“In the ceremonies of horsemen, even the pawn must hold a grudge.”

-Bob Dylan

On this day in 1862, Minister President of Prussia Otto Von Bismarck gave a speech discussing the unification of German territories that was famously called the “Blut und Eisen” speech, or for you anglophiles, “Blood and Iron”. In the speech, Bismarck clearly articulated the use of war to unify Germany and pursue his political ends with the line:

 

“The great questions of the time will not be resolved by speeches and majority decisions—that was the great mistake of 1848 and 1849—but by iron and blood.”

On the back of this famous speech, Bismarck would go on to initiate decisive wars with Denmark, Austria, and France to eventually unite 39 independent German territories. After 1871, it became clear that Von Bismarck wanted no more territorial gains and he focused on starting cross linking alliances that prevented any future war in Europe during his lifetime.

For the Germans, Bismarck is often noted as one of the most significant statesmen in the nation’s history and effectively, by pursuing unification of its hundreds of separate principalities, turned Germany into one of the most powerful nations in the world. Despite a few ups and downs over the years, namely the World Wars, Germany remains today one of the five largest economies in the world and the most significant in Europe.

Despite the lasting success of his policies, the historical analysis of Bismarck is mixed to say the least. As a recent biographer wrote about him:

 

“... a political genius of a very unusual kind [whose success] rested on several sets of conflicting characteristics among which brutal, disarming honesty mingled with the wiles and deceits of a confidence man. He used democracy when it suited him, negotiated with revolutionaries and the dangerous Ferdinand Lassalle, the socialist who might have contested his authority. He utterly dominated his cabinet ministers with a sovereign contempt and blackened their reputations as soon as he no longer needed them.”

As the Wikileaks releases are showing us, not much has changed in the character of our national politicians.

Blut und Eisen - trump mid

Back to the Global Macro Grind

The current state of the Presidential race is that Clinton is up by about +6.2 points in the Real Clear politics aggregate and according to fivethirtyeight.com has an 86.9% probability of winning the Presidency. With less than a month to go, those are pretty goods odds for Clinton. The challenge that Trump faces is that as we get closer to Election Day the amount of undecided voters narrows, so he has to convince a disproportionate share of the undecided segment to vote for him. In fact, according to fivethirtyeight.com, going back to 1952 the early October polls have had a +0.96 correlation to the final mark.

That said perhaps there are still a few paths towards a Trump victory:

  1. The polls are just wrong – In every election in which the polls show a candidate behind, the candidate’s surrogates usually claim that the polls are wrong. In this election, the naysayers are suggesting polls are wrong because of over sampling of a specific demographic and/or a mismeasurement of the motivation to vote. Unfortunately for Trump supporters, while it is not inconceivable the polls are inaccurate, with a +6.2 lead for Clinton, they will have to be really wrong for Trump to win. Given the preponderance of data, the polls just being wrong is unlikely.
  2. Wikileaks – It seems the Wikileaks strategy is to drip hacked emails out from now until the election. As of now, the focus is on Clinton campaign Chairman John Podesta. It is not yet clear whether there are any “smoking guns” within the emails or whether voters really care, but the one positive for Trump will certainly be to keep himself out of the headlines. A continued drip of Wikikleaks emails from now until Election Day will narrow the polls, but likely not enough to give Trump a victory.
  3. October Surprise – Practically speaking, October surprises don’t happen, even though they are talked about every October. If it’s not Wikileaks, then the conspiracy theorists would have you believe that it will likely be a revelation about Hillary Clinton’s health or her husband that will provide a surprise in the next few weeks and a boost for Trump in the polls. In reality, the Clintons, whether you love them or hate them, have been in the public eye for more than three decades and it’s unlikely there is any sort of October surprise in store.

On the topic of polls, the non-consensus view may be that they are giving a boost to Donald Trump. The New York Times today (and yes we understand its biases) wrote an article highlighting some challenges with the LA Times / USC poll that consistently shows Trump ahead. The primary issue is small sample sizes, which can overweight a specific demographic, and may give Trump an undue lead.

Interestingly, if we remove that poll from the last 10 major polls, Clinton's lead jumps to +8. Perhaps then, the non-consensus view is not that the polls are wrong and Trump still has a shot, but rather the polls are wrong and Clinton is going to win and the Democrats are going to run the table? The market might like a Clinton Presidency better than a Trump Presidency, but it probably won’t like a clean sweep by the Democrats.

That all said, anyone remember the polls before Brexit?

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.53-1.79%

SPX 2127-2155

VIX 13.80-16.84
EUR/USD 1.11-1.13

Gold 1 

Keep your head up and stick on the ice,

Daryl G. Jones

Director of Research

Blut und Eisen - 10 13 16 brexit