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FEG INSIGHT BRIDGE PODCAST

We are thrilled to interview some of the world’s leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and thrive in the world of markets and finance.

2020 Has Been Great…Let’s Have an Election

2020 has been a year filled with fear, volatility, and uncertainty for individuals and organizations across the globe. Since 2020 has already had so many uncertainties, why not add an election too? Listen in as Libby Cantrill, head of public policy at PIMCO, joins the conversation to discuss the issues, outlook, and implications of the upcoming presidential election. Topics in this episode include:

  • Issues facing markets and investors, including fiscal stimulus and trade policy
  • How has social media changed the way elected officials campaign?
  • Current polls and comparisons to previous election years
  • Key demographics and states to watch
  • The mail-in voting dilemma
  • Market and policy implications of the different election outcomes

 

SPEAKERS

Libby Cantrill
Head of Public Policy, PIMCO

Ms. Cantrill is a managing director and the head of public policy for PIMCO. In her role, she helps to coordinate the firm’s response to public policy issues and analyzes policy and political risk for the firm’s Investment Committee. She is also a member of the firm’s Americas Portfolio Committee. Additionally, she is the co-head of PIMCO’s New York Office and is a founding member of PIMCO Parents and PIMCO Women. Prior to joining PIMCO in 2007, she served as a legislative aide in the House of Representatives and also worked in the investment banking division at Morgan Stanley. She has 16 years of investment experience and holds an MBA from Harvard Business School and received her undergraduate degree in economics from Brown University. Ms. Cantrill is a CFA charterholder and a regular contributor to Bloomberg and CNBC. She is also a member of the Council on Foreign Relations.

Host
Greg Dowling
Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Transcript

Greg Dowling (00:00):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:33):

Today, we are going to have a focus on the upcoming election. 2020 has been so great, why not have an election too? Will the craziness continue? What are the political implications of COVID-19? Who wins? And what are the different economic implications of each outcome? Helping us sort through this mess is Libby Cantrill, head of public policy for PIMCO. You may have seen her on Bloomberg or CNBC. She's great. And we have her here today on the FEG Insight Bridge. Libby, thanks for joining us today. I know this is probably a really crazy time for you.

Libby Cantrill (01:13):

It is, but it's great to be here, so thanks so much for having us.

Greg Dowling (01:17):

Yeah. Hey, before we get into the election, this has gotta be a really cool gig. For someone who loves economics and politics, what a dream job. How did you get this?

Libby Cantrill (01:30):

Yeah, I would agree with that. I think it's a really exciting job, super interesting. Really never a dull moment, as you can imagine. It was sort of a case of right place, right time, like many things in life. I had always had an interest in politics and actually had, since I was 14, had volunteered in our state legislature back in my hometown of Denver, Colorado, where I grew up. I later went into finance after college and then sort of post business school was looking for a position at a firm that was more kind of macro, invest in more macro-focused. Fast forward, after just being there for just a few years, the financial crisis happened. And then I think there was a broader recognition that government and policy was much more important to markets.

Libby Cantrill (02:26):

It had always been something that we at PIMCO had looked at and considered, but I think that the view was to have more of a dedicated focus, a dedicated resource in terms of both government relations -- sort of involving interacting with policymakers -- but then also analyzing political and policy risks for our traders. So in some ways it is a dream job, I have to say, especially during election cycles. It's really fun. And of course I love interacting with our clients. So that's a huge advantage to boot.

Greg Dowling (02:59):

That's great. Well, we're going to divide this podcast into three sections. We're gonna talk about pre-election issues, the election itself, and then potential implications of the results. So if we think about pre-election issues, what are the issues that clients -- and really investors -- should be concerned about?

Libby Cantrill (03:23):

Yeah, so with fewer than 70 days until the election, there are really only, I think, two big issues that I think markets and investors should pay attention to. One is, of course, the fiscal stimulus. This is the question of whether Congress will pass another big stimulus bill, big spending bill that will continue many of the programs that we saw started in that CARES act which was passed back in March. And I guess just as an aside, of course we've seen now Congress step up in a really fulsome and comprehensive way, passing four different spending bills since the pandemic started totaling almost $3 trillion. And I think the question now is: will they come together in September after reconvening after their August recess, and pass yet another stimulus bill? Interestingly, Greg, they have to come together regardless and they have to pass a bill that funds the government past October 1st.

