Morning Report: Global yields continue to fall 3/2/16

Stocks are lower this morning after yesterday’s strong rally. Bonds and MBS are down.

Mortgage Applications fell 4.8% last week as purchases fell 0.6% and refis fell 7.2%.

The ADP Employment change came in stronger than expected at 214k jobs. The Street is forecasting an increase of 195k payrolls for Friday’s jobs report. All of the activity was in the services sector, as the manufacturing sector lost about 9,000 jobs and the financial sector added only 8,000.

Chart: ADP jobs

The ISM New York Index fell slightly to 53.6

Donald Trump and Hillary Clinton were the big winners on Super Tuesday. You can probably stick a fork in Sanders at this point. For the GOP, the question is whether Donald Trump is a plurality winner or a majority winner. The establishment is hoping that once they coalesce around a single candidate, the numbers will swing to that candidate. If they go the brokered convention route, Trump will almost certainly run as an independent, which guarantees a Clinton landslide.

Yesterday was a bloodbath in Treasuries, with the 10 year yield increasing about 9 basis points to 1.82%. The 2 year yield increased 7 basis points. If we see strong wage growth on Friday’s jobs report, we could see further weakness in Treasuries.

To put the current 1.85% 10 year yield in perspective: when the Fed hiked rates last December, the yield was 2.3%. That said, the fact that interest rates are falling globally will prevent Treasuries from falling too much. Note the German 10 year Bund is close to the sub 10 basis point lows of last spring, and currently yields 18 basis points. The Japanese Government 10 year bond yield is negative 5 basis points. Global investors look at Treasuries yielding more than Italian, Spanish, and Irish bonds and see relative attractiveness, especially since the US is about the only country not trying to devalue its currency. That should help keep a lid on rates.

Chart: German Bund Yield

The collapse in global bond yields is sending a signal that the Fed isn’t going to ignore – that deflation remains a threat. Janet Yellen has pledged to let the labor market “run hot” for a while and that means letting wage growth run. The big question is what happens to the labor force participation rate. If these workers come back, that will prevent too much wage inflation and will be ultimately better for the economy in the longer term. If they don’t, then look for wage inflation to begin and the Fed to move earlier.

54 Responses

  1. Frist

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  2. I was discussing Trump, Super Tuesday, & the John Oliver anti-Trump screed with a millennial friend and he was going on about how Oliver totally “destroyed” Trump, etc.

    I asked him if he thought that any actual Trump voters would have changed their minds based on the piece and he conceded probably not. I then asked him if he had gone and voted on Super Tuesday in the primaries and he said no, he never votes in primaries (presumably because that would require identifying with one of the parties).

    I then made the observation that John Oliver’s piece was probably irrelevant then. No response was forthcoming.

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    • There you go being all logical again.

      I don’t vote in primaries, either. The last one where it would have mattered (2008) I would have been happy either way, and here in Maryland the primaries are closed.

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      • So you let your local races go to hell, ‘Goose? Somehow or another a crazy lawyer beat a competent judge out of office last night even ‘though the Bar poll was 99% for the incumbent. I never thought that could happen. But the liberal weekly rag endorsed the crazy woman because she said that if a criminal defendant was being poorly represented in her court she would intercede on the defendant’s behalf by giving the lawyer “tips” and “guidance”.

        FYI, the ethically correct response is to call the incompetent lawyer before the bench with the prosecutor and suggest that you are ready to appoint a competent defense attorney to guide the case and that you will grant a 24 hour recess, if requested.

        It is not to intercede in open court on behalf of a litigant.

        Crazy witch got 57% of the vote. Bar obviously did not go out and educate the clientele.

        Bar polls do not split on political issues, but either on competency or temperament.

        The one Bar poll race that was close was DA. Two of five in the D Primary were competent and three were not. The two split 98% of the vote 49-49. I voted for the loser of the two. The split was that I and like minded folks wanted to go back to having an actual lead trial attorney as DA while the other 49% wanted another administrative head. In truth, if the DA is the lead trial atty the First Asst will be an executive, and vice versa. I prefer that the DA be the lead trial lawyer just from my experience, and there is no doubt that half the legal world around me differs.

