Morning Porridge – Special Comment – US SENATE RACE

I’m taking the unusual step of publishing some else’s analysis of the US Presidential Election on the Porridge website. 

Paul Horvath is CEO of Orchard Global Asset Management. He is an old and trusted friend, and keen observer of the US political process. 

One of the issues we’ve repeatedly discussed is the importance of the Senate race – if Biden wins the Presidency and the Senate together its far more significant than just taking the Oval Office! Without wasting time discussing the merits of the respective candidates, here is Paul’s non-partisan outlook on the likely outcomes on the Senate race. 

This is important stuff… 

The Race for the US Senate

Most people are focused on the highly politicized and polarized Presidential race.

The contest for control of the Senate may have even larger implications for markets and the investment community. Tax policy, judicial and executive branch confirmations, and the future of the Senate rules on Cloture (the only procedure by which the Senate can vote to place a time limit on consideration of a bill or other matter, and thereby overcome a filibuster) are all up for grabs.

Based on our conversations with campaigns and pollsters, we wanted to share our current views on the state of the various Senate races.

We believe that there is a very real chance that we will not know which party controls the Senate until January 5th. That is the date of the Georgia special election runoff should no candidate get more than 50% of the vote. Given that there are 21 candidates running in Georgia for the seat, it is very unlikely that any candidate will garner more than 50% of the vote. Moreover, as control of the Senate may come down to just one seat, all eyes may be on Georgia this winter. Following is how we could get there.

The Landscape:
There are currently 53 Republican Senators and 47 Senators who caucus Democratic (including Bernie Sanders and Angus King who are registered Independents but caucus with the Democrats).

Alabama’s Democratic Senator Doug Jones, who won in a special election to fill the seat vacated by Jeff Sessions, is unlikely to be re-elected. The 2020 Republican Senate candidate is more mainstream than the controversial Roy Moore and it is expected that the GOP will take back this seat.

That would put the Republican count at 54. Therefore, for Democrats to reclaim majority control of the Senate, they need to win five seats currently held by Republicans (four seats if Biden/Harris win, because in an evenly divided Senate the tie breaking vote goes to the Vice President). They must also not lose any seats in addition to Alabama.

If the Democrats do regain the Senate there will be two primary reasons:

1) Trump’s language and approach has offended enough of the key voters (such as suburban women) who supported these Republican Senators in 2014 but that now feel they can now no longer do so because they believe that the Republican controlled Senate has “enabled” President Trump; and

2) The Democrats are running strong candidates in many of the most important races.

Where the Republicans are vulnerable: 

1) Maine: Senator Susan Collins received over 68% of the vote in 2014. However, that tally included over 30% from Democrats and over 50% of the Independent vote. Given her vote confirming the Supreme Court appointment of Brett Kavanaugh and for her endorsement of the 2017 tax bill, it is unlikely she will garner much Democratic support in 2020. Further, there are signs that the demographics of Maine are changing as more progressives move in from out of state to Portland, ME. RealClearPolitics average of polls have her opponent, state House Speaker Sara Gideon, up by 3% to 5%. These polls, however, under sample voters in Maine’s 2nd Congressional District which is “Trump Country”. More accurate polling seems to suggest this a is a toss-up race that will go down to the wire.

2) North Carolina: Senator Thom Tillis has a tough battle in this State. The President is in a tight race there with the polls having him even to down 2 points to Biden. In some other states, the Republican Senate candidate can hope for an Election Day boost from the President. Tillis faces two problems which could limit the Presidential bump: (1) the Trump coat-tail may not benefit him as much as in other states because much of the Trump base is lukewarm on the more moderate/centrist Tillis; and (2) his opponent, Cal Cunningham, is a strong candidate who has outraised and outspent Tillis 2 to 1.

3) Colorado: Former Governor John Hickenlooper leads incumbent Senator Cory Gardner by 9%. This race has tightened up somewhat after Hickenlooper was found guilty by the Colorado Independent Ethics Commissions of a gift violation involving the use of a Maserati and free travel aboard private planes. Despite that, Independents seem to be leaning towards the former Governor. The demographics of Colorado have also been trending Democratic over the past few election cycles.

4) Arizona: Incumbent Martha McSally is trailing by over 11% against former Astronaut and Navy Captain Mark Kelly. He is married to former Rep. Gabby Giffords, who was seriously injured in a 2011 assassination attempt when she was a member of the House. He is a very strong candidate. He was a registered Independent until 2018, so appeals to swing voters and is centrist enough to appeal to Republicans and Independents who don’t identify with Trump. McSally’s only real hope is that there were 250,000 Trump voters who didn’t vote in the 2018 midterms when McSally lost to now Senator Kyrsten Sinema. Sinema won by 60,000 votes or 2% (McSally was appointed to her current Senate seat by Governor Ducey following Senator John McCain’s death). If enough of those 250,000 “Trump voters” from 2016 (who did not vote in the mid-terms) return to the ballot and vote for Trump AND McSally, then McSally has an outside chance.

5) Iowa: Incumbent Senator Joni Ernst is under pressure. Ernst won in 2014 with an 8.5% margin, but now is polling dead even with the Democratic candidate, businesswoman Theresa Greenfield. The trade war with China has been particularly hard on agricultural exports. One of every six Iowans has agricultural related employment and agriculture makes up over 27% of Iowa’s economy. The cuts in exports have hurt Trump’s and the Republicans’ image in Iowa. Trump is doing a little better than Ernst in Iowa at +2% so the hope for Republicans is that Ernst can ride on the President’s coat tails.