Libby Cantrill (04:28):

And if they don't do that, there'll be a government shutdown. Nobody wants a government shutdown in an election year for sure. And I think that the chances are that the stimulus bill gets combined with that government funding bill in order to avoid a shutdown. Now in terms of the size -- and I think that is a big question from the market's perspective. The markets, I think have priced in a pretty healthy stimulus bill, something in the range of 1 trillion, 1 and a half, even $2 trillion. We know the Democrats want $3 trillion, the Republicans want $1 trillion. So I think if something happens, it will be big, it will be fulsome. But of course there is a tail risk that that doesn't happen. I think that, from the market's perspective, will come into focus as we get closer to that sort of September 30th -- which I think is effectively the deadline.

Libby Cantrill (05:17):

Because after that, then Congress will go back to their districts and campaign for reelection, and what have you. So I think in September, you'll hear a lot of discussion about that stimulus bill. And my view is this is a question of when not if. I think that Congress will come together. There's way too much political downside to not passing anything going into the election, but certainly there is a tail risk that hey don't do anything. And I do think markets will react pretty negatively to that. And then the other issue that we're monitoring -- it's something that I've actually been talking to our investment committee, really since president Trump was elected, it's just a question of trade policy, and particularly as it relates to China. I think that in general, going back three and a half years, the market really underestimated how fundamental of an issue this is for the president. You might agree with him, you might disagree with him, but he really deeply believes that the United States has gotten short-shrifted and shortchanged on U.S. Trade agreements, particularly as it relates to China.

Libby Cantrill (06:25):

So fast forward to today, we now have tariffs on $360 billion of Chinese imports as this tit for tat trade war has escalated. There was a phase one trade deal. Of course, that was agreed to in January, which really just paused that escalation versus deescalating tensions. But now -- and I think this is where I get to the risk -- as we get closer to the election, there's a risk that because President Trump used this issue, China-U.S. relations, as a wedge issue, if you will, he views Biden as being particularly vulnerable on these issues. And I think there is a risk that he pulls out of that phase one trade deal. Now we know that the U.S. And China have just met. It seems like from all reports that that meeting went pretty well.

Libby Cantrill (07:17):

So maybe this is a declining risk, but I do think as we get closer to the election -- and especially if President Trump's poll numbers are as soft as they are now -- there is a chance that he could try to change the narrative and try to, again, change the focus to this U.S.-China issue, because he believes that Biden is vulnerable on it. So bottom line, there are kind of two big issues. Stimulus -- again, it's a question of when, not if in my view -- and then also to increasing U.S.-China relations, which may weigh on markets as we get closer to the election.

Greg Dowling (07:50):

Perfect. Well, thank you for that. So when we're recording this, we are just after the DNC and during the Republican national conference. So maybe starting with the DNC, what was your view of Biden's pick for VP and just some of the campaign platform issues that he laid out there? Does it give us any clue on what kind of Joe Biden we could have? Are we going to have moderate Joe, progressive Joe, who's going to be -- what would Joe be if he gets into the oval office?

Libby Cantrill (08:25):

I think this is a great question. It's obviously incredibly pertinent from a markets perspective as well. I think that, to begin with, the choice of Kamala Harris or Senator Harris from California in some ways was a very logical choice. In some ways was actually the most conventional choice. If you talked to anybody in Washington leading up to this decision, sort of the money was on Kamala, if you will. We knew he was going to pick a woman because of what's happened over the last few months. We sort of figured he would pick a woman of color. Kamala Harris in many ways checks a lot of boxes for him. She has a national profile, she's been vetted nationally, which was very important for him. She knows the rigors of a national campaign, yet another thing important for him.

Libby Cantrill (09:15):

And, you know, I think that importantly from an electoral perspective, she was viewed as somebody who could help to energize African American women, suburban women, and even potentially Independents. Even though she has this pretty progressive voting record in the Senate, she actually does poll pretty well with Independents. So in some ways it was kind of the least shocking choice. I think what was shocking though, was that it had taken him so long. The fact that he was vetting so many people up until the very last minute. And I know from talking to some folks close to the campaign that this decision wasn't necessarily made weeks in advance, that it really was made pretty close to when it was announced. So I think that was the more surprising component of it. But again, it was sort of the conventional wisdom. Now kind of pivoting to what the Democratic National Convention told us about both candidate, Joe Biden and potential president Joe Biden, what I actually thought was quite interesting is that Joe Biden, I think, effectively thread the needle here. As is true in the Republican party, the Democratic party has different factions.