        So I hate it when people say they are too fine to vote in a primary. That’s how we get Judge Needles until she is called to task by the Judicial Ethics Commission.

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        • In Virginia there were no other races on the ballot, just the Presidential primary. The regular non-presidential primary election is usually in June here. I don’t know about Maryland.

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        • All of our primaries are 4/26, and then the regular election 11/8.

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        • “Goose, I hope I have goaded you into voting on 4/26, then!

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      • I didn’t vote in the primary because I don’t know my polling location (I think the mail lost my voter registration after my move or something) and because the day went to hell and I didn’t plan ahead. Of course, today was worse (today, fire department calls my sister because a neighbor called to let them know my dad had fallen down in the driveway taking out his garbage—which he does not need to do, and has been told several times not to do—and now I’m getting to chew out my father the same way I do my kids. It’s like I have three children. And the oldest one is the worst of ’em!

        … point being, I didn’t vote. If I had, it would have been for Trump, because with all those people calking him a KKK-lover and a Nazi, I figure he’s got to be awesome to make them that absurdly apoplectic.

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    • If you aren’t a liberal you aren’t watching John Oliver in the first place. Any of the liberals here know who Tomi Lahren is?

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      • Cute blonde conservative talking head.

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        • does the left hate her?

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        • No idea–I had to google her. 😀

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        • Everyone gets their news / opinion from their own sources these days… Explains why the media has completely missed out on the Trump phenomenon.

          The only time I watched John Stewart was his thing on NY pizza. I have never seen Colbert or Oliver.

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        • I’ll admit that I stopped watching The Daily Show and The Colbert Report regularly years ago. I think I’ve seen John Oliver’s show once. I get almost everything online nowadays–the TV is mainly for football and FoodTV.

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      • There are a few problems with Oliver’s mocking approach, including the fact that it fosters cynicism which is counterproductive for progressives. These pieces make that argument:

        http://www.slate.com/articles/news_and_politics/politics/2015/02/jon_stewart_stepping_down_from_the_daily_show_he_was_bad_for_liberals.html

        http://ndsmcobserver.com/2014/10/cynicism-irony-politics/

        The other thing I noted is that you can’t always determine where Oliver’s BS starts and stops. He will for example make a joke about the Quality Inn having pillows stuffed with the hair that was caught in the shower drain in comparison to some comment that Trump made.

        Now that’s obviously BS, but it does beg the question as to whether he’s taking similar liberties with exaggerating Trump for comedic effect.

        The other thing he does of course is omit anything that contradicts his narrative. He’s been full of shit on a few past pieces that have annoyed me by doing exactly that.

        In short, I doubt he persuaded anyone who didn’t already agree with him, but I suspect he did make those who did already agree with him feel even more condescending towards those who don’t.

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        • The one show of his I saw was his takedown of FIFA.

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        • “There are a few problems with Oliver’s mocking approach, including the fact that it fosters cynicism which is counterproductive for progressives. These pieces make that argument:”

          Heh. He doesn’t stick to the progressive script is the problem. He goes where his own opinions and humor and incredulity lead him, which has led him towards stuff that’s quasi-libertarian at times . . . which is off-message for the progressive movement.

          But that almost nobody on the left seems to get Trump astounds me. The guy is not a Nazi, or a Klan member, and probably has more in common with Sanders and Hillary than Cruz or Dubya. It’s a kind of blindness or something.

          Adam Curry and John C. Dvorak on No Agenda seem to get the Trump phenomenon, and the fraudulent media coverage around it. As I have before, I recommend the podcast:

          http://www.noagendashow.com/

          I subscribe. Love the tech news stuff when they do it. Trump coverage has been excellent, IMHO. But to Scott’s complaint, they spend a lot of time talking about tactics more than substance, but most of the substance dissuasion on the show has to do with conspiracy and news deconstruction. Yet after years of listening, it becomes clear they have a point on some stuff. Destruction seems to follow Victoria Nuland wherever she goes, and Nigel Farage is the oat fascinating member of the European Parliament and you barely hear about him in American media . . . they also get a lot of international coverage I never see really covered in American media. And I like the conspiracy stuff. And they are both mostly libertarian. Mostly. Eh, good show, I recommend it.

