By this time next month, we will know two things, and which we think will likely lead to a third:
*** Hillary Clinton and Donald Trump will be the respective nominees of the Democratic and Republican parties this November to be the next President of the United States. ***
*** Texas Senator Ted Cruz will pivot his crusade back to Capitol Hill, where he will rally the GOP revolt against House Speaker Paul Ryan’s efforts to craft a FY2017 budget. ***
*** Whomever is the next President, he or she will pursue an ambitious growth-oriented, fiscal stimulus policy, as all the other options – budget cutting via the Sequester, tax-cutting via “comprehensive tax reform,” or the budget fence-straddling of the last four fiscal years will have been rendered political dead-ends by the stormy, transformative politics of the presidential campaigns. ***
With the first four primaries now in the rearview mirror and the “Super Tuesday” of 12 state primaries and caucuses just four days away, the Democratic and Republican parties are far enough along in the process to determine their nominations for president that we can make a few predictions.
Trump Dominant on the GOP Stage
The first is the most obvious, Donald Trump is easily the dominant actor among the GOP candidates, and indeed, on this year’s political stage. Even after last night’s personal attack-littered GOP debate, it remains even more likely than not that he will win the Republican nomination.
Both the media and the vaunted, or should we say mythic, Republican “establishment” had dismissed his chances of ever getting this far into the primary season, much less that Trump could ever amass enough delegates to win the nomination at the GOP’s mid-July convention in Cleveland, Ohio.
But then, nearly everyone struggling to understand the seismic upheavals of this year’s political dynamics has consistently under-estimated the power of Trump’s mastery of the media coverage and his ability to tap into the anger and desperation of alienated blue collar voters, Tea Party supporters, and even the evangelical base of the party, which for a twice-divorced billionaire New Yorker is no mean feat.
Trump’s supporters are less ideological and far more populist than any voters of the GOP’s traditional base of fiscal conservatives, social issue conservatives, and evangelicals, and he is in fact drawing supporters from across all three of those groups. He is especially strong with those disgruntled Republican voters with a high school education or less. “I love the poorly educated,” Trump proclaimed after his Nevada victory.
Trump himself is not angry, instead he displays anger. He feeds off the anger he sees at his frequent, packed-to-the-rafters rallies. Trump is in turn rewarded with the most loyal voter base in the five-man GOP contest.
Yes, he flashes anger when he is attacked, in a debate such as last night’s, or even by a quote from the Pope, but his fans view that as symbols of Trump’s superior strength and faithful determination. It is said by some pundits that Trump has an iron grip on his voters. We see it the other way around – his voters are holding onto him, as if for dear life.
Last night, the Republican debate from Houston moderated by CNN was the most combative of the series so far. Donald Trump was under constant attack by Senators Marco Rubio of Florida and Ted Cruz of Texas. While Trump slipped into incoherency when pressed on substance, particularly on issues related to health insurance or on foreign policy, it may not matter to those Republican voters looking for a strongman.
In a field of five, that percentage trumps all.
The GOP on the Eve of Super Tuesday
This coming Tuesday, Republicans in ten states hold primaries and two states hold caucuses. Some 595 Republican delegates – 48 percent of the 1,237 delegates needed to win – are at stake and will be allocated proportionally. According to polls, there is a chance Trump will sweep every state. Trump is tied with Cruz in one Texas poll, and trails in others. Trump has a commanding lead in Massachusetts.
Those kind of polling numbers underscore the obvious: as much as the “unelectable” Trump is alluded to, he is generating record turnout. In contrast, the “electable” Wisconsin Governor Scott Walker’s campaign lasted about six minutes, while the equally “electable” Jeb! had well in excess of $100 million to play with and still couldn’t create a buzz, and the “electable” New Jersey Governor Chris Christie may have had his moment when he bludgeoned Rubio Jersey-style in a debate, but he still never saw double digit support. The media also pretended an electable Carly Fiorina was rising and it did nothing to slow her freefall, while the previously anti-establishment Rand Paul went establishment and flopped like New Coke.
And for all the rage against Washington insiders and rigged politics, one can only imagine the reaction from this new base of populist Republican voters if the party attempted an in-party coup against Trump and handed Rubio the nomination through the backdoor of a brokered convention as murmured in some GOP circles. What better way to show the base that their anger at the party’s status quo is justified?
