US Election Update August

November 2020 Election Update

Key Issues to note:

RFS Waivers (rejection of 59 retroactive), Corn Politics

Swap line cutbacks, market contraction mid September

Mail-in and Early voting begin in September 

Stimulus 2.0 fight

Haley to the Trump poll rescue?

Census fight

August 1st Recap and Outlook for November

While the actual election is months away, early voting begins in September. With this timeline fast approaching, multiple election variables remain unresolved and could sway the election one way or another. 

One of the biggest stories of the year is Trump ordering the Census to not count undocumented workers. This is a significant development that will cause a seismic shift in legislative fights tied to stimulus package for August. Why is this so significant? Because the Census is what political districting and federal funding is tied to. This move benefits the GOP for the next decade at least. Pelosi will without a doubt fight this with everything the House Democrats have in their arsenal, including holding up new stimulus package and lawsuits. This will end up in the Supreme Court and RGB’s seat replacement will be a primary election narrative. 

The looming August stimulus package will be negotiated between Pelosi and McConnell to place both political parties in their election narrative positions as September voting begins. House Dems want to extend the $600 a week unemployment benefit as the GOP is looking to cut it to $200-$400 as it pushes for businesses reopening and a surge in rehiring laid off workers. Primary issues however, will be small business lending program extension and agriculture political issues yet unresolved.  Big Corn and Big Sugar are embroiled in a high profile fight against Big Oil and their man in the EPA, Andrew Wheeler. There are now 59 RFS Waivers on the EPA desk waiting for rejection after the courts have sided with big corn for retroactive ethanol waivers.  Trump can ill afford to lose this rural vote(specifically in Pennsylvania and Michigan) and Joni Ernst’s Senate seat in Iowa is tied to this issue being solved before mid-September. Pompeo visit to Iowa was an indication that there seems to be a coming resolution where Ernst will be boosted at the “tough dealing savior” for corn lobby. With this Senate seat safeguarded and a weak candidate up against Susan Collins of Maine, the Democrats have little chance to take Senate majority in 2020.

To pass a sweeping stimulus package of $2-2.5 trillion, Congress needs justification for such an expenditure. A market contraction would be welcomed as it would pressure everyone to settle issues quickly and act on the bill. Swap lines and repo have been cut back, unemployment has steadily risen, V-shaped recovery has been removed as a possibility near term, all issues that the markets have yet to deal with and could give the Fed, Treasury and Congress the needed scapegoat to sign off on another multi-trillion dollar package without facing the ire of voters.

Much has been publicized about Biden’s poll leads in the past 2 months. I do not find these polls credible as they have been conducted during lockdowns and social distancing restrictions. Phone/Internet polling notoriously have the largest margin of error along with politically tied polling outfits needing to justify their budget to clients, just does not give the sense of objectivity nor accuracy when the methodology and questions are observed. Nevertheless, Trump seems to relish in this role of “Me against the world media” narrative, even having to replace his campaign manager to shift “momentum”. The ultimate momentum shift would come if Trump decides to replace Pence with Nikki Haley and head off Biden’s Kamala Harris selection.  

So what do we expect to see in the next 3 months? Drama. Lots of it concerning Covid-19 infection rates and see-sawing into protest politics the media is promoting in Portland. The Democrats are looking to find ways to boost election turnout and main-in ballot is a key strategy for them in cities like Detroit and Philadelphia. I expect both Michigan and Pennsylvania to be tough uphill battles for Trump this time around, but Florida and Ohio are out of Biden’s grasp as the GOP has gained more voters than the Democrats since 2016 in both states.  This leaves Arizona, North Carolina and perhaps Wisconsin as ground zero for November. All three states I estimate Trump has a slight edge in of about 1-2pts when you consider stealth Trump support and Biden weak candidacy. 

Trump will need to focus on immigration, re-opening businesses, and painting Biden as a market killer. Biden will need to paint Trump as a healthcare liability and protest instigator creating division across America and the world.  The Europeans and Chinese are doing their part to undermine Trump with travel restrictions on Americans and China cutting back investments in US companies. Both however, are in economic trouble barely treading water and betting on a Trump loss would severely backfire if he were to win in November.  The European media and analysts especially are in a state of denial about Trumps chances, even going so far as to claim he won’t even run with only 5 weeks left until voting begins. This type of media hype is destructive to their own interests and could entirely move the DAX and FTSE down by 5 percentage points overnight if and when Trump is re-elected. 

For November, I still see a Trump victory by the slightest of margins and the GOP losing 3 Senate seats while keeping majority but gaining 10 House seats as the Dems keep the House majority.