US National Political Summer Outlook 2020

Key players:

Biden/Harris(driven by Obama) vs Trump/Pence(Haley could slot in here for Pence if poll numbers dictate a move)

Pelosi vs McConnell(Legislative fights for November election narratives)

Legislation to watch: 

  • Vote by Mail 
  • Stimulus package phase 4
  • infrastructure bill fight
  • 2 more rounds of agriculture bailout packages including RFS waiver denial for ethanol

Key Signals to watch:

  • Infection rates end of June, 
  • End of July human trials for phase 3 vaccine studies,
  • Length of protests in the coming weeks/renewed protests    
  • Legislation fight for Phase 4 stimulus, 
  • Any retest of March lows in the stock market

Key States to watch: North Carolina, Michigan, Pennsylvania, Wisconsin, and Arizona

(Polls conducted during lockdowns are unreliable; July polls will start to paint a picture)

Scenario 1:

Democratic states overstate COVID infections to drive up unemployment and justify lockdowns. 

This tactic is under the logic that high unemployment and market upswing is a negative for Trump. Using the narratives of “Trump is for the wealthy Wall St investors”, “Trump inaction cost 100,000 lives”, “billionaires got richer over COVID deaths”.  The justification would be used for Mail-in ballots where the Dem ground game is key in Philadelphia, Detroit and Charlotte. The logic here is to boost voter “turnout” to win those swing states. A continuing lockdown or 2nd reinfection scare would hurt multi state corporations and supply chains from re-opening in a timely manner leading to further unemployment and bigger than anticipated revenue losses, risking corporate liquidity going forward. Democratic donors in the tech industry are most exposed here and would nix this plan relatively quickly.

The problem that has materialized with these protests will inadvertently become a real life testing ground on virus spread. If by the end of June no sizable infections occur, the entire strategy would backfire vs Democratic led states and result in the House being in play for the GOP. 

If infections do rise, the Dems could extend or reinstitute lockdowns to cause maximum economic damage in an attempt to hurt Trump. Trump however, could flip the script and use lockdowns for further direct monetary stimulus to voters. Helicopter-Money that would exceed their current level of employment compensation in most cases. This would surely push Pelosi to stall legislation as long as possible or place amendments in the bill to further their political power. 

Scenario 2:

Trump continues with push to Reopen America in conservative states while balancing lockdowns and curfews in states where protests have surged. Trump would revisit his “Law and Order” candidate ad campaigns from 2016 in those cities putting the democrats on the defensive to retain the House majority on the “defund police” narratives and a growing anger by businesses in those cities being looted (this won North Caroline for Trump in 2016). The amount of money the DNC would have to spend to defend House seats it won in 2018 would surge 10x, siphoning off pro Biden help. Curfews and lockdowns extending into the fall would show a significant fall in democratic voters as they have fled to other states such as Florida and Texas. 

A significant V shaped rise/Great Gatsby moment in the markets and a few more BLS manipulated employment figures would paint the Democrats as economy killing candidates. Nervous voters would shy away from Democratic candidates and look for a path back to economic prominence as perceived prior to March 2020. An emboldened Trump could further look to tariff China and paint Biden as “Beijing Biden” pointing out his son’s business connections. 

Scenario 3:

As the economy seemingly starts to open and protests die down during mid-June, pent up demand gives a false sense of robust growth which Trump rides as a political success story.  Pelosi would hold up legislation, demand will lag in late August/September, along with oil falling on storage filling up and EU internal issues with ECB QE policies being blocked by quarreling factions resulting another market dip not allowing Trump to recover the perception of economic Grandmaster. End of July date of human trials of vaccines will fail to show effectiveness that markets rose on news in April and May calling into question short term effect of this virus and allow for narrative scare tactics to erode support for Trump.

Pelosi would use her influence in the Senate to dictate how Schumer negotiates with McConnell on stimulus legislation and delay agriculture bailouts to further stress Trump in rural regions now putting the RNC on the defensive to retain Senate majority.  GOP Senators not up for election could work to block pro Trump legislative actions. 

Trump could look to ease off Chinese tariff war further and pick select EU sectors to target, specifically the Auto sector to appease Michigan and Pennsylvania voters. Continue Phase 1 “moving along” narrative, while China asymmetrically challenges Trump in rural voter fight(GM, Caterpiller, Soybean purchases), this would prompt bigger agriculture bailouts and a sizable public fight with Pelosi. An overactive GOP Senate could implement further sanctions on Iran, China and Russia to appease the base, adding to downward market pressures.

The Fed/Treasury has ample liquidity and tools to combat such a dip but the timing of a September market retest of March lows would severely put in jeopardy Michigan, Pennsylvania and North Carolina races allowing for Biden a small electoral college victory. 

Scenarios 1 and 2 are favorable to Trump re-election. Scenario 3 would see a Biden victory.

Conclusion:

The political atmosphere is fluid over extreme measures taken in economic and political policies from Covid-19 concerns. The likeliest outcome is Scenario 2 playing out at this time with a keen eye on signals showing a Scenario 3 taking shape. July will be a critical month to determine which way the election will swing based on economic trends. Unemployment will remain elevated along with helicopter-money to satisfy lower middle class voters via a 2nd stimulus program. At this time, Trump is set to squeeze out electoral college win with GOP picking up House seats but losing 3 Senate seats holding a 1 seat majority. Will need to update this in July after multiple economic signals emerge post re-opening.