I’ve noticed that a lot of podcasts are now focusing on elections. The Republican National Convention is just a few weeks away (July 15-18). The DNC is a month later (Aug 19-22). The reason I haven’t focused much on the elections is that since the beginning of the year, I thought the possible outcomes were much wider than the markets had been expecting (which is Biden vs Trump, where they have carte blanche to enact their policies).
Until “recently” (when Biden looked particularly senile), the markets were fixated on Biden vs Trump. This is clearly the mode outcome. But there are a number of reasons why we could get a different matchup.
· Mortality. For a brief time after college, I worked at an actuarial consulting firm. The mortality rate for an 81 year old and an obese 78 year old is not small. They will both be engaged in a strenuous schedule for the next few 4.5 months. And let’s not forget that we are in a radically divided country, with nut jobs on both sides where an assassination attempt couldn’t be ruled out.
· Disability. We all suspected/knew Biden was (borderline?) senile and possibly/probably just jacked up on drugs ahead of his major speeches. It’s just becoming more obvious. All it takes is one disastrous showing before changes are made.
· Felony. I thought Trump would be negatively impacted by the guilty verdict last month, based on a poll saying a meaningful minority of people couldn’t vote for a felon. Trump’s odds of winning has steadily increased since his conviction. This is why I don’t trade based on WAG. It’s possible this effect hasn’t shown up in the polls, but may on the ballots. Who knows? Trump’s sentencing is a few days earlier than the RNC on July 11. It’s not clear if the small chance of prison time will affect the election.
Even if we get to Biden vs Trump on the ballot on Nov 5,
· Congress may be split. The presumption is that if one of them wins, they will ride a blue/red wave for the next 4 years. That’s possible, but I’m not sure how true that is – especially when a large number of people (including me) will be voting for the person they hate less. For a lot of legislation to get passed, someone has to win AND win both Houses, where the members of each House are selected differently (Senate based on state, House based on population).
· Even if Congress is not split, all it takes is a very small minority (think Manchin) to dilute or prevent major legislation.
· The candidate may not do what they promised. As with any election, the candidates are primarily trying to appeal to certain voters. It’s not clear what policy soundbites to take seriously and which we can ignore.
If you make a probability tree of all of the above, I don’t know if any policy outcome is that certain. What election-related narratives can I be sure of? Here are some miscellaneous election-related factors, from highest to lowest certainty: