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This week: Trump After Trump; Electoral College Plus; The K Economy Kicks Up; Reading List.
Trump After Trump
Leaving the White House is difficult even after two terms. Bill Clinton after eight years was depressed in his final days in office. George H. W. Bush was devastated when he failed to win re-election. And Jimmy Carter was in the wilderness for many years until he was rediscovered by the media.
The pain would be more acute for Trump who values winning above all else and who secured an impressive 73.4 million votes on Election Day. This total is higher than that of any presidential candidate in the past, but it is still less than the 79.2 million obtained by Joe Biden, a man that Trump derided as “the worst candidate in the history of our country”.
Trump was supposed to be the man who never loses. In the past, even when he lost, he ended up winning. He bounced back relatively unscathed from every business failure, every bankruptcy, to once again rise to new heights. Now at an advancing age, what are the prospects for one more big bounce, one more big win, a grand finale? This is the question that he is pondering. Time will tell. Perhaps it will be a second term in 2024 or the stewardship of a new media empire. Least likely is that he will fade quietly.
Electoral College Plus
It has become a tradition played out every four years. Numerous op-ed writers come out to complain about the Electoral College. Although this time Joe Biden won both the presidency (thus the Electoral College) and the popular vote, many express their concern that the result in some states was too close for comfort and that a future election, for example in 2024, could in theory hand the Presidency to the popular vote runner-up as it did in 2000 and 2016. It could bring back Donald Trump.
The arguments are familiar and not worth rehashing in detail except to highlight two issues. The first, tirelessly repeated by advocates of the status quo, is that the United States is a federation and a republic, not a direct democracy and that the President was always meant to be chosen indirectly by the states, not directly by the people. If detractors are oblivious to this argument on grounds that democracy defined as 50% + 1 vote is sacrosanct, their issue is perhaps with the very notion of federalism. A constitutional amendment to choose the president by popular vote would be beyond reach today because a larger number of states are red and less populous and would reject it outright.
Still, the wish to revise how we choose a president is voiced by more than a fringe minority. Millions, tens of millions of people feel the same way. Proposals for change should therefore get a fair hearing, even if they lead to no real change. As noted, changing the election to a straight popular vote is a near impossibility. But another option would be to amend the current rules as follows: if the margin of victory within one state is below 1% (or perhaps 0.5%), that state’s electors would vote in line with the popular vote. The idea here is that every state’s weighting would be preserved but only if its results are sufficiently meaningful. A margin of for example 0.2% may be determining but it is not really meaningful in terms of the wishes of the people of that state. On a different day, with a slightly different weather or turnout, the outcome could have easily swung the other way.
Such an amendment, call it Electoral College Plus, would not pass easily. Republicans would rightly note that under those rules, Al Gore and Hillary Clinton would have been President instead of George W. Bush and Donald Trump. Yes, but the past is done and the future will look different. The new amendment would reduce polarization and incentivize the GOP to increase its support in urban America. As many have noted, the party risks continued decline if it fails to do so. Similarly, Democrats would have to adjust their message to obtain higher margins of victory in swing states. The net effect would be generally more centrist politics, a welcome change now that we have seen what the extremes look like.
The K Economy Kicks Up
News of vaccine results from Pfizer and Moderna have pushed stock markets higher, driven this time not by technology names but by lagging sectors of the economy, the lower arm of the K economy. Here are some stock moves from newly revived sectors vs. the erstwhile winners of the market.
In Why the Market is Rallying, we wrote in June that the tech giants were driving the stock market recovery from the lows of the March crash, a move that lasted until late August. As shown in the table, these companies have remained mainly stable since the first vaccine announcement. But smaller growth names and market favorites such as Zoom, Beyond Meat and Peloton Interactive have retreated about 20% in just one week. These companies are all in the upper arm of the K economy.
In the lower arm, energy (Exxon, Valero), travel and hospitality (Carnival, Delta, Marriott) and specialty retail (Gap, Kohl’s, Ulta) had been marking time not far from their March lows. News of the vaccine sent them soaring in the past week, in a sudden snapback that anticipates the return of normality sooner than previously expected.
There is considerable upside left in the laggards if the economy holds through the winter surge of the pandemic and if a new stimulus is enacted by Congress. In theory, other things being equal, the latter part of 2021 and the year 2022 could see a very strong recovery in travel, leisure and other sectors that are now depressed. The rush back in spending and socializing will be analogous to a flood after a dam break. According to Citibank analysts quoted in this article, value stocks are priced at only 17x earnings, whereas growth is priced at 38x, an even greater disparity than in early 2000.
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