Wed, 11/04/2020 – 10:25
Writing a Daily after an election is usually quite clear cut: with sleepy eyes, you describe who won and who lost. In this case, at time of writing, it isn’t so clear. So what can we say?
First, as had been alluded to many times, the polls were hilariously, tragically wrong. As someone on Twitter quipped: “He’s called Nate Silver because his calls always come in second.”
This was not a Biden +7,8,9 or 10 election. Instead it is a nail-biter. Second, we have not seen a Blue Wave – but Democratic turnout was up impressively in some locations and among some demographics. Third, we have not seen a Red Wave – but Republican turnout has been even more impressive, especially in rural areas, and among Hispanic and black voters, at least relative to 2016.
So if we don’t have a Blue Wave or a Red Wave, what do we have? Purple rain. At time of writing Fox News had, controversially, given 800K votes remained on the table, called Arizona for Biden, “flipping” that key state from 2016 and seeing betting odds follow. However, Trump had taken Florida and Ohio and Texas, and sat very well-placed in North Carolina, with Georgia somewhat less certain but still requiring a huge Democratic swing among remaining pockets to flip too.
Both presidential candidates therefore now look to the Rustbelt (and Nevada) for victory – and there Trump has so far outperformed even his 2016 vote totals in rural areas, while inner-city turnout has been mixed, and questions over early voting totals, suggesting there is a clear path to 270 electoral college votes for the incumbent, should that trend continue, as well as for Biden if it is not. (And notably for the pollsters, Wisconsin had a Trump lead with only 25% left to count, when the last major poll had had Biden +17; by contrast, Minnesota looks set to go for Biden). There is also one scenario where we could see an Electoral College draw 269-269.
Yet at this point it appears that several Rustbelt states have decided to stop counting the vote, for various reasons, or that they will not declare a winner imminently. This opens the door to the dreaded uncertainty and delay, to appearances in court, as well as to conspiracy theories about murky electoral shenanigans, which the web is already now full of.
Biden has already spoken, claiming he is confident, sees a way to win, and to “keep the faith”; Trump has tweeted: “We are up BIG, but they are trying to STEAL the election.”
It’s still too early to draw any clear conclusions other than that the real loser of this election has been most of the polling profession. However, we can see that this is a deeply-divided and almost evenly-divided country, just now divided in different ways.
For example, it appears we have indeed seen a major class realignment within the US. Starr County, Texas is 95% Hispanic with a median income of just USD17,000: it went Clinton +60 in 2016, but only Biden +5(!) in 2020; conversely, many suburban ‘red’ districts, and perhaps states, have moved ‘blue’. As noted, red plus blue is purple; and as we also saw a record turnout from both sides, underlining renewed interest in the electoral process, lots and lots of purple.
Meanwhile, it seems the Republicans will likely retain the Senate and the Democrats the House.
The market reaction so far has been clearer. Long US bond yields tumbled (30-year as much as-18bp), reversing the reflationary Blue Wave pre-election move; the USD rallied strongly, but this has since been partially reversed; and, like a young puppy, equities seem to be happy whatever is going on just as long as they are involved. So bonds up, stocks up, and the USD net up: and the whole world looking at the US – seems both sides have combined to make America great again.
Overall, however, it’s looking like a nail-biting day ahead.
Meanwhile, even though this is not an equity-focused Daily, one must mention the dramatic suspension yesterday of what was supposed to be the looming USD35bn Ant Financial IPO in Shanghai and Hong Kong. It seems that politics is something markets need to pay attention to all over, not just in the US.
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Author: Tyler Durden