“Bye, bye Miss American Pie, drove my chevy to the levee but the levee was dry,
And them good ole boys were drinking whiskey and rye, singing this will the day that I die.”
-Don MacLean
To say there was some political upheaval this week would be an understatement. It’s starting to sink in, but The Donald is The President. Not many in the intelligentsia class got this one right.
As the stock market showed us this week, life will certainly go on for America. The question really is: will life go on for the establishment media and pollsters? Wow, did they get this one wrong.
Now to be fair, we didn’t exactly call it for Trump either, but we did write the day before the election that this is a much closer race than the media realizes and that “there is a reasonable chance that Clinton could win the popular vote but lose the Electoral College.”
It’s a bit of a golf clap, but still, unlike the mainstream establishment media like Politico, the New York Times, FiveThirtyEight.com, and most of the polling community, we got this a little closer to right. Our biggest mistake, in hindsight, was not doing our own polls and getting our own data. Now we know.
In separate news, we’ve received some intelligence about some border protections the Canadians are taking, which is emphasized in the middle graphic.
Back to the Global Macro Grind…
So, what exactly did the establishment media and polling community get wrong?
We won’t waste too much time on this one, but it is probably threefold. First, there was obviously a hidden Trump vote in which people wouldn’t admit to being a Trump supporter when asked but voted for him. Second, turnout was lower than expected, especially among Democrats. Finally, they missed the reality that Trump was situated better in the swing states given that his strongest demographic, whites without a college degree, were over represented in those states.
We’ll move on from the mainstream media and establishment pollster and get on to more important things, namely what’s next? To say our policy team has been getting inundated with requests to talk would be an understatement. The Donald might not drain the swamp, but he is going to blow things up in certain areas... and quickly.
Healthcare is very likely to be a focus early on in the Trump administration. As our Healthcare Policy Analyst Emily Evans wrote yesterday, “the next 12 – 18 months for healthcare are going to be as interesting and exciting as the 2008 – 2010 period but in very different ways.”
According to Emily there are three possible outcomes for Obamacare. The first option is to repeal and replace. The second option is limited repeal through reconciliation. Finally, the third option is executive or administrative action. She views the later as the most likely as this would be a strong signal by Trump that he is aligned with the priorities of House Republicans.
Prepare for some volatility (and opportunities) in healthcare.
Another area, which is being bandied about less in the media, is the energy sector. Our energy policy team of former Secretary of Energy Spencer Abraham and former IEA Vice Chairman Joe McMonigle are doing a call today at 11am to discuss (ping for the dial in).
They are focused on a few areas of near term impact from Trump – a renegotiation of the Iran treaty which may lead to Iran oil coming off the global market, reversing of Obama carbon regulations and renewable standards, an abandonment of the Paris Climate Agreement, and finally, and most obviously, approval of key pipelines.
Longer term, defense is going to be a major focus. Luckily, we have one of the most preeminent gurus on the defense budget on our team in Lieutenant General Emo Gardner. Before retiring form the Marine Corps and joining us, Emo ran the defense budget for the Secretary of Defense. His high level view is that defense spending is going to go up, but in the short run it will be hard to find places to put money, so some recipients will benefit disproportionately.
A few points that Emo is already emphasizing to clients that Trump will implement include increasing the size of forces, rebuilding the navy to a goal of 350 ships from 308 now, providing the Air Force with the 1,200 planes they need, and investing in missile defense. As it relates to “shovel ready” projects and companies that could benefit, Emo wrote the following this week:
- F35 (LMT, UTX, NOC, BAE) Current plan is to buy 70 US jets in FY18, could be increased by at least 16 (+$1.8B)
- F18 (BA, RTN, GE) Current plan to buy 14 jets could be ramped up to at least 24 (+$900M)
- THAAD Missile Defense system (LMT) Capacity exists to buy ~10 more interceptors (~$150M)
- Standard Missile 3 (RTN) (interceptor for AEGIS system) Capacity to add 15 missiles (~$200M)
- Air to Air Missiles (RTN) Increased AIM-9X and AMRAAM production capacity exists
- V22 (BA, TXT) Current plan is to buy 6 for USN in FY18, but capacity exists to more than double (USMC buying 16 in FY17)
That’s probably a lot to swallow for this morning. It’s very clear that government policy is going to have a real impact on companies, the market, and the economy, so let us know how our policy team can help you interpret.
We hope to also see you at Macrocosm next Wednesday November 16th in New York.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.66-2.16%
SPX 2070-2181
VIX 13.20-23.84
EUR/USD 1.08-1.11
Gold 1
Keep your head up and your stick on the ice,
Daryl G. Jones
Director of Research