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        • KW:

          But that almost nobody on the left seems to get Trump astounds me.

          Why? Because the left is usually so keenly insightful when it comes to its political opponents? Like when they were calling Bush “Bush-Hitler”? Or when they were calling Reagan a Nazi? Or calling [insert republican here] a racist?

          Calling their political opponents “Hitler” and “Nazis” and ‘racist” is what the left does. I would find it more astounding if they weren’t calling Trump those names.

          It’s a kind of blindness or something.

          It is that, but I don’t think it is particular with regards to Trump.

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        • @scottc1: “Why? Because the left is usually so keenly insightful when it comes to its political opponents? Like when they were calling Bush “Bush-Hitler”? Or when they were calling Reagan a Nazi? Or calling [insert republican here] a racist?”

          Point taken and conceded.

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        • Outside PL, Ds have begun to take Trump very seriously.

          “He’s formidable, he understands voters’ anxieties, and he will be ruthless against Hillary Clinton,” said Gov. Dannel P. Malloy of Connecticut. “I’ve gone from denial — ‘I can’t believe anyone would listen to this guy’ — to admiration, in the sense that he’s figured out how to capture everyone’s angst, to real worry.”

          Apparently WJC has been expressing this concern for awhile, as well.

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        • Then WJC is smart but a lot of the pundit class and self-important liberal press is still pretty dumb. Evoking Hitler and Donald Trump’s refusal to “disavow” David Duke (ergo, he’s a member of the KKK and an unreconstituted racist as well as a xenophobe) is not going to be a strategy that works well against Trump. Also, insisting that Trump’s supporters love fascism and want a dictator and are being driven by the same impulses that led to Nazi Germany are not going to “make those people sit up and think”—the human response to that kind of a critique is “f u, now I’d vote for him twice if I could”.

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      • More specifically, if you don’t have HBO you aren’t watching John Olilver. I like John Oliver, and he does actual expose journalism with his highly-slanted comedy, and given how little expose journalism that is done by journalists these days, it’s kind of refreshing. Has to be taken with a grain of salt, alas, as he has a political axe to grind but in terms of the news quality of the show, it’s better than the news quality of The Daily Show with John Stewart. For what it’s worth.

        Keeping in mind I’ve watched maybe 10 or 11 episodes. There’s a lot of John Oliver I haven’t seen. But he’s also a real old school liberal . . . eh, I generally like the show when I watch it, even if he occasionally dips into hippie bullshit cliche.

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      • If she’s mostly on The Blaze, then it’s mostly Beck-o-philes that would recognize her.

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    • jnc:

      I then made the observation that John Oliver’s piece was probably irrelevant then.

      Irrelevant, perhaps, but not necessarily wrong.

      To be clear, I did not see Oliver’s piece, and so I am not endorsing it. But I do find the fact that our political discourse in the nation is so routinely centered around tactics rather than substance to be irritating.
      Tactics are obviously important to politicians and their campaigns, but to those of us outside of the campaigns, tactics are, or should be, irrelevant and substance should be far more important. It may well be true that Oliver’s rant will have no persuasive effect at all on would-be Trump voters, but to me as a voter the relevant question is not what effect it will have, but rather was it correct?

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      • Here’s the piece.

        The main takeaway was that everyone should mock Trump by calling him Drumpf and that he was making available a browser add in to automatically replace “Trump” with “Drumpf” in every Internet page that was viewed going forward.

        http://donaldjdrumpf.com/

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        • stuff like that turns a soft trump supporter into a hard one.

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        • These are same people that take umbrage at being called the “Democrat Party”.

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        • jnc:

          These are same people that take umbrage at being called the “Democrat Party”.

          Heh. I’ve never been able to understand why that bothers them so much.

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        • Nobody who is inclined to vote for Trump gives a rats ass what some liberal comedian thinks about the guy…

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        • That’s like someone offering a browser add in to automatically replace every appearance of “Obama” with “Obozo” or something. Who likes that? Who wants that? Someone, I guess. I mean, I really liked Obama until I found out someone called him “Obozo”, then that really changed my mind . . . I mean, seriously. I like John Oliver but the Drumpf thing is just stupid. Unless he’s on the take, and The Donald is paying him to make people opposed to Trump seem like irredeemable idiots.

