Blain’s Morning Porridge – 27th October 2020: US ELECTION SPECIAL

“In America, anyone can become President. That’s the Problem.”

The US Election – Who wins?

This morning’s Porridge is very much written for the non-American audience – please don’t be offended at the temerity of a Scotsman opining on US politics.

With only a week to go before the most important US election ever (since the last one, and before the next one), do we get four more years of Chaotic Trump or will Sleepy Joe Biden take the Presidency? The choice has profound implications for the direction of the global economy, growth, trade, jobs, welfare and the future path of the pandemic-ravaged and financially-crippled West versus an economically resurgent China. The consequences of the next week will be with us for decades – and maybe longer.

The election comes at a nadir for the democratic political system under which Western Economies once thrived. The pandemic has capped out an extraordinarily damaging era of populist politics through which the quality of our elected leaders has declined, while our nations have struggled with low growth, low value jobs, and the growing dysfunctionality of capitalism as a result of the misapplication of monetary policy and regulatory mission-creep since 2008. The West looks tired as we struggle to cope with low growth, financial instability, rising inequality and fraxious social tensions.

What we definitely don’t need is more of the same….

I think we can all agree that if you were looking for the right politician to lead the US, and therefore the West, Donald Trump or Joe Biden would not be anywhere on your list.  Trump is generally reviled in Europe for his behaviour and character – but is probably not as bad as he’s portrayed.  We don’t really know Biden except as a long-term Washington insider, but, over here we prefer him because he’s not Trump.

Determining who will win is not like a European election.  American politics, a bit like US sport, is all about numbers and data. Trying to work out what that data means can be somewhat off-putting. Here in Europe we play the beautiful game of Football, and the fast-paced entertaining battle that is Rugby. Our American cousins have merged these into a micromanaged nonsense that’s all about yards gained and interminable stops where commentators spout numbers and more numbers.

And when you are trying to place your market and investment bets on the Election, you need to understand these numbers – especially at the State Level in the Presidential and Senate races.  Just like in US sport, numbers are what matter in US elections.

This morning RealClear Politics shows recent polls to be mixed.

A Rasmussen poll put Trump ahead by 1 point this morning. Rasmussen tends to be an outlier from other polls (and does seem to favour Trump), but they were the most accurate pollster in the 2016 election. Other national polls yesterday put Biden ahead by 7 points – a broadly consistent trend. Biden’s apparent lead is narrowing.

I don’t know how much credence to put on the US polls. There is just so much background noise, too many questions and too many hints and suggestions they may not be reliable. (Let me caveat that – the polls in the UK in 2019 were essentially correct after getting it wrong in 2016.) The fact we don’t trust the polls is a great success for the trailing party – the Republicans will stop at nothing to convince the electorate the race is really close. They were unlikely to ever admit they were losing. If they did, why would supporters bother to turn up?

I’ve been listening, reading, watching, and taking advice from a number of sources, including some very smart US market contacts on both sides of the political spectrum.

For a while it looked as if the election could result in a Biden Presidency and a Republican Senate. Depending on your political perspective, that would be a recipe for either complete gridlock, or could mitigate excessive Democrat tax and spend policies. That option now looks off the table – an all-out win for either side now looks probable. Many of the senate races are now described a “toss-up”. In such a situation any big swing towards one candidate or the other become more important. Let’s not forget; 33% of Americans have already voted.

Let’s briefly discuss the competing narratives around the election.

Democrats have wisely played the Coronavirus card – arguing Trump failed. It’s played to concerned voters and worked as a strategy. In addition, they are happy to point to swings against Trump from younger and female voters, and all the predictable stuff about the electorate turned off by Trump and his family. They talk about White House chaos, leadership by twitter, but are pretty much content to ride with the polls and let the virus lead. Trump hasn’t hit them with anything as strong as the “Crooked Hillary” theme or MAGA. His campaign has lacked the enthusiastic momentum that won in 2016 and turned key states like Pennsylvania and Michigan.

The Republicans are working much harder to argue why the polls are wrong. They raise their success in registering new voters. They explain the polls are wrong because of “shy-Trump syndrome”; how many professionals in cities are scared to admit being a Trump supporter. (More than a few of my Republican chums admit Trumps’ bad, and feel “dirty” voting for him.) Accusing the Biden family of corruption is a key deflection strategy. They attack Biden’s tax and spend policies and accuse him of being a socialist stooge. It’s all pretty much playbook dirty politics stuff.

Yet there are some good reasons to think the Trump vote may be underestimated – in last week’s debate Trump’s success was Biden upsetting critical voters with his comments on phasing out Fossil Fuels and his anti-fracking stance. In some states police forces are successfully mobilising friends and family campaigns against “defunding” programmes. Many Americans find Trump distasteful, but will vote for him because they agree with his trends. That doesn’t make them bad people.

