US Elections: The Big Picture

Published on November 4, 2020

Election day is finally behind us and the American people have spoken, and even while all the votes have yet to be tabulated, and with the near certainty of recounts in at least one state, Wisconsin, the message to us seems clear.

** Taking the liberty to project politically loaded conclusions where others may not, it seems to us that former Vice President Joe Biden will clinch at least the 270 electoral votes needed to win the presidency, and perhaps as many as 290 electoral college votes to President Trump’s 248 to 268 electoral votes. Biden has so far won the largest popular vote in US political history, approaching 70 million and still counting.

** And with apologies to SGH readers still rooting for a Trump win, we think it highly unlikely that the incomplete results from Arizona will turn in favor of President Donald Trump. Even if he holds on to Pennsylvania’s 20 electoral seats after the full Philadelphia and Pittsburgh results come in, without Michigan’s 16 electoral votes, the president’s path to 270 and re-election appears closed.

** Having said that, the massive surge in votes to reelect the “anti-establishment” candidate President Donald Trump against, yet again, all pollster expectations is important – for all the headwinds facing him Trump still got three and a half million more votes than he did in 2016 — and along with that the most important result for markets last night may have been the American public’s refusal to sweep the Senate blue as had been hoped by many Democrats.

** In the very near term, that news is not good for fiscal stimulus. Even though Majority Leader McConnell has called for a deal to now be passed in a lame duck session, it is fairly certain its total size will be tallied down from the $2 trillion ballpark package that House Speaker Nancy Pelosi was negotiating before the elections with Treasury Secretary Steven Mnuchin, and which was being endorsed by President Trump.

** For one an outgoing Trump, even if he wants to, will have far less political capital to expend on a large spending package that is clearly anathema to most Republican Senators. And second, if a deal cannot be reached in the lame duck session, the emboldened GOP Senate will have even more incentive to block a high-ticket package and hold out for a fiscal support bill closer in scale and ambition to its far more modest spending proposal that previously never even got to a floor vote, including significantly lower numbers for state and local municipalities.

** To get the headline number back up to where an incoming Biden White House and Democratic House will want, the Democrats may need to offer tax cuts of some kind, more explicit support to small businesses, and certainly the McConnell demanded beefed up liability insurance protection. That scenario, either a smaller fiscal bill, or one with tax cuts, would be the price to be paid by Speaker Pelosi in the loss of Democratic seats against all expectations of net gains, not losses, of the Democratic House majority, and may quickly run afoul of party progressives.

**And looking ahead to the fiscal year 2022 budget, we find it hard to imagine a McConnell-led Republican Senate will pass any bill remotely approaching the $3 trillion climate, child care, K-12 education support, small business lending, and infrastructure spending plans mooted by the Biden team. Likewise, the Democratic ambitions to repeal half the Trump corporate tax cuts has also collapsed with the failure to win a clear majority control of the Senate.

** But the most consequential near term repercussion of a Republican majority control of the Senate will be, at least for now, that the 60-vote filibuster rule will remain in place, a rule that for years has kept narrow majorities from passing some of the more controversial legislation that would now include “reforming” or “packing” as others would call, of the Supreme Court, or efforts to grant statehood to Puerto Rico and the District of Columbia which would solidify a Democratic Senate perhaps for generations to come.

Finally, while we – and markets – may be quick to jump to our conclusions, we would be woefully remiss to dismiss the White House efforts to legally challenge last night’s vote counts lightly.

We do not believe it will ultimately change the results, but campaign officials are quick to note that when the vote count, at least, was swinging heavily last night towards Trump, it was in largely major Democratic urban centers that tabulation ground to a halt – Detroit in Michigan, Milwaukee in Wisconsin, Atlanta in Georgia, and Philadelphia in Pennsylvania.

And so whatever the merits of such accusations or innuendos of foul play, the door will be wide open for legal challenges that were already anticipated by the Trump team, including most importantly a Supreme Court ruling that called for the segregation of votes tabulated after November 3.

 

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