Macro Digest: the Next President of the USA, Elizabeth Warren

Macro

Steen Jakobsen

Chief Economist & CIO

Summary: 
Having had some luck in predicting upsets (Trump and Brexit) I will try my luck again, fully knowing I am tempting fate, or at least Lady Luck, but my main thesis is: Elections are lost far more than they are won.


It’s a provoking headline, I know – but it’s my projection for the US 2020 election (for now). Not an endorsement but a prediction based on prevailing facts. 

Senator Clinton lost the US election on her own – virtually anyone running besides her would have won. Brexit votes were lost by Remainers and their talking-down to the voters and a campaign which played to the lowest denominator: Fear rather than facts.

The reason for this early call on the November 2020 US presidential election is that I believe the rise of Senator Warren as the clear Democratic candidate will fundamentally change the dynamics of the upcoming 2020 campaign.

A Biden versus Trump scenario would have been two old men fighting it out over who is the most macho, while a battle of Warren versus Trump brings an enormous contrast of not just substance, but also style and persona. On the surface, it would appear to be a fight of Socialism versus Capitalism, but they do share a surprising number of beliefs: pro-Tariffs, anti-strong Dollar, and a nationalistic rhetoric and agenda. We can safely call both of them populists. Now for the contrasts, which are stark, to say the least. The most pronounced differences are on taxation, the role of government in policing big business, and the role of government in creating jobs and improving wage prospects.

To the modest degree that Trump won the election despite losing the popular vote by millions, he did bring a consistent message of slashing taxes, cutting red tape and bringing outright deregulation. These are all things that the markets love. In contrast, Senator Warren’s agenda reads: We need to take back democracy, rebuild the middle class, and end corruption in Washington, mainly by taxing the rich and attacking the big corporate monopolies. (Source: https://elizabethwarren.com/)

Here is a run down from Voice of America on her main agenda points:

So what would drive the election into the hands of Ms. Warren?

  • Socialism is no longer a “bad word” – see the Gallup poll below.
  • The mid-term election was a big victory for Democratic Party despite: Having no program, no Presidential candidate and only running on “Trump hate” – Never the less more women and young people registered and voted than in decades. Trump simply activated a big “counter-push” on his own. Perhaps we should call this Newton’s third political law: for every political revolution there is an equal and opposite counter-revolution.  ((The key takeaways from the midterm election results / (Divisive Trump era ushers record number of women into house))
  • Senator Warren speaks for middle income & low income voters, who have been left behind, also by President Trump, who has failed to turn the inequality narrative with his supply-side reforms. US under Trump sees that: The rich really do pay lower taxes than you. The middle class, the young and women seem united in seeking an alternative. Alternatives means “something very different” – and like or hate Ms. Warren, she is very clear and very different in her rhetoric and her Economic Patriotism plan (see below) than any prior recent Democratic candidate for the presidency.
  • Inside the program is an effort to reduce inequality with a wealth tax, such that Individuals and families with a wealth between $50 million and $1 billion would pay an extra 2% wealth tax and 3% for anyone worth more than $1 billion. Something which resonate well with broader America as “the rich now pay less in tax than the poor ”according to the above New York Times article. Corporate taxes for large corporations would also rise under her plan.
  • The economic situation between now and election will deteriorate at least until Q2-2020 and by then even a ‘deal which is de facto a non-deal’ with China will not be able to change Ms. Warren’s rise. Senator Warren is a “momentum stock” while Trump is a more of a slow moving “dividend stock”.

The above of course is based on two major premises: That Ms. Warren wins the Democratic nomination and that Trump does not have the ability to restart the US economy.

I am 90% certain Joe Bidden will not be able to beat Trump in a one-on-one, but I am also aware most “commentators” believe Trump will beat Warren, but I suspect that, similar to the case during Trump’s own rise, their assumptions are based on old interpretation on what drives elections. Again, let me stress the importance of how elections go down: They are lost more than they are won.

Trump will likely be impeached but will not be removed from office as too many Republican senators will stand by him, but the process will take a lot of energy out of him. Meanwhile, the trade war and his never ending ‘playing loose with the facts’ will ultimately catch-up with him. Beating Biden might be possible, but beating Warren based on policy will be a test of how extreme the non-core Trump supporters are revolted by his behavior and record and secondarily, how far the marginal Democratic voter is motivated to get out and vote when the Democrats present such a new breed of candidate.

The market impact will be heavily negative for technology companies – the FANGS, but it will also play into our Q4 Outlook: The Killer Dollar as Warren, like Trump strongly advocates a weaker Dollar.

Overall, the next months will see Joe Biden’s candidacy wither away and when the momentum of Senator Warren’s rise is more clearly registered by the market, there will most likely be a repricing of technology stocks, and even the dollar. For now the consensus thinks that Biden can beat Trump but Warren can’t. But that consensus ignores the tectonic demographic and political shifts in the US, the fact that the US’ largest generation, unlike every single other Developed Market country outside of Canada, is the Millenenial generation, who are now the deciders if they are motivated to get out and rock the vote next November.

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