Libby Cantrill (10:24):

It has this very progressive left. It has sort of the center left. And, interestingly enough, Joe Biden was really trying to pay attention to the Independents and to some of the disillusioned Republicans. So I think he actually did it pretty well. I think also what we saw -- and I sort of said this to our investment committee last week -- is that Joe Biden is who he is. He's a pretty authentic guy. He's been in public life for like 50 years. I mean, it's really hard to kind of pivot from that and to sort of "change your stripes," if you will. And I think the Joe Biden we got last week, in some ways I think would be the Joe Biden we get in the oval office.

Libby Cantrill (11:04):

He certainly moved farther, left on some issues, I think climate change is one issue in particular, but there wasn't any of this super progressive left rhetoric coming from him. Because I just don't know... That's just not who he is. He did give a platform to some of those folks. Elizabeth Warren spoke, Bernie Sanders spoke, which I think was a very smart political strategy. But also Republicans spoke, which is quite interesting as well. So I think, regardless of if you love him or hate him, you would have to give Joe Biden credit for trying to reconcile and kind of thread the needle on this one between these sort of different factions within the Democratic party, and I think he did pretty well. But again, my view is that he'll move left on those issues that he actually authentically believes in, but he's pretty much a centrist Democrat, and I think that we saw that last week.

Greg Dowling (12:00):

So President Trump has a very passionate following among his base, but he is trailing in the polls. How does he expand that base?

Libby Cantrill (12:11):

Yeah. And I think we're seeing that now. So we're now... As you said, we're now kind of in the middle of the Republican National Convention. So we're only now going to be on night three tonight, so we'll see how everything turns out. My initial assessment, on the first night was he was really playing to that base, to your point, and this should not be underestimated. President Trump has an incredibly devoted, loyal base. He is actually the most popular president within his own party of like any president since the history of polling. He's just incredibly popular within the Republican party, he has an approval rating of around 90%. And for more or less that's been consistent his entire administration. Very impressive. The problem with that strategy, however, is that there are only so many devoted Republicans.

Libby Cantrill (13:00):

Only about 30% of the electorate actually self-identifies as a Republican. So it's awesome for him, if you're sitting on the Trump campaign, that he has such a devote following and such an enthusiastic following, which presumably will turn into turnout. But I think to your point here, he does need to expand it. In order to win in 2020, he does need to grow beyond that very devoted base. I think the first night we saw him really speak to that base, try to really galvanize that base with the speaker lineup. I think last night, interestingly, you saw sort of more of a pivot. Trying to get some of those folks who may be more on the bubble or even those folks who were supportive of him back in 2016 to come back home, if you will.

Libby Cantrill (13:47):

I think Melania Trump -- again, love her or hate her -- she really did try to strike a very empathetic, warm, connecting tone, especially with that suburban woman demographic. I know we'll talk about this in just a little bit, but that's a super important demographic for the president. And I really think that she tried to continue to do well with them. So she tried to kind of identify with them to connect with them. We'll see how effective it is. But that is a group that supported president Trump in 2016 and, again, will be critical to his reelection.

Greg Dowling (14:24):

One other pre-election question for you. Since we're talking about Donald Trump, he's certainly been innovative and some people may say annoying with his use of social media. That's been kind of revolutionary and that's really -- even a couple of elections ago has become a bigger focus, Facebook, other ways to reach potential voters. Who has the advantage here? And what can we expect through social media?

Libby Cantrill (14:50):

I completely agree with you. President Trump in some ways has sort of revolutionized the way that elected officials speak to their constituents and campaign. Again, love it or hate it, it has been a very effective strategy for him. I mean, he has 84 million plus Twitter followers. Biden has maybe 8 million. So I think it is hard to say... It's hard to even make the argument that Biden really can even compete with president Trump on social media, just because of Trump's huge, huge following. Interestingly as well, Greg, if you look to what the Trump campaign is doing this cycle... By their own admission, "In 2016," they'll say, "we kind of had a bootstrap campaign. It wasn't super sophisticated. We were all kind of surprised we won on election day." But this time, fast forward, they spent a ton of money on a much more sophisticated digital campaign, trying to identify those potential voters.