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        • “Heh. I’ve never been able to understand why that bothers them so much.”

          Because that you are allowed to speak in a public forum without their controlling every word you use is offensive to them!

          The use of “Democrat Party” was, at one time, common. It’s not any more, but many local groups were known as “The Ohio Democrat Party” or what have you. No longer true, so it’s now offensive. I guess. Not sure where that puts papers like “The Arkansas Democrat” in the mix, but . . .

          I think it’s because some conservatives made the argument that the Democrats were not really “democratic”, so should never be referred to as the “Democratic” party, but rather the “Democrat” party, in order to distinguish them from actual supporters of democracy. And that couldn’t be allowed to stand, so huffiness and indignation ensued.

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        • So Harry Reid is saying that Trump will force Americans to confront racism.

          Does he really believe Trump is about racism, or is this Reid just following the D playbook of accusing anyone who disagrees with D orthodoxy of being racist?

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        • Reid’s #1 NV voting constituency is Chicano based. Now MX-Americans are not a race, but this is Reid’s shorthand [liberals call it a “dog whistle” when conservatives do it] call to arms to his NV voters and perhaps to a wider Mexican-American community.

          Think about it. You will hear Trump calling Mexicans “rapists” a lot this year. The race card is about that, rather obviously.

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    • “the John Oliver anti-Trump screed with a millennial friend and he was going on about how Oliver totally “destroyed” Trump, etc.”

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  3. Gotta take a closer look at Cruz:

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    • KW:

      Gotta take a closer look at Cruz:

      That was hilarious. I love bad lip reading.

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      • “Death with find you soon . . . not sure you’ll be remembered.”

        “Doesn’t that mean you go to jail?” “No, because I ran away!”

        “I need a bogle for the glotch!”

        “Hey, who hates cigarettes?” “I do!” “Hooray for you!”

        “He’s in the kitchen right now.” “What, he’s here?”

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      • And the flag waving with the added grunts. Those guys. And the things they think of . . . the Waiting in the Bushes of Love song they did with Star Wars was just . . . demented. 🙂

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  4. Old but still good:

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    • What a great career move the producers made. Tapping into a never ending source of giggles.

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        • Mark:

          So what would Ds do if HRC were indicted after being nominated?

          I remain highly skeptical that Obama’s politicized justice department would ever indict an already nominated Hillary.

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        • I’m with Scott, and not just because Loretta Lynch shows zero interest in pursuing Hillary on the emails. This kind of casual treatment of confidential emails and technical skirtings of the law are almost certainly endemic in DC, and nobody is want to get hoisted by their own petard. And ultimately there could easily be a convincing case that Hillary’s IT support is responsible, more than Hillary, that may not be super-accurate but will be sufficient to throw someone under the bus and have it barely touch her. Especially given Loretta Lynch is likely to find her innocent based on her having the correct partisan credentials.

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        • I agree with you and Scott, actually. This Administration made it clear from the beginning that it would not heed liberal calls to go after Cheney, and the messaging there was that absent a crime in plain view there will not be a rock fight that turns partisan politics into prosecutions. However, the subtler message is we will not go after our own, either. Both parties are free to use allegations against leaders in the other party, but I think we will not see prosecutions other than for crimes for which there is direct evidence, such as bribery/kickbacks, which has caught up many HUD guys in both parties over the years.

          But my speculation remains: what would the Ds do? Anoint Sanders? Elevate their VP nominee? What is the party mechanism if a nominee dies? Do the Rs have a different one?

          My guess is that either party would go with its VP nominee, and that there may be party rule about it.

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        • Mark:

          This Administration made it clear from the beginning that it would not heed liberal calls to go after Cheney…

          Remind me what it was that Cheney had allegedly done?

          And just to be clear, you think the admin’s failure to pursue Clinton would be an example of how it isn’t politicized?

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        • Too many questions that assume conclusions, Scott.

          1] I don’t know what crimes Cheney could have been convicted of and don’t care. The allegations were made and I am sure you can search for them as easily as I, but they are of no interest, now. They were of no interest to me then. It is only pertinent that the Admin was adamant that it would have no discourse about the subject and would never pursue it.