6) Montana: Republican incumbent Steve Daines won by 18% in 2014. This time, however, the Democrats are running a very strong candidate, Montana’s current Governor, Steve Bullock. In 2016, Bullock was re-elected as Governor on the same day in the same state that Trump won by 20%. Bullock had been leading in the Senatorial polls for many months. In July, however, the Libertarian Party of Montana agreed (at Senator Rand Paul’s urging) to not to run a candidate in the Senate Race. This is important because in 2018, Democratic Senator Tester beat the Republican candidate, Matt Rosendale, by just 17,000 votes or 3%. That is about the same number of votes that the Libertarian candidate, Rick Breckinridge received in 2018. Consequently, not having a Libertarian candidate on the ballot could make the difference this year. Since this news, Daines has now been leading in the polls for over a month by 2% to 6%. Bullock, however, cannot be counted out because of his popularity in the state.

7) Georgia 1: Republican Incumbent Senator Perdue is leading challenger Jon Ossoff in the polls by 4%. This places him ahead of Trump who is leading in Georgia polls at 1-2%. Perdue should win again but he is still in a very competitive race and will have to fight this race out to the end.

8) Georgia 2: The less likely outcome will come from the Special Senate election in Georgia that was necessitated by the health-related early departure of Senator Jonny Isakson. The governor appointed Kelly Loeffler earlier this year, but there now must be a special election on November 3rd. There are 21 candidates on the ballot but the four leading ones are: Kelly Loeffler (R) Doug Collins (R) Matt Lieberman (D) Rafael Warnock (D)

The most recent polls have Loeffler at 26%, Collins at 21%, Warnock at 15% and Lieberman at 13%. If that is how the voting ends, then the runoff on January 5th will be between two Republicans. As important as that runoff will be to both campaigns, that outcome would not mean that the whole country would be waiting until January 5th to determine control of the Senate. The situation in Georgia, however, is fluid and could change significantly at any time. Stacey Abrams has endorsed Warnock and there is now pressure being but on Lieberman to drop out and not “divide the Democratic vote.”

9) South Carolina: In most polls the Republican incumbent, Lindsay Graham, is up by 5%-10%, but the race may be closer than the polls suggest. Indeed, a recent Quinnipiac poll has the two candidates in a dead heat. The Graham campaign thinks that this poll under samples likely Republican voters, but they are not being complacent and taking anything for granted. Harrison has been a prolific fundraiser, but Graham still has a financial advantage, with $15m cash on hand (vs Harrison’s $10.2m).

10) Kansas: Had the very controversial candidate, Kris Kobach, won the Republican primary last month, he very likely would have lost in the general election (as he did in the gubernatorial race in 2018). However, the more “mainstream” candidate Roger Marshall won the primary so it is likely that Kansas will do in 2020 what it has been doing consistently for every election since 1934, send a Republican to the Senate.

Where the Democrats are vulnerable: 

In addition to Alabama, the Democrats are vulnerable in two states: Michigan and Minnesota.

1) Michigan: Most polls have the Democratic incumbent, Gary Peters, up by 4-5%. He won the state in 2014 by over 13%. However, the Trafalgar poll has the Republican challenger, John James, up by 1% and the September Terrance Group poll shows a dead heat. James is an African American who went to West Point and was an Apache pilot. Since the Army, James has run operations at his family’s logistics company so scores highly on the “pro-business” front. While his polling performance is encouraging for Republicans, most people in the state think that the incumbent, Peters, will eke out a small victory. If, however, Trump puts time, money and attention into Michigan and starts to surge in the polls, there is a chance that James could squeak by on the President’s coattails.

2) Minnesota: The Democratic incumbent, Tina Smith, currently leads by 5% but a recent poll taken in September has her up by as much as 8%. Minnesota has been a very reliable Democratic state. It is the only state in the union that has not gone for a Republican at the presidential level since Nixon in 1972. The backlash against the “defund the police” narrative has been especially strong, potentially because the George Floyd incident occurred in this state and many don’t like the perceived lawlessness. After the RNC convention, six mayors from the state’s “Iron Range” region, which has historically been a Democratic stronghold, have come out in support of Trump. If this “law and order” narrative takes hold and gains momentum in Minnesota, the Republican challenger, former Rep. Jason Lewis, could have an outside chance.

So what does this all mean? 

There will be many twists and turns before November 3rd but, this is how we think things could end up: If one assumes that:

Hickenlooper (D) wins Colorado

Kelly (D) wins Arizona
Cunningham (D) wins North Carolina 


Tubberville (R) wins Alabama
Graham (R) retains South Carolina
Perdue (R) holds off Ossoff in Georgia 

Loeffler (R) or Collins (R) wins Georgia 

Daines (R) holds off Bullock in Montana, and

Ernst (R) holds off Greenfield in Iowa,

The control of the Senate comes down to Susan Collins (R) in Maine.

If she wins, the Republicans have 51 seats, so will control the Senate no matter who wins the presidential race. If she loses, the Senate would be at 50/50, so whichever party wins the presidential election, will gain control of the Senate.

If the Democrats can pull off an upset in Montana, Iowa or Georgia, their chances of control are very high. 

However, if the Republicans can pull off an upset in Michigan or Minnesota, it becomes very hard for them to lose control of the Senate.

In the event that there are 50 Republican Senators after the November election and Biden/Harris have won, then Georgia will decide control of the Senate.

Paul Horvath

Orchard Global Asset Management