Libby Cantrill (15:54):

So to your point about your base, there are many folks who kind of fit the profile of President Trump's base in especially the upper Midwest states who are not registered to vote, who did not vote in 2016, and they are using some pretty sophisticated digital technology tracking where these people go to shop and where they go to worship on Sundays, and what have you. So I think they have an advantage there as well. And the Biden campaign, to their credit, has tried to quickly catch up with that. But of course, this is a structural advantage of any incumbent president. If this were five months ago, this is all we would be talking about, are all the advantages that an incumbent president has, whether it's the bully pulpit, the time to organize. And again, the ability to fundraise and to build a sophisticated campaign. And certainly Trump has all those advantages in spades. So if this were pre-COVID and pre the economy softening, that's what we would be spending this time together talking about, because there are a lot of advantages that incumbent presidents have. And it's the reason why incumbent presidents usually win reelection, is because they have all of those advantages.

Greg Dowling (17:03):

Absolutely. Well, let's move to the election itself. So what do you make of the current polls? And maybe if you could kind of compare or contrast them to 2016.

Libby Cantrill (17:16):

So, again with a caveat -- this is around 70 days pre-election date so before November 3rd. Of course, lots of States will start voting much earlier than that, but the official federal election day... I think the national polling is pretty strong for Biden. It has softened a little bit. Right now he's leading president Trump, on average across all polls, by about 8% according to Real Clear Politics. That's a pretty nice advantage. If you're Biden you're feeling pretty good about that. Now, to your point, you look at 2016 at basically the same period of time, August before the election in 2016, Hillary Clinton was leading Trump by seven points. So of course that is very much weighing on the Biden campaign and on former Vice President Biden.

Libby Cantrill (18:15):

However, I think to your question, there are some differences. Now we'll see if those differences actually matter on election day, but there are some differences that I think are important to keep in mind. One is just the stability and durability of Biden's lead. So unlike 2016, it was a much more volatile polling. There would be one week where Trump would be up, one week where Clinton would be up. She was definitely more up than down, for sure. But Biden has basically been up by at least five points since like July of 2019. I mean, he really has been polling consistently ahead of president Trump again for about a year plus. So you haven't seen that volatility that you saw in 2016. One of the reasons I think that you haven't seen that volatility -- a couple of reasons -- is that in 2016, there was this pretty credible third party alternative.

Libby Cantrill (19:15):

So Trump wasn't particularly liked in 2016, Hillary Clinton wasn't particularly liked, and so people were looking for a home outside of those, the two traditional candidates. And what you saw in November 2016 is that third party collectively drew about 6% of the popular vote. So between Gary Johnson and Jill Stein, they won about 6% of the national vote. And because of that sort of third party alternative, that was one of the reasons why I think polling was also pretty volatile up until the election, because people were sort of equivocating. "Okay, am I going to vote for this third party, am I going to vote for Hillary, or am I going to vote for Trump?" So there were a lot more undecided voters and again, that third party force I think also added a level of uncertainty in the election that we'll see, but it probably won't be in this election outcome because there really isn't a third party.

Libby Cantrill (20:09):

And I'm sorry for the Kanye West fans out there, but Kanye West is not -- you would be surprised, a lot of our clients ask me about Kanye West. He is not on many of the ballots. He should have started back in January if he really wanted to credibly win. Because, of course, voting here in the United States is not federalized, it's all based on States, and every state has a different set of rules about how to get on the ballot and the deadline for the ballot. He needed to get on North Carolina's ballot in like January to run as an Independent. That differs, again, with back in 2016 where Gary Johnson and Jill Stein were on all 50 state ballots. So Kanye West -- sorry for you Kanye fans -- is only on four state ballots I think at this point, and is not likely going to really hurt either of the candidates.

Greg Dowling (20:57):

So we talked about 2016. I've heard other comparisons to 1968. Is that a fair comparison or are there other election years that have some themes that are kind of similar to what's going on today?

Libby Cantrill (21:11):

Yeah, and I think in some ways President Trump would like it to be 1968. Of course, that was the year where there was a lot of national turbulence and lots of pretty tragic events and Nixon was able to come in and have this sort of "law and order" narrative that absolutely worked to his advantage. I think the biggest difference of course, between 1968 and 2020, is that Nixon, wasn't the incumbent, and this is something that is another big important differentiator between 2020 and 2016 too, is that when you're kind of an outsider, disruptive candidate, that's much easier to do when you're not the incumbent. When you're the incumbent, then it really becomes a referendum on the country that you led or are leading.

