The Lessons To Be Learned from This Election – 11/09/16

trumpup

First, a disconsolate victory lap for the predictions I got right. I believed Trump would take Florida, and he did. I believed he could win the election, although as election night neared I decided he would not. So, I ultimately was swayed by the polls and my general sense of his awfulness as a candidate. So I was mostly wrong, but at least I foresaw the possibility that he would win.

I warned a few very cocky liberals and Democrats at the Plum Line to be careful what they wish for. During the Republican primary, they were talking about crossing party lines, even temporarily registering as Republicans to vote for Trump. They were excited about the possibility of Trump being the nominee, because he was clearly the most easily defeat-able Republican.

No small number of liberals helped Trump to win the Republican nomination. Those few cases where I interacted with them, I warned them to be careful what they wished for. So, did I call that, or what? I called it when there were still 14 Republican presidential hopefuls.

It was the same thing I said during 2008, when excited Republicans were calling into Rush Limbaugh to report how they had crossed party lines and voted for Barack Obama. Tee-hee-hee! There’s just no way Barack Obama could possibly win. Limbaugh doesn’t tend to bring up his campaign to make Barack Obama the Democratic nominee in 2008, but he did it.

Be careful what you wish for. I would always recommend folks vote for what they want, not to game the system. But people will always want to be too clever by half. Human nature.

So, that’s lesson 1 (other than always listening to me, because 60% of the time I’m right all the time): be careful what you wish for. You might get it. And then keep getting it, even though you want it to stop now.


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I think lesson number 2 is the demographics isn’t destiny, at least not yet.

It might be, 8 years from now or 16 years from now or 24 years from now, but not yet. The corollary lesson is: impatience is not a virtue. Demographics looks to be the critical factor in American elections in the future, but it isn’t yet, and saying “But I want it now” like Veruca Salt doesn’t make it happen.

In fact, it might end up with your candidate being determined a bad egg and getting memory-holed by a reclusive serial child-abuser disguising himself as a chocolatier.


polls

Lesson 3 is that polls are not worthless, just almost worthless.

In the lead up to the election, while Trump was complaining that the vote would be rigged, there was some interesting discussing on the Plum Line about how elections weren’t rigged, but Republicans only won when they rigged elections.

The primary example given was 2004, where exit polls predicted a clear Kerry victory, but somehow George W. Bush stole the election. Although an incumbent president who replaced a president of the opposite party almost always wins re-election. But never mind, it was stolen, because the exit polls said Kerry won. Kerry did, briefly, mull a challenge to the results based on those exit polls.

But the problem wasn’t that Bush stole the election, the problem was that the exit polling was bad. This time, almost all the polling was off. The polls captured growing momentum as election night neared, but in no way captured the scale of Trump’s electoral victory.

Another way to restate this lesson: don’t trust the polls.


dkh

Lesson 4 is a lesson for both parties and political sides, but I think it’s particularly applicable to the Democrats and liberals in this cycle: name calling is fine, if it’s your opponent or common enemies of the people. It’s bad when it’s potential voters.

Making everyone who disagrees with you into a hopeless racist sexist bigot homophobe beyond redemption is a losing strategy. And will continue to do so, until demographics finally do become destiny. Until then, insisting there is no reason not to call a spade a spade, and you will, in principle, stand tall and strong and call everyone who doesn’t agree with you a Nazi, is not a winning strategy.

There is a deeper dive into the risks of playing identity politics that could and should be had, but that’s a future lesson.

Insulting the voters also applies to the Republicans, of course, but I think it’s pretty clear who had the lower opinion of rural folks, flyover country, and middle-town America in this election. Not to mention what Democrats apparently think of folks south of the Mason-Dixon line.


sara-palin1

Lesson 5 is mostly for the Democrats: when playing identity politics, stick with race, not gender. An important part of identity politics ultimately has to be that the candidate reflects the identity of the class of people you want to vote for you. Ergo, Obama was a successful candidate in terms of identity politics. He got African-Americans to turn out and vote Democrat in unprecedented numbers and, importantly, vote for him specifically.

Hillary was unable to do that with women, and I’m not sure any woman could. Could Sarah Palin? Carly Fiorina? I don’t think so. Not every potential grouping of humanity is susceptible to identity politics-style appeals. Whichever woman finally does become president, in other words, it’s not going to be because she is a woman and “it’s time”.


george-soros

Lesson 5? Money doesn’t buy electoral victories.

This will be lost on most of the left, I expect, but it’s simply true. Demonstrated repeatedly. Donald Trump didn’t spend as much as Clinton. His supporters didn’t spend as much on him as Romney’s did on their candidate. The PACs weren’t as flush with cash. Jeb! Bush had far more money, and spent far more money, in the primaries than Trump, and went nowhere. Meddlesome billionaires poured cash into the election, and not just in ads, but into support networks and astroturfing and on and on. The result? Rich jerk who occasionally said positive things about the working class, and actually would do a little fighting for them, sort of, won the election. Oligarchs who plowed money into the election like their lives depended on it lost.

As corollary, I would say another lesson, to be learned or ignored, is this: in a democracy, the elites and oligarchs ignore the proletariat and the common man at their peril.


giphy

Lesson 6? Presidential debates just aren’t that important.

Might be becoming less important as time goes on. Neither performed that well but Trump was generally seen as the loser. My own observations were that he did not come off as presidential, and sometimes not even as competent. He missed obvious opportunities, was not articulate, and mostly HRC more than held her own against him. Ultimately, none of that seemed to matter that much.


Predictions now?

