Posted by: seanmalstrom | September 15, 2016

Should I talk about the election?

When we talk about business, what matters is seeing the future. Investors want to see the future.

There is much analysis of financial markets, demographics, and technological shifts. However, there is a big freaking wall that can change many things and is the ground underneath demographics, technological shifts, and financial markets: it is the legal landscape.

When the legal landscape changes, everything else changes. Taxes go up or down. Regulations get made or unmade. Special deals go one way or another way. The legal landscape of the world is very much why certain investments are made and why an unstable legal landscape (cannot be predicted over years) is stayed away from.

The United States is perhaps the most stable legal landscape in the world right now. This is why the US has the money reserve of the world.

The biggest change in the US legal landscapes are not just new presidential administrations (no matter who wins, we are guaranteed a new administration because Obama cannot run for a third term), but realignment elections.

For non-Americans, understand that the US Government has three branches of power that are designed to check and counter one or the other. You have the Executive branch (the Presidency including who runs the departments of government such as the EPA and how it is run), the Legislative branch (a bicameral Congress consisting of a House of Representatives (represents a district of people) and the Senate (100 members of two per each state. Senate represents the states, not the ‘masses’. Small states like Rhode Island get two senators just as big states like California get two members). Congress controls the money and the funding to all government, and Congress makes new laws and can investigate things), and the Judicial Branch (consisting of the Supreme Court who are members for life and the rest of the courts) interprets the law. They can rule against something and that is it. Normally, the Supreme Court doesn’t rule against the mass population most of the time.

Why is a new administration important for altering the legal landscape? The President can veto any bills from Congress it doesn’t like, and can suggest bills it does like. The President, alone, defines US foreign policy. The President also nominates Supreme Court justices which the Senate votes on. The President and his aides control the enforcement of all laws. For example, a new administration might have a very punishing EPA while another administration might have an EPA that is relaxed. Trillions of dollars are stake. This is why so much money, including foreign money, is aimed at pushing a certain candidate.

Every four years is a new presidential election, but unless a president is voted out of office, most new administrations go eight years.

Financial markets hate uncertainty. They hate the uncertainty of elections. They will pull back and reinvest after the election when the legal landscape remains clear. Many financial interests try to control both parties so they do not have this uncertainty and can direct the legal landscape to where they want.

What is more relevant and most uncertain are political re-alignments. Now, every election is said to be ‘realigning’ because political wonks want it to be so. I thought the last two ones were. The reason why I said this was because we are past due for a realignment.

A political realignment occurs once every thirty or forty years. The first realignment occurred after the War of 1812 and the Federalist Party was destroyed and the Democrat-Republican Party split into pro-Jackson (Democrats) and anti-Jackson forces (Whigs). The next realignment occurred during the Civil War where the Whig Party, who tried to compromise financial interests of slavery, by an American population who wanted an anti-slavery position party (Republican). Every thirty to forty years, there is a realignment.

The last realignment was likely the 1980-1994 type elections where Republican and Democrat, which are simply vessels, became CONSERVATIVE vs. LIBERAL. The realignment occurring today will turn the Democrat Party into the GLOBALIST group and the Republican Party into the NATIONALIST group.

A political realignment does odd things to the electoral map. A couple days ago, Trump was campaigning in Baltimore, Maryland. Obama, campaigning for Clinton, was in Pennsylvania. Trump is campaigning in Michigan, and polling from Maine shows the race tightening up there. What is going on?

We won’t know until election day. But my point is that the financial forces that be always pull back for a new presidential administration, and they will pull back further during a realignment election. They do not know what the future entails. With Clinton, they are more sure. With Trump, they are unsure.

I thought the realignment would occur last two elections, and I was wrong. I do not think I am wrong this time.

The Blue Ocean Strategy is not ‘non-competition’, but offering a different type of values than the typical product which attracts new consumers to the product. I think Trump is that Blue Ocean candidate. I think there will be people entering the political process just for him. For evidence, look at the uptick in registrations for the Republicans. In 2012, if you look at the state margins (which matter, as national percentage is worthless due to electoral votes), it was close in states such as Ohio and Florida. The registration upticks have already wiped that out.

There are two big assumptions we’re working with: Trump will outperform Romney and Clinton will underperform Obama. This can be seen in the enthusiasm gap as expressed in the primary votes.

I read Nate Silver with amusement. Some states simply are in the safe category for Trump. All the Romney states will be easily won by Trump. North Carolina is in the bag for Trump. Based on voter registration changes, one can say Florida, Ohio, and Iowa are as well. I think the more indicator states are Michigan, Colorado, Virginia, and, of course, Pennsylvania. Much of the polling data is trying to use 2012 as the template which isn’t going to work. Clinton is not Obama and Trump is not Romney. Nate Silver famously said, repeatedly, that there was zero chance for Trump to become the Republican nominee. Yet, here we are. He is Mr. Brexit.



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