“Any American who is prepared to run for president should automatically, by definition, be disqualified from ever doing so.”
-Gore Vidal
The political conventions are officially behind us. That’s the good news. The bad news is that we have more than three months to go before the almost satirical 2016 election is in the books.
Over time we’ve been accused of being partisan Democrats, partisan Republicans, or just plain disinterested Canadian hockey bros. The truth is that we are none of the above. We look at and analyze politics to the extent it will impact markets. And without doubt, there will be investment outcomes that develop into next year based on who is elected this fall.
Back to the Global Macro Grind…
In our sweet spot of policy analysis – healthcare, defense, energy, and telecom – there is likely to be a lot of change. As the candidates further define the specific policies they will implement, that cabinet members may put in place, our policy team will be commenting real time on the potential investment implications. In the meantime, though, it’s time to start thinking about who will win the Presidency.
The 10,000 foot view coming from the nominating conventions is that both parties are creating starkly different narratives about the country. Trump is emphasizing everything that is broken and needs fixing (or building as it relates to his wall). Clinton is painting a much more optimistic view of the future and effectively running for the 3rd Obama term.
In effect, it is the incumbent versus the change-making rabble rouser, but which narrative will carry the day? Much has been made about the rise of Trump and the fact that literally no mainstream pundit believed he would get the Republican nomination.
Despite the punditry and career politicians missing the rise of Trump, the vast majority of voters are unhappy, so it shouldn’t have been terribly surprising. According to a recent poll from Rasmussen, 70% of likely voters believe the country is on the wrong track and a mere 24% believe the country is going in the right direction. The spread is near the highest level of the last 8 years.
So, despite his flaws, errant tweets, and narcissistic moments, it’s not difficult to see why a candidate that has never held political office is doing so well. The people are frustrated. Very frustrated. But can Trump win?
The short answer is that Trump can win. In fact, if the election were held today it is basically a coin toss. According to the Real Clear Politics poll aggregate, Trump is ahead of Clinton by +0.9 points. He literally established his first lead this week and while it is in part due to a convention bounce, numbers don’t lie.
The convention helped Trump, but it is also important to note that the race was narrowing for the weeks leading into the convention. Trump support bottomed on June 16th at about 38.3 and is now at 45.6 with a little under half the gain coming before the convention. Meanwhile, Clinton has held steady over that period in a range of 44 – 45.
One of the most astute observers of polling and electoral data is Nate Silver from FiveThirtyEight.com. Silver runs three scenarios on the outcome of the Presidential race utilizing all of the polling data available (#WisdomOfCrowds). Two of his scenarios are projections on what will happen on November 8th and one scenario is what would happen if the election were held today. In that scenario, Silver predicts that Clinton would win the popular vote by a small margin and Trump would garner more electoral-college votes and become President.
The success of Trump and/or Clinton will ultimately come down to a few key factors:
- Ohio (or could it be Pennsylvania) – Since 1896, the candidate that won Ohio in the electoral college went on to win the Presidency 28 out of 30 times, or 93% of the time. This makes Ohio the best state predictor of the next President. Further, since 1896 no Republican has won the Presidency without winning Ohio. Since 1980 Ohio has only deviated from the national vote for the winning candidate by 1.2%, which is the tightest margin of any state. So watching Ohio will be a critical focus and it is likely a must-win state for Trump, unless he can win Pennsylvania. There would certainly be no irony if Trump’s protectionist views help him carry Pennsylvania and he became the first Republican in 120 years to get elected President without Ohio. Just one more thing that the pundits missed.
- Demographics – Trump is basically dominating among white voters without a college degree. This is the sole reason the national polls are so close. A New York Times study showed that in six polls conducted this month that broke out vote preference by race, Trump led by a margin of 58 – 30 in white registered voters without a college degree. Romney did about 10 points worse in the last polls before the 2012 election with a spread of 55 – 37. If Trump can hold and or expand this “base”, the race will be very close on Nov. 8th.
- Favorability – Rightly or wrongly, both candidates have a likeability issue. According to poll aggregates, both candidates are running at about 56%+ unfavorable ratings. The Republican convention helped Trump on the margin and the Democratic convention should help Clinton. The key for both will be to create a more favorable view of themselves with voters and continue to engender the unfavorable view of their opponent. The undecided voters currently in the 10 – 15 percentage range and improvement in favorability rating will be a key in capturing these currently undecided voters.
One point that has surprised many of us at Hedgeye, even if anecdotal, is that in many of our one-on-one conversations, there appears to be a lot of liberals that are reluctant or unwilling to support Clinton and many conservatives that are reluctant to support Trump. So, we are curious, who are you going to support and why?
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.48-1.63%
SPX 2138-2179
VIX 11.70-15.69
USD 96.25-97.93
Oil (WTI) 40.35-43.81
Gold 1
Copper 2.16-2.28
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