The story goes that a similar coup, by the way, was considered when former Arizona Senator Barry Goldwater was headed for the GOP nomination in 1964. Pennsylvania Governor William Scranton, Richard Nixon, and George Romney were so discouraged by the prospect of a landslide loss (which was exactly what happened) that they met to discuss overthrowing Goldwater at the convention and installing Romney. Nixon later campaigned for Goldwater when no one else would and wound up winning four years later.
So barring an eleventh hour attempt to broker an “Anybody But Trump” candidate at the GOP convention, it looks for now that Trump has only two serious rivals still standing, barely. The two relatively inexperienced Senators, Cruz and Rubio, face considerable challenges (absent a miracle, which cannot be ruled out in this strangest political year in a lifetime, John Kasich of Ohio is simply too under-funded and too far behind in too many states to catch up).
Senator Rubio’s campaign on Super Tuesday is still focused on beating Cruz for second place. A shutout on Super Tuesday will however close the checkbooks on Rubio, unless and until he defies the current polls and prevails in his home state of Florida’s March 15 winner-take-all primary. After March 15, the map gets harder for Rubio, especially if Kasich stays in competition through the Midwestern states such as his Ohio home state, where he has a slight lead over Trump, and Michigan, where he is in second place behind Trump and ahead of Rubio.
Senator Cruz has his own appointment with doom on Super Tuesday – the March 1 primary in Texas, a race he could lose to Trump. If Cruz loses his home state of Texas, or even if he wins only by a narrow margin, his presidential aspirations will be vanquished as he likely will finish third, or worse, in other Super Tuesday states.
Cruz, in other words, may have “Michele Bachmanned” himself with his campaign and will see his star fall big time – unless he pulls a Nixon and stumps for Trump (Governor Christie just did). But we suspect Cruz’s attention will, in fact, turn elsewhere, back to Capitol Hill.
The Cruz Crusade Goes to Capitol Hill
We foresee a bitter Cruz taking his aggressive tactics back to the Congress where, we predict, he will seek to disrupt Speaker Paul Ryan’s management of budget and appropriations in the coming months. The Cruz campaign is a crusade against what he calls the “Washington cartel,” and what better way to overturn a cartel than by subterfuge from within Congress if he cannot do so from 1600 Pennsylvania Avenue?
Unwatched as the presidential primaries draw huge crowds is the simple fact that Speaker Ryan needs a budget and appropriations deal to wrap up the Congress by the hoped-for adjournment date in July. As of today, Ryan lacks the votes to do so. But Ryan has a greater ability to woo support from the dissident House conservatives than did his predecessor, John Boehner.
Nevertheless, by our count, Ryan has less than half of the 40 House Republicans in the “Freedom Caucus” supporting him. Meanwhile, Ryan’s maneuverings to capture those dissidents has cost him the critical support of House Appropriations Committee Chairman Hal Rogers (R-KY). Ryan is unlikely to surrender, of course, but that attitude does not get him out of the vise. If he fails to pass a House budget resolution and all twelve of the appropriations bill as he has promised, he will be forced to abandon “regular order.”
By necessity, he will have to move an omnibus appropriations bill, or a continuing resolution, otherwise the government will face a shutdown prior to the two party conventions. If led by someone sneaky and brilliant, such as Ted Cruz, the House Freedom Caucus is in a position to both cause a temporary fiscal crisis and to profit from it, however it is resolved.
By the way, as fate would have it, Speaker Ryan is the chairman of this year’s Republican convention, which will no doubt provide the opportunity for all the still-smarting Cruz supporters in the hall to boo to their heart’s content. And maybe their chorus will be joined by a sprinkling of Trump supporters.
But more importantly, the convention chair will provide Ryan with an ideal party platform to also map out a coherent economic policy agenda that both Trump as the presidential candidate of the party, and more importantly, some dozen or more GOP Senators running for re-election in blue or purple states, can run on by tacking to the center.
The effectiveness of that effort by Ryan may in fact prove to be crucial in whether a Trump campaign can successfully battle what is very likely to be a very aggressive campaign by the “Clinton Machine” that will go far beyond anything the rather meek attacks of Jeb! or even the Law and Order-style television prosecutions by attorneys Rubio & Cruz during last night’s debate.
Meanwhile, on the Democratic Side
With the hugely entertaining theatrics of Trump and the four other Republican horsemen of the Apocalypse drawing nearly all of the media attention so far, it is almost easy to forget there is still a race on the Democratic side between former Senator and Secretary of State Hillary Clinton and Vermont Senator Bernie Sanders. But to cut to the chase, Clinton is almost certain to survive the unexpectedly strong primary challenge by Sanders, the self-proclaimed Socialist, largely on the strength of African and Hispanic Americans loyal to her husband.