Libby Cantrill (22:00):

So Nixon, of course, wasn't the incumbent in 1968 -- of course he was the incumbent in 1972 -- so I think that law and order and this sort of reassurance that, in the case of Nixon, he would come in and sort of stabilize things. It's a harder sell when you're the president of the country. Right? And so I think that is the difference, that's the challenge for president Trump. How does Trump make this a choice between the two candidates versus a referendum on his performance? And they're trying to do that in the RNC, the Republican National Convention, this week. It will just be interesting to see if they're able to do that effectively.

Libby Cantrill (22:37):

The only other analogy that I've heard -- from clients, mostly -- is, "Is this 1988?" Which is -- Dukakis, of course, was ahead by 13 points coming out of the convention, and then of course he ended up losing the election to George H. W. Bush. I think that there were some idiosyncratic events, certainly, that happened in the intervening time between the convention and the election -- some September and October surprises. But again, that was also more of a choice between two new candidates versus a referendum on the incumbent. So I'm not sure if there are going to be that many rhymes to 1988, but it's certainly a possibility. Whenever you have somebody like Biden who had been leading the polls by 10 points, there's always going to be this dynamic likely where the polls narrow as you get closer to the election day. And we have seen that time and time again and I think that should be expected as we get closer to the election.

Greg Dowling (23:38):

So you mentioned earlier the suburban mom. About demographics, what are the demographics that are important and we should focus on election night?

Libby Cantrill (23:48):

Yeah. So suburban women and I -- it's sort of a shorthand for "white women." Now the suburbs are much more mixed demographically, so that's really not super accurate, but white women. So, Trump lost women the gender by about 12 points, but he won white women, depending on the exit poll that you use, anywhere between 5 and 10 points in 2016. Right now -- again, according to the polls, take them with a grain of salt. But according to the polls, he's in deficit, he's trailing Biden by about anywhere between 5 and 10 points. So he won them by about 10 points and he's trailing between 5 and 10 points. Again if that continues...worrisome. So white women, keep your eye on.

Libby Cantrill (24:35):

The other super important demographic here that president Trump won, but also most Republicans have won since 2000 is voters over 65. This is a cohort that turns out more than anybody else, so they vote more. And they actually, interestingly, vote by mail more, so kind of interesting. And it's another group that President Trump won, again, depending on the exit poll that you use, between 7 and 13 points. He's also in deficit to Biden. So he's trailing Biden by anywhere between 1 to 6 points against, depending on the poll. So that's also a super important deficit for him to make up. If he loses that cohort, it's going to be hard to see president Trump get reelected. It's just such an important constituency. Again, the turnout of that group is almost always higher than any other age cohort. And it is the reason -- I know we'll talk about the states in just a second -- but its the reason why he won Florida.

Libby Cantrill (25:35):

So if he is trailing in that group, he probably is not going to win Florida and Florida is going to be very important. And then the other demographic is our Independents. And I think in some ways this is the group that kind of made the big difference. It was, it was voter turnout among white men for President Trump, but it was also President Trump's appeal to folks who were not necessarily -- didn't necessarily think Hillary Clinton was a great candidate and who kind of wanted to take a leap of faith on President Trump. And so that's a really important group. He won them by about five points -- again, trailing Biden right now. Again, all 70 days before the election, lots can change, this will probably narrow. But those are the three groups I would keep your eye on: white women, Independents, and then voters over the age of 65.

Greg Dowling (26:23):

You mentioned states. So what are the handful of states? It seems like it only comes down to a couple that could make the election here.

Libby Cantrill (26:30):

I know, it does. Yeah. So for those of us like in New York, that's not gonna really matter. I mean, you should still go to vote, so go vote. But really the only... There are probably around 15 battleground states that matter. So not to short shrift them, but of those 15, really only 6 are likely going to determine the outcome of the election. And they're Michigan, Pennsylvania, Wisconsin, Arizona, Florida, North Carolina. So 3 are sort of in this upper Midwest area -- Michigan, Wisconsin, Pennsylvania -- and then Arizona, Florida, and then North Carolina. Outside of Arizona, all of those were important swing States back in 2016.

