The Presidential Election

David R. Kotok

Sun Aug 13, 2023

Markets have been mostly ignoring the 2024 presidential election. For understandable reasons.

Bank failures, debt ceiling, Russo-Ukraine War, Fed inflation-fighting policy, Fitch Ratings and much more have gotten in the way. There has been a lot of distraction, and the election is over a year away. So, while readers have asked us about what we are doing in the portfolio management arena when it comes to the 2024 presidential election, we must truthfully answer, not much. We think that will change as the fog of election predictions lifts and the debate becomes more intense. Or it can change sooner if there is a shock and one or both of the current front runners are no longer in play.

Right now, the two front runners are so widely consuming attention that they literally “suck the oxygen out of the room” for everyone else. An octogenarian incumbent president is challenged by a near-octogenarian former president. Each has his own baggage to carry, and the baggage is a heavy load.

So, the “morning line,” to borrow from the horse racing community, is it will be a Biden–Trump rematch. And the polling data we see regularly says that a significant number of likely voters don’t want either one. Their respective approval ratings are low. What the election will look like in terms of Electoral College issues remains to be seen. Markets haven’t focused on the uncertainties attached to the Electoral Count Reform and Presidential Transition Act of 2022. A few market observers are looking at the condition of the Electoral College map in terms of the very hot summer and climate change and state-specific shocks.

But what if there is no Biden and or if there is no Trump? That would be an immediate market-moving event, in our opinion. Any news that removes one or the other or both changes the entire landscape. It is not clear how it would impact markets, except that the uncertainty premium in financial assets would immediately go up. That would probably create pressure on stocks and on bonds.

Here’s some history to consider if the Biden–Trump rematch doesn’t happen. We will source and cite research from US Senate history. See https://www.senate.gov for all the details.

Vice-presidents are the most likely people to become presidents. This history places current VP Harris and former VP Pence at the top of the list in each party. It doesn’t mean they would succeed, but it certainly means they would each be in play. You might say they already are, given American history.

“Of the 15 vice presidents who went on to become president, eight succeeded to the office on the death of the president, and four of these eight were later elected president. Two vice presidents, Hannibal Hamlin and Henry Wallace, were dropped from the ticket after their first term, only to see their successors become president months after taking office when the sitting president died. Similarly, when Spiro Agnew resigned, he was replaced under the provisions of the Twenty-Fifth Amendment by Gerald R. Ford, who then became president when Richard M. Nixon resigned less than a year later.” Source: https://www.senate.gov.

Let’s examine the era that followed the Depression era–WW2 presidency of Franklin Delano Roosevelt. It has been an era of the popular election of electors in all states and mostly wide-open voting rights for women and minorities. There were and, some would say are, remnants of voter suppression rules; but they are certainly far fewer than they were prior to WW2. We forget that women’s suffrage became official only in 1920 (see https://www.archives.gov/milestone-documents/19th-amendment). We forget that the Voting Rights Act is really quite recent (see https://www.archives.gov/milestone-documents/voting-rights-act).

Vice President Truman became president upon President Roosevelt’s death and was reelected. Then Eisenhower’s vice president, Richard Nixon, lost to John F. Kennedy but came back 8 years later to be elected. Gerald Ford ran and lost after he succeeded Nixon, who had resigned. Carter’s vice president, Walter Mondale, ran and lost. Ronald Reagan's’ vice president, George H.W. Bush, ran and won. Clinton’s vice president, Al Gore, ran and lost. And Barrack Obama’s vice president, Joe Biden, now sits in the Oval Office.

So, my first observation is that Kamala Harris and Mike Pence are serious contenders if Biden or Trump fails to run, and they each remain serious contenders in the future even if the Biden–Trump rematch occurs.

History is on my side on this one.

We will conclude with another observation, this one from my friend John Mauldin, who was summarizing views offered at his recent Strategic Investment Conference (SIC). John gave us permission to quote, and we thank him.

John Mauldin wrote:

If I had to summarize US politics and policy in one word, it would be “paralyzed.” I know some readers will see this as a feature, not a bug. Nor are they wrong; the government often intrudes in harmful ways. However, we need it for certain things. Yet government at all levels isn’t even covering those baseline functions well. In some cases, it’s not even trying.

This paralysis is a function of our divided opinions, or perhaps our inability to make up our collective minds. To some degree this has always been the case, but to us it seems worse. (Those living in the 1850s and 1930s might disagree.)

Here’s an illustration Bruce Mehlman shared at the Strategic Investment Conference (SIC). The circles are election years since 1960 in which voters handed the House, Senate, and/or White House to a different party.

The Presidential Election - Bruce Mehlman Chart

Source: Bruce Mehlman

In the 20 election years from 1960‒1998, the same party kept control of all three branches in all but 7 times. But in this century, at least one branch changed control in all but two.

Constantly changing leadership means constantly changing plans and priorities. It’s no wonder nothing is getting done, but also a problem because we have important challenges. Failure to address them means they get worse, making people even more dissatisfied. This leads nowhere good.

When I interviewed Howard Marks at SIC, he pointed out some reasons we are so divided now.

… We have problems in our country: division, inequality, lack of cooperation, high degree of partisanship. And the parties have been pulled to the extremes because they're loud and rambunctious, and they threaten moderate leadership, and they dominate, of course, in the primaries. And these things have been exacerbated first by cable over the last 20-something years and the development of left-leaning and right-leaning cabals where the people who watch it never hear the arguments of the other side. And then it’s been made far, far worse by social media. Add anybody can say anything they want on social media, and it goes around the world in a nanosecond.

I thought that was insightful. Division isn’t new. What’s new is having technology amplify our division and widen its impact. The same technology is the reason people don’t, as Howard put it, “hear the arguments of the other side.” And because they don’t hear the other side, they dismiss or demonize it.

Many thanks again to John Mauldin for that analysis.

Dear Readers, we will have more on the election and markets when there is something to talk about. For now, we are still in what has become known among political observers as “silly season.” That said, I worry about the potential disruption from inside the anti-vax community. Here’s a link to Paul Offit’s substack column about Robert Kennedy, Jr. Serious readers are urged to read it (4 minutes): “The Real Robert F. Kennedy Jr.,” https://pauloffit.substack.com/p/the-real-robert-f-kennedy-jr.

How the Maui Fire Became So Devastating - A Discussion with Bob Bunting,
CEO Climate Adaptation Center, on August 10, 2023

Watch here: https://youtu.be/x8JL6-K-YDk

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