Blain’s Morning Porridge – March 3rd 2020
“Hoist the flag and let her fly, Yankee Doodle do or die..”
A beautiful morning, frost rimmed as the sun rises into the clear blue sky. Our breadth hangs in clouds as we wait at the station. Southwestern Railways continues the mood with broken heating in the carriage. The 40-year old train is freezing as it rattles, rolls and shakes the whole way up to London. My fingers ache from typing in zero degrees. Icicles hang from the fur coat of the Lady sitting next to me. It’s like something from Dr Zivago – but without the Balalaikas playing a love theme for Julie Christie. It’s unbelievable in this day and age… Livestock can’t be treated this way, but that’s what a £6800 season ticket gets you. My MP has forwarded my recent letter to the Transport minister, but Southwestern Railway’s customer abuse team haven’t deigned to replay to any of my recent complaints.
Enough about the most useless company on the planet. The police say I’m not allowed to propose mounting Southwestern Rail’s CEO’s head on a spike at Waterloo – it would not be Woke to do so. I am supposed to be kind instead. Bollchocks to that.
Back in the real world, we have an answer: “Dead cats infected with Coronavirus do Bounce..” Its amazing what the expectations of concerted Central Bank and G7 action to juice markets can achieve. Corporate Profits may be crashing, the corporate debt markets are locked tight in illiquid amber, credit ratings are tumbling, the IMF warns of recession, but “hey-ho, let’s go” and buy buy buy stock markets. On balance.. better selling opportunity me thinks.
Back in the USA…
At the risk of being told I have no right, as a Scotsman living in England, to comment on American politics.. here I go with the view on what it looks like over there from over here… It’s going to be important for markets..
Today is Super Tuesday in the US, and it could be the day that defines the November US Election. The pace of the election has suddenly stepped up a gear. Joe Biden looked dead in the water till he won South Carolina. Now 3 of his moderate Democrat rival contenders have pulled out and endorsed the former Vice-President. While he’s all smiles, Biden looks an old man – but his campaign has been reinvigorated. Biden and Mike Bloomberg will now duke it out for the votes of the 60% of Moderate Democrats for the nomination to fight Trump.
They will be up against Socialist maverick Bernie Sanders who will likely win the 40% left-lane of the party. Cutting the moderate slate to two candidates changes the electoral maths of today’s vote completely. A moderate can now win the Democrat nomination, and seriously challenge Trump for the presidency – if it wasn’t for all the baggage.
The 2020 US election is going to be fascinating for all kinds of reasons. It will be utterly polarised between Trump lovers and Trump haters. There is no middle ground. Democrats want to get Trump out. Nothing else matters. In any normal world you would expect them to do well. Millennial voters will be out in force, while Generation Z voters (under 23) are ethnically diverse (less than 50% white) and represent 10% of the votes, – although they tend to vote and care less than older electors who turn up in greater numbers. In places like California, Bernie’s clarion calls against income inequality appeal to voters struggling to make ends meet in the wealthiest state.
But this is not a normal world… this is the USA. This is a country where the President can hold Ukraine to ransom to slander a political threat, and make it look like Biden was the bad guy! It was inspired brilliance and political theatre of the highest order. And utterly shocking to those of here in Blighty where the very idea that a politician might lie causes conniptions… (or at least it did till recently…)
The 14 states voting today represent some 33% of delegates to the Democrat Caucus. Because of the way the numbers work – you get zero delegate credit if you poll less than 15% – left wing socialist Bernie Sanders could conceivably have won an insurmountable lead. He could have polled less than 30% but still pulled a much larger share of the delegates. The moderates were each poling just shy of 15% before Pete Buttigieg and Amy Klobuchar pulled out to endorse Biden – meaning their votes would have been lost and piled up to Bernie.
Now the 60% of moderate Democrats will likely pull behind Biden, or potentially Bloomberg, and it could be the Bernie threat has dissipated. Most of Bernie’s voters wanted radical change, a fundamental reassessment of what had gone rotten in America in both government and corporate behaviours, and a focus on equality, fairness and social justice. Some will struggle to vote for the Moderates who will do little more than tinker with Washington bureaucracy and continue to play the Capitol Hill politics that turns off most voters, spawned Trump and created the radicalised right-wing populist agenda.
But a vote for Biden (or maybe Bloomberg) will be a vote against Trump, and that’s all that Democrats really care about. Its also likely to wobble markets a little – they hate to admit it, but Trump has been good for markets.
Lots of voters thought the Democrats had already lost the 2020 election, and until yesterday that looked nailed on. Bernie would have won the nomination and spectacularly lost the election. Now there will be a reassessment. The anti-Trump rhetoric of the Impeachment trial was a voter turn-off – that could be turned around to highlight his failings. Bernie’s Jeremy Corbyn style socialist nonsense as a complete vote loser – but could be a vote winner if he falls in behind Biden to “Get Trump Out”!
Republican strategists were desperate to downplay Trump’s likely win. They learnt from the UK election – keep telling the electorate how dangerous Corbyn/Sanders will be for jobs, growth, the economy, apple pie and the American dream, but keep telling them the vote is much closer than they think. And to a degree they would have been right.
Until January, all Trump had to do was sit back and let the Democrats lose.
Suddenly the story has changed. Biden will garner votes for not being Trump. There has never been a president like Trump. He’s never got close to breaking a 50% approval rating among the whole electorate. Because of the way the electoral college works it’s conceivable the Democrats can win the popular vote, but still lose in the electoral college – as happened to Hillary Clinton 4 years ago when Trump edged out Hillary Clinton by 0.2% in Michigan, and 0.7% in Pennsylvania and Wisconsin. Clinton won the national popular vote by 2.1 percentage points, 2.9 million votes, but effectively lost the election by 77,744 votes in Michigan, Pennsylvania and Wisconsin!
These are the states critical to this year’s election.
And now the economy and markets may longer be playing Trump’s tune. It’s all about the Economy Stupid! A snap virus recession is likely to impact global trade. The recent global PMIs show a global trade and manufacturing contraction. The IMF is warning about the global economy slowing dramatically. The market is only hanging on because of expectations of accommodative central bank policy support.
Trump may have got tough with China, but did he push too hard? China’s growth and its whole economy may be in such serious trouble it triggers another long-term global recession. (Analysing just how badly China will struggle as a result of Coronavirus, the busting corporate lending boom, banking stress, and the slowing of prestige projects like the Belt and Road, raise a whole series of questions about sustainability of the last 20-years of boom-time. China hitting the economic buffers hard – as may be happening – could trigger a global economic pandemic.)
As I wrote up near the top, this could be the day that defines the US election. If the Moderate Democrats make a decent showing, then they could yet overturn Trump in November. And markets are unlikely to like that. Trump is already promising more of tax cuts to juice the economy and drive markets. Democrats will probably do a bunch of dull boring predictable things tinkering with the economy, health care and other stuff that will be utterly uninspiring and do little to bolster confidence.. They will propose rules and taxes that will leave Republicans choking on their coffees (or whatever Repubilicans drink).
For the majority of Americans who don’t approve at Trump, whomever the Democrats propose will have the distinct advantage of not being Trump… and that’s apparently a good thing…
Five Things to Read Today
FT – Intense trading sends exchange volumes to record
FT – Virus sends Chill through risky European bank bonds
WSJ – Tim Cook and Apple Bet Everything on China. Then Coronavirus Hit.
BBerg – Many Investors Have Yet to Factor in Virus Hit, Bernstein Says
ToryGraph – Coronavirus threatens a global credit crunch and a cascade of bond downgrades
Out of time, and back to the day job