Rather than focusing on the possible outcome of the U.S. election, investors should be shoring themselves up against what President Donald Trump might do to avoid defeat, according to Cribstone Strategic Macro founder Michael Harris.
Democratic nominee Joe Biden has established himself as the frontrunner to win the race for the White House on November 3, but his average polling leads have declined over the past month.
While markets are cautiously pricing in a Biden victory, Harris said investors should look to "buy protection" against what Trump may do over the next couple of months to avoid "humiliation" at the polls.
"So it is less about what he does after (the election) … it is more about what he does before to try and make sure that doesn't happen, and that is why I think geopolitics could be especially hot over the next couple of months, and people should be buying protection on that basis, in my view," Harris told CNBC's "Squawk Box Europe."
Harris said one thing to watch as the election draws closer would be hostility toward Iran from the U.S. in order to get people to "rally around the flag."
"A most likely 'rally around the flag' event would be (the U.S.) attacking Iran or perhaps (a) Venezuela overthrow," he said in an email to CNBC. "So something around a temporary oil spike but not a fundamental call on oil winners."
He highlighted defense companies as an obvious option in this environment.
"To me the message is just that a heavy act of military aggression is something investors should not be surprised by in the run up to the vote," he added.
Trump last week announced that a deal had been brokered between the UAE and Israel to normalize relations, likely bolstering his campaign's foreign policy credentials. The UAE has since been denounced by both Iran and Turkey.
Harris also said "protection" investments could come in the form of selling put options (contracts giving the holder the right to sell an asset at a specific price, by a particular date) or general "de-risking."
"Regardless of what the mainstream media or 'political strategists' may suggest, President Trump is protecting American values and putting America First by rebuilding our economy and restoring American jobs, leveling the international economic playing field, and undoing the Obama-Biden administration's foreign policy disasters, including reversing the horrendous Iran Deal and successfully brokering the country's first major peace agreement with an Arab country in a quarter century," Trump campaign Deputy National Press Secretary Courtney Parella told CNBC via email.
How will the election result affect markets?
Some commentators, such as billionaire investor Jeffrey Gundlach, are backing Trump to win re-election, dismissing polling as inaccurate and suggesting that markets will react badly to a Democratic victory.
Harris disagreed, however, arguing that a Trump victory could cause a "huge amount of turbulence in markets, because I think the running assumption is we are going to have a lot of hostility and dysfunction in an environment like that."
Although 9 million jobs have returned in the U.S. from the pandemic lows, there are still 13 million fewer than in March, LGIM's Head of Economics Tim Drayson highlighted in a note Thursday, arguing that federal aid will be "imperative."
Drayson suggested it would be "inconceivable" for Congress not to cut a deal on future aid by September 30, since this "would risk a double-dip recession just ahead of an election that would cost many members their seats."
Trump told Fox News last week that he was blocking the current demands from congressional Democrats to include funding for the U.S. Postal Service and election infrastructure in a potential aid bill so as to prevent "universal mail-in voting."
House Speaker Nancy Pelosi has recalled lawmakers to Washington to defend the U.S. Postal Service from a cost-cutting campaign by Trump's appointed chief.
Those who expect markets to balk at a Democratic victory assume that sharp reformist policy moves will follow such a result. However, Harris was not convinced this would happen, on the basis that a Democratic clean sweep would provide certainty that policy can be delivered. As such, it could offer markets the kind of bounce they saw when Trump's long-touted tax bill was passed.
Harris also suggested that Biden was unlikely to instigate reformist or redistributive policy measures at the start of his term, when the focus will likely remain on jobs and infrastructure.