Christian Takushi, Macro Economist & Geopolitical Strategist. 6 November 2018 (17:15 New York Time GMT-5hrs), Switzerland.
People have asked me lately “Christian, what do you expect for November 6th?” My response may surprise some of you.
In my humble view and from the distance, the most important thing about the US Mid Term Elections today is not whether the Democrats or Republicans can win. It is that the results are likely to be blown out of proportion. Why?
- Congress is likely to remain pretty divided and tiny majorities can help a party feel good, but they are overrated. 100% of the forecasts I have seen (which were many) are no real victory for anyone: No one will have a clear majority to make big changes. No one is seriously expecting the DNC or RNC to get 60 seats in the Senate. Now, that would be something!
- How many of you know that only 4 out of 10 Americans (40%) are expected to cast a vote? Thus, some 140 million Americans are staying away from the polls. Amazing. They didn’t even register. Without that information, you can’t properly interpret the results. Considering that within that 40% minority most have a party affiliation and super-minorities of independents and other groups could tilt the balance, this Mid Terms 2018 could deliver surprise outcomes.
- The Republican party has been overwhelmed by the DNC machinery over the past year, but the Trump movement has come to the rescue of the RNC over the past month. If there is a shock tonight and the DNC is defeated, I don’t know if we can say the Republican Party was victorious. This late momentum was all about Trump and his followers.
This is not like the General Elections, which draw a majority of voters to the polls and can therefore be a reflection of the mood of a nation. Today some may like the direction of the country, but still vote to elect a Democrat as local representative.
Who is this minority that goes to vote on the Mid Terms? In my analysis most of them are party members and party sympathisers. As well as politically interested independents. Many analysts say this is a referendum on President Trump’s job. Really? I don’t think so, Most of those 40% voting today have already made up their mind about Trump long ago. Many made up their mind on him already in 2015.
There is a minority within that minority that has registered and that I consider true independents. Assuming both parties have done equally well in mobilising their base, it is this small minority of registered independents that may decide many of the crucial toss-up states and districts. This is not “the American people have spoken” kind of moment.
All the forecasts I have seen point to a US Congress that will remain more or less split. Just as the Founding Fathers probably intended it to be. They designed a federal government that should remain small, divided (in check) and self-occupied to some extent. They believed that too powerful a central government would soon or later curtail the rights of the states and the citizens. Thus, Washington may be in disarray, but America can prosper. Unthinkable for most observers in Europe: How one views the role of central government – That is probably the biggest difference I see between Europe and America (along other dynamic economies). And it matters: In the UK the government runs 43% of GDP, in Singapore the government runs 17% of GDP.
It is for these reasons I have not given a forecast for this Mid Terms 2018. But, I do have an opinion, and I tend to think that IF there is an upset it will be in favour of Republicans.
Why I am not overwhelmed by these US Mid Terms ?
If the Democrats take Congress, they will obstruct or contain the executive branch. Markets and businesses are likely to be affected negatively, and it will probably increase the probability for the Republicans to win in 2020.
If the Republicans can retain Congress, Republicans will celebrate it as America applauding their work and their President.
Given the global geopolitical-macroeconomic context, a Democratic win today would increase the Republican chances to extend their mandate in 2020. But if the Republicans win, it will be in my opinion, thanks to Trumps’ massive rallies in key states and how he has been able to mobilise the diverse Trump supporters. One Republican strategist put it this way “Look at these huge crowds Trump is mobilising – I just wished they were Republicans”. Trump has asked them to vote Republican, but they are foremost Trump supporters.
I’ve written earlier that after Nov 2018 I see the US president “contained” on the domestic front, while more “active” on the Foreign Policy front. That is probably the biggest outcome from this Midterms.
Can there be a surprise tonight? Yes!
At least for two reasons. Firstly, with few people voting, any late or undercurrent trend can have a big impact. Beware the media superlatives: a record turnout of +2.5% would simply mean that 41% of Americans cast a vote instead of 40%.
Secondly, just like in Europe after BREXIT, US political analysts and media have not significantly adjusted the way they model and poll after their humiliating performance in 2016. Actually for the most part they use the same samples and methods. They operate more or less just as they did in 2016. And their understanding is focused on those voters they track so well. But there are some 40 million potential voters at the margins they know almost nothing about. Like financial experts and economists they get sometimes blown away by surprises coming from areas they don’t cover or soft factors. My point is: Experts don’t understand the Trump movement, and they have entered this race in earnest.
Let’s be pragmatic – The Democrats have everything going for them: history, electoral map, organisation, late registration, massive media support, polls, a poorly organised Republican Party, some underwhelming Republican candidates etc. To me the real big surprise of these elections so far has been that despite all these advantages, the DNC has not had a massive lead in the polls yet. Still, these are powerful advantages.
Americans are electing local and state representatives. On the ballots the Democrats are facing the Republican Party, not Mr. Trump. That worked well until September.
The Republican Party is not fit – Trump supporters are
In my opinion the Republican Party is not as well organised as the DNC. The Republican Party has not yet recovered from the 2015-2016 disaster, when it actually run against “outsider” Trump and lost. The DNC started in earnest preparations and mobilisations over a year ago. The Republican Party was unable to catch up until the Kavanaugh drama.
Trump has been able to mobilise masses like no one has ever seen at the Mid Terms. But will they vote for the local Republican candidates? Maybe not everywhere.
My view has changed over the past 7 weeks
Back in September I saw a Democrat takeover. With a pretty high likelihood of more than 70%. The DNC put together an impressive machinery. Not only that, also some interesting candidates.
But the Kavanaugh hearings changed the dynamics. The excesses around those hearings were – in my opinion – a disaster for the DNC. This emboldened Republicans, Trump followers and independents. The latest news – just days before election day – that one of the worse accusations against Mr. Kavanaugh was admittedly a fabrication is not helping the DNC with independents. Still there was Pittsburgh, a sad event that Republicans probably handled poorly, benefitting the Democrats. As last big event Pittsburgh could somewhat re-set us back to the original trend which favors the DNC.
Although the biggest momentum was clearly within Trump supporters, this is not necessarily the local Republican party – there could be a translation loss. But it is this movement that risks containing what should be a clear Democrat takeover.
Any surprising factor or group? Having benefitted from the Trump economy, I think African Americans and Hispanics could deliver a surprise. The DNC was able to mobilise Hispanics, but not so African Americans. Last but not least, evangelicals could turn up as they did in 2016, even though they are less numerous in the suburbs voting today. It will all come down to mobilisation and turnout, on both sides.
As I said; this Mid Terms 2018 will be foremost a testimony of which party mobilised its base the most, and how some super-minorities weighed in the election. Barring any party’s real “wave” to clinch a decisive majority, we will be hesitant to join consensus and draw big conclusions. I see pretty much a split Senate, split House and split board of governors.
Should the Democrats retake Congress, I expect markets to react negatively. It could be the beginning of a much more volatile market period. We will know in a few hours. The first polls begin to close in 5 min.
Christian Takushi MA UZH, Macro Economist & Geopolitical Strategist. 6 November 2018 (17:15 New York Time GMT-5hrs), Switzerland.
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