Lots and lots and lots and lots and lots of popcorn
[Editor’s Note: Because my ghost writer and I again failed to coordinate vacations, I will be offering a special on the 2020 election this week. My normal weekly will return a week from Friday.]
The calendar may say vacation, but investors are going to want to stay tuned. On Wednesday, there’s the Fed and tonight and tomorrow night, round two of the Democratic debates. I’m thinking bacon-cheddar popcorn for this week’s debate snack.
As for China, there have been just two phone calls between the two sides since the G-20 “truce,’’ and neither has characterized those conversations as frank or constructive—just talks about talks. Another meeting has been set. Hmm … good luck with that. Could it be that as the Democrats winnow their field, Trump will try to change the subject to improve his own odds of winning next year? USMCA?
The question for Democrats is simply who can go toe to toe with President Trump. Like him or not, the president makes for good TV—his first debate in the 2015 Republican primary drew a record 24 million viewers. Democrats, by comparison, drew just 18 million (still a record for Dems) in last month’s inaugural back-and-forth. As in June, there will be 10 candidates each night but the lineup has changed. Three front-runners (Sanders, Warren and Buttigieg) face off tonight, while Biden and Harris go at it again tomorrow night.
South Carolina could be key
It will be interesting to see how hard Harris goes after Biden for the black vote. South Carolina holds its primary in late February, a week before the Super Tuesday slate of states that for the first time includes California, Harris’ home state, setting her up for a potentially strong bounce if she does well in the Palmetto State. Drawing a wide majority of black support, candidate Obama in 2008 captured 55% of the vote vs. Hillary Clinton’s 26% in the South Carolina primary, turning the tide as donors perceived he had a real shot.
One difference this time may be Biden’s pull among blacks thanks to his Obama ties and longtime partnership with the Congressional Black Caucus. A July 12 Fox poll of South Carolina voters put Biden at 41%, vs. Sanders at 14% and Harris at 12%. Leading issues on black voters’ minds: the wage gap vs. whites, hiring discrimination and uncertainty over whether they can reach the American dream.
After this week, it gets significantly tougher for the Democratic hopefuls. The polling threshold for the September debate is 2% (vs. 1% for the first two debates), and candidates also must have at least 130,000 unique donors (with at least 400 in each of 20 states). Only the top five mentioned above currently make the cut, and not surprisingly, they also lead the fund-raising pack. In the April-June quarter, Buttigieg raised $25 million, followed by Biden at $22 million, Warren at $19 million, Sanders at $18 million and Harris at $12 million. By comparison, Trump raised $54 million the same period.
Does Trump have any chance with millennials?
Most political experts agree that Trump’s base isn’t big enough on its own to ensure re-election. Biden led Trump by 10 points in a July 1 Washington Post/ABC survey of likely voters early this month. All other leading Democratic candidates tied Trump. Trump needs to extend his appeal beyond his base. He plans to emphasize the environment with suburban women, noting that the U.S. has reduced carbon emissions far more than any other country on the planet in the last 10 years. With blacks, he’s emphasizing record-low unemployment. He may have a tough time, though, against Biden’s strong support with this demographic. What about the huge millennial generation, of which 44% are registered as “independents.’’ A mid-July Pew survey revealed their biggest concerns: affordable housing, student debt and social justice. Now, only 51% of millennials voted in 2016 vs. 69% of boomers. In my view, any candidate who can entice this generation to vote en masse would win the election. A “progressive’’ Democrat? Trump?!
But wait. The aforementioned Post/ABC survey also asked the likely voters who they would vote for if Trump were running against a Democrat they considered a “socialist?” In that case, Trump won 49% to 43%. My suggestion for a drinking game—count how many times Trump says the word, “Socialist.” I bet you don’t make it to the first commercial!
So, who can beat Trump? In a June Los Angeles Times poll, two-thirds of respondents said the opponent “must be white.” Three-quarters said he or she must be age 41-65. Buttigieg is closest at 37 and Warren is closest at 70; unfortunately for Buttigieg, he polls 0% among blacks. Harris is 54 and of Jamaican/Indian descent. Hmm. What do you suppose will be the drinking-game word for the Democrats?
As goes the market, who should we be rooting for?
Market odds for the 2020 winner were, as of mid-May, 57% Trump, 33% traditional Democrat and 10% progressive Dem. But, of course, it’s early. Since 1928, the market’s year-to-date return (whether positive or negative) correctly called the winner 87% of the time, 90 days before Election Day. As for possible outcomes, a Republican sweep seems unlikely; current research suggests the GOP can’t regain the House. A Trump win but a GOP loss of the Senate also seems unlikely—Republicans have more seats up for grabs but most are considered safe. Odds of a Trump loss but the GOP retaining the Senate currently are 31%.
If Democrats beat the odds and sweep Congress and the White House, taxes almost certainly will go up, although the amounts and means vary. Every candidate either wants Medicare for All or Medicare available for all (which in actual practice would likely be the same). It has been estimated that Medicare for All will cost at least $32 trillion. If a progressive Democrat wins, Modern Monetary Theory (MMT) is a risk. As we have been writing, MMT posits that as long as inflation remains low, countries can borrow at very low interest rates to finance spending without regard to deficits. The Fed cutting rates could be the beginning of a slippery slope to negative yielding government debt in the U.S. A new nightmare of mine.
What about stocks?? If the market forecasts a Democratic sweep, it almost certainly will decline, although the actual damage from eventual legislation could be limited due to the filibuster. That is, in order to make major changes, Senate Democrats will probably need 60 votes, which could prove difficult, making a market pullback on expectations of a Democratic sweep a potential buying opportunity. If Trump is re-elected, he may double down on a real trade war with China, focusing on theft of intellectual property and potential cyber-terrorism for his legacy (no more worries about re-election). And so, either outcome could spell trouble for the market. Lots and lots and lots and lots and lots of POPCORN!