Election 2020: What Investors Need to Know
For a while, amid everything else that’s happened in 2020 — pandemic, racial tensions, economic insanity — it was easy to forget that this was also a Presidential election year. In the face of COVID-19, it’s hard enough to imagine the logistics of it taking place, much less predict the result.
But as investors, it’s our job to imagine a variety of possible futures, and plan for each of them. As much as discussing politics has become about as fun as throwing your shoe at a wasps’ nest, in our latest webinar, we attempted to do the impossible: talk politics, analyze the 2020 political landscape, and envision how different outcomes might impact our financial lives.
But first, an update…
The stock market is down 10% from where it was a month ago, which is actually good news. We’re holding a lot of cash right now, but if the stock market falls another 10%, we would move forward and start investing in clients. As of now, we expect to invest excess cash sometime in January, regardless of how the election turns out.
Economic reports are still pretty dire. We’re in a recession, and we’re going to be there for a while. Inflationary expectations aren’t anything to be concerned about. But too much of the market is being carried by ten stocks, and those ten are down in the last month. Earnings estimates look like dog meat for the next year or so. On the plus side, the Fed announced it would keep rates to 0% through 2023.
Politics — oh, politics. in our red light/green light macro model, I couldn’t use red, yellow, or green to describe politics. I came up with a new color for it, purple — as in the color your face gets when someone punches you. That’s how it’s felt to interact with the political world of late. The moment you think things couldn’t get worse in D.C., they do.
Conveniently, that brings us to our main subject.
This Week in American Insanity
What a week. Let’s review:
• The New York Times reported that, for the last 11 out of 18 years, Donald Trump has paid $0 is federal income taxes. He’s been sheltered by decades of business losses, currently owes $1.1 billion on mortgaged properties, and may be heading toward bankruptcy. Any other individual with this record could never get a security clearance from the U.S. government.
• 75 million people watched the most debased Presidential debate ever. No one won — not Trump, not Biden, not Wallace, and not, most importantly, the American people.
• President Trump tweeted that he was diagnosed with COVID-19, likely contracted during the Supreme Court nomination ceremony for Judge Amy Coney Barrett. It’s been hard to get solid info on Trump’s condition, but it didn’t stop him from hosting an event at his country club. Two other senators who attended the ceremony are sick, and two Republican senators will vote against Judge Barrett’s nomination, turning what once looked like a slam-dunk into a question mark.
• The Trump administration announced additional collateral infections daily. No one at the ceremony was wearing a mask. Trump’s advisors are sick, his campaign manager is sick, the chairman of the Republican National Committee is sick, and Chris Christie (his debate coach) is sick. Working from home isn’t as easy for them as it is for us — it could pose a huge security risk.
• Another 6,000 Americans died of COVID-19 (the equivalent of two 9/11s), with 45,000 more infected. The total American death toll has surpassed 200,000, which is about half the number of Americans who died in WWII, and twice as many Japanese who as died in Hiroshima.
• Brad Parscale, deputy manager of Trump’s campaign, became Trump’s 8th advisor to be arrested. He was arrested after beating his wife and threatening her with a handgun. Supposedly, he had an emotional breakdown because details were beginning to emerge about the millions he embezzled from Trump’s campaign. If you want some comic relief, check out the video of his arrest.
Despite all of that, Trump’s approval rating rose to 44%, its highest level since the impeachment trial ended in February. Additionally, Trump’s approval rating on “running the economy” is generally 5-10 percentage points above his overall approval rating, and is often higher than Biden’s on the same question.
In 2016, Trump ran on the message that he was “a businessman, not a politician.” Clients often come to me and say, “David, I’d love to vote for Biden, but I’m afraid it’ll hurt my pocketbook.” I understand that fear. To address it, let’s first address Trump’s economic record so far.
Top 11 Trump-Defining Economic Metrics
Metric #1: Unemployment declined from 4.7% at the end of the Obama administration to 3.5% at the end of February 2020. That’s pretty good, but since then, it rose as high as 16%, and has settled, for the moment, at 7.9%. That’s pretty bad.
Metric #2: Net job growth is a loss of 853,000. That is probably the worst result for any post-war president, Truman forward. It’s even worse than George W. Bush, who left the country in the midst of the Great Recession.
Metric #3: Manufacturing jobs are down 700,000 — many voted for Trump due to his promise that he would be “the manufacturing president.”
Metric #4: Speaking of manufacturing, manufacturing output is down 14%.
Metric #5: Net economic growth is down 25.7%. For the first three years, the economy grew at a slightly higher rate than the last four years of the Obama administration. In my opinion, Trump inherited a great economy from Obama — who, by the way, worked with Joe Biden — and all he had to do was keep his hand on the steering wheel.
Metric #6: China may be the world’s largest economy. It’s hard to make these comparisons, but by several metrics, China is either fast approaching or already surpassing the U.S.
Metric #7: $46 billion has been paid by U.S. consumers on goods imported from China.
Metric #8: $14 billion has been paid to U.S. farmers to offset lost sales to China. Trump taxed us and gave much of that money to farmers, but nobody won — farm bankruptcies are at a record level. These policies, in their top-down design, were typical of economic policies imposed by Soviet Russia.
Metric #9: National debt is up 31%, to a record $26.6 trillion. Trump promised to erase the deficit, and has done just the opposite.
Metric #10: Net new spending on national infrastructure is a whopping $0. We need $2 trillion worth, between airports, roads, bridges, tunnels, and most importantly, our electrical grid, which dates from the 1950s and 1960s.
Metric #11: Labor force participation rate was 67% in 2000, and is now 61.4%. That gap of 5.6% may not sound like a lot, but it represents millions of Americans who don’t count as unemployed, and aren’t looking for work. That’s millions of dollars in taxes not being paid, income not received, and money not being pumped back into the economy.
Trump’s one valid bragging point is that the median family income level rose to $86,000/year in 2019. We won’t know until mid-2021, how that will change in 2020, but $86,000/year is a record high. Trump is likely to argue that between this and the February unemployment rate, he’s done a great job. But since the dawn of COVID-19, all of that has gone out the window.
Trump’s Excuses
Excuse #1: COVID-19. In explaining away his failures in the past six months, Trump will certainly blame COVID-19. He often claims that without his response, fatalities would have been ten times as high. But in Germany, fatalities have been held to 9,600 — 19,200, adjusted to the size of the U.S. population. Likewise, U.S. deaths have averaged 750/day in the last week, while in Canada, daily deaths are down to 10/day — 100/day, adjusted to the U.S. population.
The fact is: There’s not a single country on the planet that responded worse to COVID-19 than the U.S. If that doesn’t make you furious, you’re not paying attention.
Excuse #2: Trump is a “disruptor.” I heard this a lot early on, that Trump’s status as a Washington outsider would make him likely to “disrupt” business-as-usual politics. But when people say that, I don’t think they understand what “disruptor” really means.
Thomas Edison was a disruptor. Thanks to Edison’s invention of the lightbulb, we don’t use whale oil or kerosene, to light our homes and offices. Nantucket’s whaling industry was the energy capital of the U.S. in 1840, abandoned by 1880.
Henry Ford was a disruptor. Thanks to Ford’s making cars a mass-market good, we don’t ride horses to work.
Steve Jobs was a disruptor. Thanks to Job’s vision, we walk around with a supercomputer in our pockets.
A disruptor creates something so AMAZING that previous products and services are just washed away. Remember the Motorola flip phone, the Nokia candy bar, the Blackberry? These were products that sold millions of units, and then disappeared after the iPhone and Android took over their markets.
Trump smashes things, whether the CDC, our healthcare system or our national intelligence apparatus, but doesn’t replace them with something better. Trump is not a disruptor, he’s a vandal. The Vandals, you may remember, were the German tribe who swept into Rome in 410 CE, sacked the city, enslaved the citizens, and carried off the treasury. Washington D.C. has a very Greco-Roman feel to it, and it certainly feels subsumed by a similar kind of chaos right now.
So, what will happen on election night?
Great question. No one knows for sure, but there are a few reliable sources for entertaining hypotheticals. One very useful one is 270towin.com. The present consensus of eleven political analysts is that Joe Biden receives 290 delegates, and Trump gets 163. However, this consensus includes several undecided states, including Florida, Ohio, Iowa and North Carolina.
Sound familiar?
Trump won each of those states in 2016 — plus Pennsylvania, Michigan, and Wisconsin — crushing Hillary Clinton’s chances. Assuming the two candidates more or less split those undecided states, the fate of the election will rest squarely on Florida.
It’s not numerically possible for Trump to win if he loses Florida. But if he does, and the rest of the battleground states get split, we could theoretically have a dead-even 269-269 tie. In that case, let the litigating begin!
Alternatively, going by current polls with no toss-ups, Biden could have a blowout Election Night:
There’s a hard cutoff on December 14th by which states must certify their electoral headcounts. If results within a state are not clear, it’s possible for that state legislature to select electors for one or the other of the candidates. In a truly even result, Congress elects the president in a process where, on January 6th, each state submits one vote, and the winner needs 26 votes to win. Right now, Republicans control more state delegations than Democrats, but that could change given that a new Congress is sworn in on January 3rd.
The bottom line is this: Florida is the state to watch on election night to determine whether we have Election Night or Election Month.