Libby Cantrill (27:13):

Arizona's sort of new on the scene. It's kind of interesting. So Arizona is one of these States that has actually voted Republican since 1952. Except for in 1996 when it went for Bill Clinton, every other presidential election has gone Republican. So the fact that it's kind of a swing state is sort of interesting, but there are two reasons why it is a swing state. One is because the demographics have changed. It has become younger and it has more Hispanic voters, which traditionally both of those groups vote democratic. But then importantly, Greg, as we were just talking about, voters over 65. Those in Arizona tend to prefer Joe Biden over Trump. So not sure whether Arizona will be a swing state in 2024 or 2028, but certainly this election cycle it is. Now,

Libby Cantrill (28:02):

if you're only gonna look at one state out of those six, look at Florida. I think that Florida is the most important state period. Because just looking at the electoral math, President Trump has to win Florida in order to win reelection, and I would argue that Biden probably needs to win Florida to win an election period. So Florida is going to be a super important state. Biden was leading Florida by the eight points as of a few weeks ago. That's narrowed down to like five points. Biden's leading in every other state of those other five states that I mentioned, but much more narrowly than he was a few weeks ago. So I think that will be a trend as we get closer to the election. More people focus on it. After the conventions people will start focusing more on the election and you'll start to see that in the polling. But again, bottom line here is: you want to look at one state, look at Florida, because that will be the most important and likely the most determinative.

Greg Dowling (29:02):

It's interesting you mentioned Florida. So Trump is sort of anti mail-in ballot, but he's okay with Florida. He said that they've done it for long enough that it's okay.

Libby Cantrill (29:12):

"Absentee voting is very different from mail-in voting." It's actually not. It's the same. And his advisors quickly cleaned that up too by saying, "Oh no, actually absentee is the same thing as mail-in voting." No, I think he is though -- to President Trump's credit, he is sort of underscoring though, that there are States that are better at this. You know, again, my original hometown of Denver, Colorado. Colorado is basically a total mail-in voting state. So it has been voting by mail for years and they have the infrastructure, they have the personnel, they have the processes to just do that seamlessly. Lots of other states -- my new hometown of New York, for instance -- not necessarily seamless. Really difficult. You have to apply for an absentee ballot, then you have to send it. Yeah, it's incredibly kind of archaic and anachronistic. So, to President Trump's credit, there is a lot of variability among the different states and the level of sophistication as it relates to it to mail-in voting. But yes, mail-in voting and absentee voting are exactly the same thing, [laughs] there is no difference. They're just different words for the same action

Greg Dowling (30:16):

When election night ends, is there a possibility because we have some voting in person and some mail-in that there could be some confusion and chaos? What are the odds of that happening? Should we be concerned about some of these states, like New York who haven't done this en mass before?

Libby Cantrill (30:36):

Yeah. I think the answer is yes. I mean New York is probably not... New York is so kind of blue that that state probably won't matter so much statistically, but these upper Midwest states where they don't necessarily have as robust of mail-in voting programs... Now the Secretary of States in each of those states are really trying to make sure that it is all very buttoned up. And Congress is trying to -- Democrats at least, are trying to get more funding for these states around voting and vote by mail. But there is absolutely a chance -- especially if it's a close election -- that the sort of conventional "election night" that we all think of, watching the pundits on television and what have you, looking at the polls come or the results come back, that may be kind of a downer, kind of anticlimactic. Because a lot of these states, again, going back to different rules that each state has around how they do mail-in voting, don't actually start counting absentee votes or mail-in votes until the night of the election.

Libby Cantrill (31:39):

So if there's a close election or lots of people do mail-in voting versus in-person voting, then yeah, this could drag on for several weeks, Greg. And from like a market's perspective, you could see that actually be sort of volatility-inducing as well, especially if there's any sort of question about a contested election or President Trump not conceding or what have you. I'm sure, I guess Biden couldn't concede either, but President Trump has indicated that he may not concede. I guess maybe I'm more optimistic, maybe I'm Pollyannish, but I'm optimistic that even if we don't know the election results the night of, and even if it takes a couple of weeks, whatever it is, that the, sort of the traditional peaceful transition of power that United States is known for 300 plus years or 250 plus years will continue. So I think that's something that really does differentiate the United States. And I, again, maybe I'm quixotic, but I think that will probably continue to hold as well.

Greg Dowling (32:43):

Libby, it is 2020. I mean, anything could happen.

Libby Cantrill (32:46):

I know. This is true. As I'm saying this, I know that probably sounds pretty naive to the people who are listening [laughs] to this, but you got to keep hope alive, you know,

Greg Dowling (32:53):

With any big election, there always seems to be a word or phrase that enters the lexicon.