          2] I assume reluctance to pursue HRC, not “failure”. That is normal politics, always has been. But as JNC says, she demonstrably lies to the FBI and she gets indicted. Or she gets caught sharing a doc with a Chinese agent. The first is more likely than the second, by far. As with any high ranking political figure, of either party, investigators will be asked to tread lightly and be absolutely certain of their grounds before making any charges. This is political, but not necessarily partisan. And it is because all investigative agencies must answer to the class of elected politicians, who pretty much look like the same crowd of pat-my-back-I’ll-pat-yours to the FBI Agents.

          Further, if the federal gummint is like the state gummint in TX, the political class sees the professional investigators as potential enemies. So cooperation is guarded, and lawyer advised at every step.

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        • Mark:

          The allegations were made and I am sure you can search for them as easily as I, but they are of no interest, now.

          If a comparison is being drawn between a reluctance to pursue charges against Cheney and a reluctance to pursue charges against Clinton, I think the potential charges themselves are actually quite relevant to the comparison.

          That is normal politics, always has been.

          I wonder what Scooter Libby thinks about that.

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        • I wonder what Scooter Libby thinks about that.

          Don’t get caught making a false statement to the FBI, would be my guess.

          That would be the most likely trap for HRC, as well.

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        • I see one of her aides who sent the E-mails possibly getting indicted instead.

          Probably Huma Abedin, Cheryl Mills or Jake Sullivan

          https://www.washingtonpost.com/local/public-safety/aides-email-server-testimony-could-throw-clinton-campaign-a-curveball/2016/02/23/fdd8bbd2-da51-11e5-81ae-7491b9b9e7df_story.html

          The intersection of Clinton Foundation business with donors and HRC’s tenure as Secretary of State has also been the focus of a spin off investigation.

          http://www.vanityfair.com/news/2016/01/huma-abedin-hillary-clinton-adviser

          And if they are stupid enough to lie to the FBI under oath, then all bets are off.

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        • “But my speculation remains: what would the Ds do? Anoint Sanders? Elevate their VP nominee? What is the party mechanism if a nominee dies? Do the Rs have a different one?”

          The draft Biden movement goes full bore.

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        • Nah bro, Draft Fauxahontas!

          America needs its first Natice American, woman, lesbian POTUS.

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  5. Toobin on Scalia:

    http://www.newyorker.com/magazine/2016/02/29/antonin-scalia-looking-backward

    The very first line is all you need to read to know that Toobin is being as cartoonish as ever:

    Antonin Scalia, who died this month, after nearly three decades on the Supreme Court, devoted his professional life to making the United States a less fair, less tolerant, and less admirable democracy.

    It never ceases to amaze me that a person with so little understanding of the role of the judiciary could become such a prominent commentator on legal matters.

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    • “devoted his professional life to making the United States a less fair, less tolerant, and less admirable democracy” = “didn’t do what I wanted him to, so he’s a bad daddy”

      The level of political critique in our country. Perhaps the world. Still amazed (sorry, Scott, I know I shouldn’t be) about the number of commenters, pundits, and authors on the left holding up Donald Trump, who is easily to the left of any of the other Republicans when he exhibits much actual ideology at all, is being held up by the same sort of people as an example of the intolerance and hatred that the Republicans have wrought. He’s a fascinating carnival barker and I love the guy, but he is a RINO. He is in no way representative of the GOP establishment or conservative ideology reaching its “natural conclusion”. At best, he’s a representation of the door the GOP establishment left open by ignoring the independents, populists, and more single-issue voters (specifically on the the issue of illegal immigration) of the base. But also the vacuum the Democrats have left by not seriously considering or addressing the concerns of people who are worried about unrestricted immigration and out-of-control political correctness. And it seems like the right’s response is to mount a campaign of propaganda and general attack via his record and his own words, while still not addressing the issues that concern much of the Trump-supporting base, and the left’s approach is to double-down on calling anyone who doesn’t hate Trump like they do an idiot, and a sucker, KKK-lover, and a Nazi. Ergo, the left is enlarging the vacuum on their side that has led, thus far, to Trump’s success . . . hoping that those magical Demographics save them from their own poor strategies, I guess.

      Like

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