Hillary Clinton’s campaign began on a false premise, namely that the core elements of the Obama coalition would adopt her campaign as his third term. She, and her campaign managers, took it as an act of faith that women and younger voters would embrace her as she embraced their cultural modernism. When she attacks Republicans, she uses phrases such as “we cannot afford to turn the clock back” or “we [must] protect and build on the progress we’ve made.”
But Democratic voters do not believe she is necessary to maintain the progressive direction of American culture, such as the acceptance of same-sex marriage now secured through the Supreme Court. Moreover, critical factions of the Obama coalition feel vulnerable in their economic lives and are agitating for a more demonstrable change. She is the status quo. Bernie’s theme is a “future you can believe in.”
It turns out that the Obama coalition is split between Clinton and Sanders. Hillary is not capable of attracting voters to herself, as herself, nor as a third term for President Obama. As an example, she lost 82% of voters under 30 in Nevada, while winning the low turnout caucuses in that state through the intercession of Senator Harry Reid and the hotel unions in Las Vegas. Hardball campaign tactics work for her.
These are the lessons we believe her campaign has learned and will apply to win the primaries of March 1 and March 15. In turn, winning most, if not all of them, will put her far enough ahead of Senator Sanders that she will not need her super delegates to secure the nomination.
Hillary Clinton can also ultimately prevail over whomever the Republicans nominate, provided she runs hard against her rival and gives up any reliance upon her “appeal” alone. The “Clinton Machine” is a name given to the political apparatus behind her campaign for a good reason.
Indeed, we suspect a Trump nomination advantages Hillary Clinton because Trump has the highest unfavorable ratings of any potential party nominee in post-World War II history – except that Hillary Clinton’s unfavorables are tied with his. His will stick and she will exploit them. Hers may or may not fade, as the public takes its first look at a general candidate Donald Trump.
Trump’s attacks on his Republican rivals have worked because of two factors. He intimidates each and every GOP candidate and the media loves the boost in ratings by promoting the fist fights among Republicans. The Clinton campaign will not be intimidated and can be expected to go after Trump hard.
It has to be duly noted, however, that there are dark clouds of real prosecution hanging over Clinton, and even Trump. Will the Attorney General of New York make his case that Trump’s failed real estate “university” was a fraud? Will the Federal Bureau of Investigation recommend prosecution against Hillary Clinton and her top aides for willful violations of the law against mishandling confidential documents?
These are terrifying potentialities to the candidates and are certain to be used as bludgeons in the political battles. Nothing is guaranteed this year, not even that it is “too late” for new candidates to enter.
A Translation into Fiscal Tailwind
But ultimately, perhaps the single most important takeaway for markets from the twists and turns of the presidential campaigns until Election Day, November 8, is that whomever is president, Trump or Clinton, we think they will face an entirely altered political dynamic on a chastised Capitol Hill. That, we think, portends a turn to a more significant fiscal tailwind in the coming years that will stand in stark contrast to the austerity and budget fights since 2011.
By January of 2017, the new president will need to dominate Capitol Hill or be swallowed up by the tides.
Notwithstanding every word of rhetoric on record to-date, we believe Hillary Clinton, as president, will press down hard on the fiscal accelerator in order to counteract the prior decade of fiscal headwinds in the expectation of increasing her support among the public by boosting near-term GDP growth.
On the campaign trail, Hillary Clinton, by her party’s political necessity, is channeling the heroes of today’s populist left, Senators Sanders and Elizabeth Warren. Once in office, however, we suspect she will revert to her centrist bearings and will steal the policy playbook of former Treasury Secretary Larry Summers who has been at the forefront of pressing the case for an elevated fiscal policy to stimulate higher growth and to lessen the dependence on the overextended monetary policy of the Federal Reserve.
As to a President Trump, we would not be surprised if the ever pragmatic deal making governor of Ohio, Kasich, ends up his running mate. Trump may be more than happy to turn over much of the running of the government to Kasich, just as he turned over most of his business operations to his elder daughter – and watched his asset values triple.
It will all depend, in the end, on where he sees the Art of the Deal taking him. But we do strongly suspect it will be a gold-plated boost to a spending and to growth, and it will be great, the best, and beautiful.