  1. Hillary will not go to jail, despite Trump’s implying that she’d be in jail under a Trump presidency.
  2. There will be more turn over in the Trump cabinet than is typical. This may not be a bad thing.
  3. Deportation will become self-deportation, perhaps a beefing up of e-Verify.
  4. There will be no wall.
  5. He will urge the house to repeal ObamaCare. It will become something similar with a different name. I don’t believe pre-existing condition coverage will be going anywhere. Now that the Republicans control everything, Obamacare will cease to be a huge issue.
  6. Many on the left will rend their garments and tear out their hair, predicting that abortion will be outlawed, all Mexicans forcibly deported, Muslims shot on site at airports, etc. None of this will happen, but nobody will be called out on their crazy predictions.
  7. Democrats will continue to make a serious push for an end to the electoral college, especially if they get the house or the senate in midterms, but will make no headway.
  8. The filibuster, if used much, will get the nuclear option. For reals, this time.
  9. And, my far out prediction? Trump puts some fairly well-known Democrats in his cabinet, and maybe plays identity politics (minorities edition) with some of his choices.
  10. And, along with that, keep in mind that Trump is less partisan than he is Trumptastic. He will continue to make enemies amongst Republicans and Democrats. It won’t matter, he’ll still win re-election in another close race in 2020.

Morning Report: The unthinkable just happened 11/9/16

Vital Statistics:

Last Change
S&P Futures 2134.5 -4.0
Eurostoxx Index 333.0 -2.0
Oil (WTI) 44.8 -0.2
US dollar index 88.3 0.3
10 Year Govt Bond Yield 1.96%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 3.61

Stocks are bonds are down after Republicans ran the table last night. Volatility will be the rule of the day.

Republicans ran the table. House, Senate, and Presidency. Obviously the conventional wisdom was dead wrong.

Bonds are down surprisingly, given how they were behaving in the early Asian sessions. As a Trump victory was looking more and more likely, bond yields were falling (having hit a low of 1.72% at one point). Just after midnight, the rally reversed, and bonds sold off to where yields hit 1.96%. Interestingly, the 2 year has rallied to 71 basis points or so and has now sold off to 83 bps. So people got whipsawed big time overnight, which means we should expect some volatility in rates going forward. Volatility tends to beget volatility. Be careful with your locks.

Stocks were initially slammed on the result as well, with the S&P 500 futures down over 120 points. That has since turned around and we are looking at modest losses. Just another day at the office for the markets.

Obviously, no one saw this coming, and a lot of people are wondering what a Trump presidency means to markets. First of all, I think fears that Ted Nugent would be running Homeland Security and Jesse the Body Ventura would be running Treasury are overblown. A lot of the serious candidates who would be good choices were not in the mix for consideration because they didn’t take Trump’s candidacy seriously. That will now change, however I think we will probably see a few outsiders: guys like ex-GE CEO Jack Welch, KKR head Henry Kravis, or Carl Icahn. VP Mike Pence will have a much bigger role than a traditional VP.

Trump’s model would be Ronald Reagan, which was probably the best comparison. Reagan was scoffed at by the elites: he was an actor, went to *snicker* Eureka College, was from the land of fruits and nuts, however he beat the brainiac Jimmy Carter who the establishment liked a lot. Reagan however surrounded himself with the best of the best and brightest of the conservative movement and became a successful president. Reagan was not a detail guy either. For Trump, it all comes down to his personnel who will handle the heavy lifting while Trump points in the general direction where he wants things to go. He doesn’t have the knowledge base to get all that involved in the nitty-gritty of policy-making. All of that said, the people who worry that he is Benito Mussolini II (actually I think the better comparison is Silvio Berlusconi) forget that people change, but the US system of government doesn’t. It was designed specifically to make it impossible for a dictator to make it work. He is going to be way more restricted in what he can actually do than the left fears.

I would suspect this morning a lot of market pros are googling Donald Trump’s economic policy. He has generally been all over the place. I think he will be more financial sector friendly than Obama was. He has trashed Dodd-Frank a number of times, and I suspect that D-F will get tweaked legislatively, with the goal of providing market participants more certainty into what the rules of the road are. Provided he does this right, it could help bring back the private label securitization market, which has been largely dormant with the exception of highly overcollateralized jumbo securities. Given the thin ice that the CFPB is on Constitutionally (and now a conservative replacement for Scalia on the Supreme Court), the agency might be pulled back onto the reservation.

Trump has been all over the board with respect to tax policy. He once advocated for a wealth tax, which even FDR couldn’t stomach. Now, he wants to eliminate the estate tax, cut corporate taxes and flatten the income tax code. Corporate tax reform is ripe as both parties agree we need to do something. Carried Interest could probably go by the wayside as a bargaining chip with the left.

Donald Trump has also been critical of the Fed, and he probably will nominate a more hawkish Chair than Janet Yellen, however her term expires in late 2018 so this isn’t a front-burner issue. The action in the 2 year suggests the markets are handicapping a lower chance of a hike at the December meeting. IMO, the Fed will do what it usually does: take a cue from the behavior of the markets.

Here is what Trump might do for housing finance reform. Punch line: Housing finance reform simply isn’t going to be a front-burner issue. It wasn’t really discussed by either party during the campaign, and the current system might not be ideal, but at least it isn’t a problem.

With respect to foreign policy, remember that Barack Obama ran as the ant-GWB. He would end the wars in the Middle East, close Guantanamo Bay, and build on our alliances in Europe. After all was said and done, he pretty much continued to do what GWB was doing. Trump will have the same constraints, especially in trade.

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