equity companies in the U.S. are heavily regulated by the federal government. As a rule, Democrats tend to favor more regulation of these entities while Republicans consistently favor less regulation. A Trump or Cruz in the White House would no doubt be a boon to the private equity investment sector, while a Clinton or (especially) a Sanders win would not bode well for private equity enthusiasts. The same can be said for so-called “direct investment” in private companies.
Democrats in both houses of the U.S. Congress have long sought to rein in this type of freewheeling economic activity. At the same time, a Republican win might be a shot in the arm to this burgeoning segment of the alternative investment scene.
Venture Capital and Hedge Funds
Even though many prominent Democrats are employed by hedge funds, notably Hillary Clinton’s daughter Chelsea, the party of Clinton and Sanders will likely use a November victory to push for more legal oversight of both these industries. Trump and Cruz, for the most part, are considered hedge-fund-friendly and would almost certainly attempt to remove some of the current limits on these areas of the marketplace.
One thing that investors should keep in mind when examining the possible U.S. presidential election outcome is that there are also a number of Senate and House seats up for grabs, and the U.S. Senate in particular could have a deep and powerful effect on the alternative investment markets. If a Republican were to win the White House, with the same party retaining the House and Senate, perhaps even adding seats to their current majorities, the so-called “Republican effect” would be magnified.
If the Democrats win the White House but fail to convert the House and Senate to Democrat control, then the effect of the election would be minimized and investors might witness protracted battles between a Democrat president and a Republican-controlled House and Senate.
Bottom line: If Hillary Clinton or Bernie Sanders wins, alternative investment markets might not react very much, as long as the Senate and House both stay in the Republican camp. But if either Trump or Cruz were to win the White House, and the Republicans retain both houses of Congress, investments like hedge funds, real estate, private equity and venture capital could enter a major growth phase. At the same time, boutique, super-boutique, and precious metals markets might witness a slump.