I find it extraordinary Trump called UK journalist and breakfast TV host Piers Morgan over the weekend to tell him why he is winning. Why Trump thinks a UK journalist regarded as a second-rate Boris will swing his election we will never know… except it might address the domestic perception Trump has damaged the Western Alliance (a fact) by showing “highly-esteemed” foreign journalists rate him highly. Last month there was a similar “puff” piece by Nigel Farage.

Whatever the top-line polls say, even hardened Trump supporters admit Biden is likely to win the popular vote by 3-5%.  Biden could well win by 7 million votes. Turnout looks set to be the highest in decades at 150mm; 65% of the electorate. High turnout is said to favour Democrats. But, high turnouts in New York and California and Illinois don’t help Biden win the critical electoral college votes.

Biden can win the vote and lose the election.

That’s why the US Election will be decided in the key 16 states. How these states vote will determine the electoral college and also impact senate races.

Florida is the big one for Trump. If he loses Florida he probably loses the White House

Pennsylvania and Michigan are the key states for Biden. If he loses either, he probably loses his chance at the presidency.

What states do the candidates have to win?

· Trump needs to win Texas, Arizona, North Carolina, Iowa, and Georgia.

· Biden needs to win Texas and/or Florida, Wisconsin, Iowa, Ohio, Minnesota, Arizona, New Hampshire, New Mexico and Nevada.

(Maine and Nebraska are also battle grounds, but are a little funny as they send electors by district… but let’s not worry about that.)

Let’s take a look at the latest polls in each key state from RealClear Politics

Florida:  Ranges from Biden+2 (CBS), Trump+4 (Rasmussen) – call it a Tie.

Pennsylvania: Biden +5 – Biden to Win – 20 EC votes

Michigan: Biden +9 – Biden to Win – 16 EC votes

Texas: Trump +5 – Trump to Win – 38 EC votes

Iowa: Tie – 6 EC Votes

North Carolina: Trump +1 – Tie – 15 EC votes

Georgia: Biden +1 – Tie – 16 EC votes

Maine: Biden +11 – Biden to Win – 4 EC votes

Wisconsin Ranges from Tie to Biden +5 – Bidento Win – 10 EC votes

Ohio Trump +3 – Trump to Win – 18 EC votes

Minnesota:  Biden +6 – Biden to Win – 10 EC votes

Arizona:   Trump +1 – Tie – 11 EC votes

New Hampshire: Biden + 12 – Biden to Win – 4 EC votes

New Mexico: Biden + 14 – Biden to Win – 5 EC votes

Nevada: Biden +4 – Biden to Win – 6 EC votes

Nebraska: Biden +7 – Biden to Win – 5 EC votes

There are 538 electoral college votes to be won.  There is a great map you can play with on ABC News:

Trump starts with at least 137 safe votes from solid Red Republican states. (Some analysts have that number as 125.) He therefore needs at least a further 133 votes to win the 270 hurdle. Trump looks vulnerable in Florida, North Carolina and Georgia (60 votes) and could lose Texas (38 votes) which was polled at +4 to Biden last week. He could win 29 votes from other battleground states like Ohio and Arizona. Even if he wins all these target states, he still falls short, meaning he needs to win the other states like Iowa and even Biden’s home state of Pennsylvania to win.

Biden starts with 180 safe votes from True Blue Democrat states. (Other estimates go as high as 232 safe votes.) He needs 90 additional votes to win. The polls show Biden is likely to hold his key states and win most of his target states – gaining a comfortable 108 Electoral college votes not counting the tied states. A state that could smash Biden is Texas – if he loses in Texas and Trump wins everything else, Biden will lose in the electoral college unless he takes Florida or a combination of other tied states.

It is going to be “interesting”… There are so many possibilities out there.

There are 28 Senate Seats up for election. 9 will go Republican, 8 will go Democrat, but the remaining 11 are “toss-ups”. All it will take for the Senate to flip Democrat is a few of these to swing in line with a Biden taking Red states.  In a worst case scenario we might not know the result on one of Georgia Senate seats till Jan 5th next year, meaning the Senate could be hung and under Republican control till then.

This week it is all about numbers.. This time next week we might be worrying about how the election will play out not in the ballot box, but in the court-room and twitter tantrums.

Five Things Too Read This Morning

FT – Early voting surge points to huge turnout in US election

FT – Donald Trump’s path to victory runs through Pennsylvania

WSJ – Trump and Biden Take Different Tacks in Campaign’s Final Week

WSJ – Investors Pare Bets on Postelection Currency Volatility

BBerg – Supreme Court Rejects Democrats on Wisconsin Ballot Deadline

Out of time, and up to London today for the first time in months… (available on phone and email..)

Bill Blain

Shard Capital