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Government of the people, by the people, for the people

On the morning of 19 November 1863, President Abraham Lincoln sat waiting to deliver a speech to a crowd of 15,000 people gathered at the official dedication ceremony for the National Cemetery of Gettysburg, Pennsylvania. Earlier that summer, in just 3 days of fighting, there were more than 50,000 Union and Confederate soldiers reported killed, wounded or missing on the site of one of the bloodiest and most decisive battles of the US Civil War. As was common practice at the time, Union soldiers killed were quickly buried after the battle, many in poorly marked graves. Subsequently, a local attorney, David Wills, spearheaded efforts to create a national cemetery in their honour, which culminated in the ceremony on that cold November morning. Wills had asked Edward Everett - a former president of Harvard College, senator and Secretary of State - to be the speaker on the day, as he was considered to be one of the country’s leading orators. It was only a couple of weeks before the event that Wills decided to invite Lincoln to speak as well, asking him to ‘formally set apart these grounds to their sacred use by a few appropriate remarks’.

That morning, Lincoln and the crowd listened to a two-hour oration from Everett – delivered entirely from memory. Afterwards, an orchestra played a hymn composed especially for the ceremony. When Lincoln walked to the podium one can only imagine how cold and tired the attending crowd were and - despite the occasion – there must have been a sense of ‘how long is this going on for?’ What followed was a 272 word address, lasting less than 2 minutes, which – for many – is regarded as one of the most powerful and poignant speeches in American history. In those few words, composed for what became known as The Gettysburg Address, Lincoln eloquently linked the Civil War with the principles of the Union on which the nation had been formed. Particularly, he declared the founding fathers had created a country ‘dedicated to the proposition that all men are created equal’. He honoured the sacrifice of the dead, and declared the nation shall have a new birth of freedom – ‘and that government of the people, by the people, for the people, shall not perish from the earth’.

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A memorable speech from a great politician, which has gone on to inspire millions and is memorised by American schoolchildren to this day. It was at the heart of Martin Luther King Jr.’s equally famous ‘I Have a Dream’ speech and was read in full on the first anniversary of 9/11 during the commemoration ceremony at Ground Zero.

Why are we writing about Lincoln?

We believe we are at an important inflection point, in the aftermath of the Global Financial Crisis. Since the onset of the crisis, the most influential people - in terms of financial market direction and sentiment - have undoubtedly been central bankers. It seems apparent to us we are now entering a new phase, where this influence is pivoting towards politicians. Despite the unprecedented monetary stimulus deployed within the world’s major economies, inflation is hovering at, or close to, zero; nominal global growth remains muted and there is a growing sense that the efficacy of these policy measures is waning. Coordinated and expansive fiscal stimulus – so long considered inappropriate - is now being demanded. Government intervention is coming and a number of electorates around the world are about to make very important decisions with respect to which political leaders they should elect in order to develop, communicate and implement this policy shift. Political risk is, therefore, on the rise and whilst it is ever present – there is no doubt it is currently amplified. The forthcoming US Presidential election is a clear example. Hilary Clinton’s lead has been eroded in recent weeks and financial markets may become increasingly unsettled if Donald Trump continues to gain ground. We are surprised heightened volatility has not manifested itself sooner and this is a worrying sign that markets are being too complacent. Whoever wins the White House seems destined to be the most unpopular President in modern times and, unlike Lincoln, may fail to inspire. We have some visibility regarding Clinton’s policies, but Trump’s are unclear at best.

The one thing we can be relatively certain of is both candidates would increase public spending and the US deficit would climb, more so with Trump. This would have ramifications for the dollar and US Treasuries, but predicting market moves beyond this is highly speculative. For this reason we are positioned cautiously, as polling day looms large.

In Europe, Spain is heading into its third election this year and a crucial Italian referendum, on constitutional reform, is due in December. The results of these will impact markets at a time when the EU project is once again under the spotlight, following the Brexit vote earlier this summer. More key elections are due next year, most crucially in Germany and a leader that has inspired many - Angela Merkel - appears to have lost some valuable political capital due to her immigration policy. Uncertainty is being compounded by the deepening concerns around the solvency of German banks and the moral hazard faced if public money is used to stabilize the position. The credibility of the EU's entire financial system is potentially at risk, should a policy mistake be made and whilst this is not our base case, strong and inspiring political leadership is a must to navigate through the challenges that lie ahead. This brings us back to our Lincoln theme. Government of the people, by the people, for the people is such a powerful statement and one could argue we are entering a period, in our history, when its meaning has rarely been so important. Whilst fiscal expansion is indicative of a government investing in its people, the impact is certainly not immediate and it remains contentious as to how effective the policy is for sustainable growth. Moreover, it seems that today’s politicians fall short of the calibre of President Lincoln and lack the leadership to unify increasingly fragmented societies.

Julia Warrander and Russell Waite

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