Investors should prepare for dangerous times, says the previous top diplomat

Richard Haass, a top State Department official and now a senior adviser at Centerview Partners, was asked Bloomberg TV on Friday What investors should control.

“You have to wear a seat belt and stay belted,” Haass replied.

He said each Democrats and Republicans are competing over how protectionist they could be toward China, which could have inflationary consequences. They also wish to tighten the border between the US and Mexico, which could also result in inflation if it restricts the labor supply.

Haass said he also worries concerning the period between the U.S. election and the presidential inauguration, particularly if there may be one other close contest that fuels political violence.

“Many people around the world could be unsettled. Many adversaries around the world could see this as an opportunity,” he warned.

After Inauguration Day, a key query for us might be whether the U.S. government is functional or dysfunctional, he said. And if former President Donald Trump is reelected, one other query can be whether he seeks to dismantle key parts of the world order which have served U.S. interests for greater than 75 years, Haass added.

Trump has expressed particular hostility toward NATO members, who he believes don’t spend enough. In February he said he would encourage Russia to do “whatever the hell it wants” with “criminal” allies. Days later, he redoubled his pressure, saying: “If they don’t pay, we won’t protect.”

“So if you’re an investor, there’s a certain level of uncertainty, this combination of geopolitics in the world against the backdrop of an America that’s no longer sure or unified about its role,” Haass said. “This is actually the most dangerous moment, I would argue, not just since the end of the Cold War, but in many ways since the end of World War II.”

Of course, he also pointed to some positive signs, including the strengthened US-Japan alliance, improved relations between Japan and South Korea, the emergence of the Indian economy and the West’s support for Ukraine over Russia, which has recently faltered The US House of Representatives has passed a brand new aid package after months of delays.

However, he warned that the world just isn’t organizing itself and the US has an enormous role that US investors must take into consideration.

“The rule of law here at home, a stable world — that provides the context for everything American companies do,” Haass said, noting that CEOs should support pro-democracy policies at home and “pro-internationalist” policies abroad .

His warnings echo those of top economist Mohamed El-Erian, who wrote in a Financial Times On Friday, he said there are major differences between investors and security experts over how they assess the risks of the Iran-Israel conflict, which could still pose a significant shock to global growth and financial markets.

The conflict has “permanently raised geopolitical temperatures in the region” but financial markets have brushed that aside because the recent back-and-forth has not yet resulted in major casualties or physical damage, he said.

“Given that this is a region prone to misjudgments, inadequate understanding of adversaries and implementation accidents, this may well prove to be an overly complacent response,” El-Erian said.