Libby Cantrill (33:00):

Oh god, I know.

Greg Dowling (33:00):

So what is going to be the 2020 version of "hanging chads"?

Libby Cantrill (33:05):

God that's such a good... I have no idea. I don't know. Do you have any ideas? I think mail-in voting will be the expression at least that a lot of people use. You know, I think that other things like "foreign interference," and all of that... Again, it's not to say that it's not going to happen, but I think that the intelligence community is now so much more aware and astute about the potential risks that it feels unlikely that there will necessarily be the term that we are all talking about. Maybe that sounds naive again, but I think that's the case. I think when the intelligence community is so much more kind of astute and aware of the risks, that makes something happening much less likely.

Greg Dowling (33:55):

Gotcha. Well, let's pivot to what some of the market and policy implications could be post-election. And I guess maybe a good starting point is whether the Democrats sweep and also take the Senate. So maybe it's just a question there. Does that still look possible? And how much of a difference is that going to have on what can get done?

Libby Cantrill (34:19):

To be clear, in my view, the two most likely election scenarios are a democratic sweep -- to your point, Biden in the White House, Democrats hold the House, and they take over the Senate -- or a status quo election, meaning basically what we have now is what we'll get then: President Trump in the White House, democratic House, and Republican-controlled Senate. So under the democratic sweep scenario, a couple of things that are really important to keep in mind. One is that even if Democrats do sweep and take back the Senate, it is going to be by a very narrow margin. It may be by one vote or two votes, but very narrowly divided Senate. The other thing you have to keep in mind is that if the Democrats were to win the Senate, it means that they have won the Senate by taking Senate seats in pretty traditionally Republican states -- North Carolina, Arizona, Iowa, Maine. These are the states that -- these are the Senate races that are vulnerable for Republicans.

Libby Cantrill (35:25):

That, again, if Democrats were to win the Senate, it means that they have won those Senate seats. The reason I point this out -- because this is an important point -- is that those Democrats, even though have a D by their name, they are not going to be able to vote for super progressive things because they want to continue to stay in the Senate. They don't want to necessarily be voted out the next election cycle. So it's not to say that it is unimportant. I think it's really important for Biden. If he wants to advance his agenda, he needs to have a democratically controlled Senate, because it is the Senate majority leader who determines what's even voted on in the first place, not the minority. So to have the majority is really important, but that majority is going to be very narrow. And again, it's going to be made up by some moderate Democrats.

Libby Cantrill (36:12):

So, again, the reason I point this out is Biden has proposed a lot of things, but once they go through the machinations of Congress, they are likely to be diluted and watered down. And in some ways, this is what our founding fathers sort of had envisioned for the government, to have these balance of powers, to have these moderating forces, and to kind of work incrementally. Now, you might say that the time right now is not for incremental policy. I think there are lots of people on the progressive left who would argue for that. But the reality is that in the U.S. government, unless you're going to change the Constitution, it kind of is the way it is. So I do think that you will get a tax bill, for instance. I think that will be a priority for the Biden administration in order to raise some money to then fund a big infrastructure bill.

Libby Cantrill (37:05):

And you'll get a big infrastructure, a big jobs bill. And I also think you see them do something on healthcare. But all of these things are likely to be a little bit more incremental than I think the far left would like, just because they have to get the votes in Congress and in order to do that, you're going to have to appeal to those sort of moderate folks in the Democratic party. In terms of taxes, that's something our clients, especially individuals, are really concerned about. I do think that the upper income rate reverts back to the rate that it was pre-Trump tax cuts at 39.6%. I think they probably do some things on the estate tax front. So there's something called step up in basis, which basically would require people to be paying a lot more taxes on things that they inherit with a much lower cost basis.

Libby Cantrill (37:57):

That's something that raises a lot of money for the U.S. government and for Democrats, helps to advance their agenda in terms of leveling the playing field from an inequality perspective. You probably see some effort to reinstate the salt tax deduction, which for those of us in big blue states would be very welcome, like California and New York. And then on the corporate side, I think you do see the corporate tax rate going up, but not to 28% even that Biden has proposed, something more like 24 or 25%. And you probably see some things like a minimum tax imposed. So sort of a 15% minimum tax that Biden has proposed. So it's not to say that even with the sort of more moderated force in the Senate, that you don't see some tax hikes, I think you do, but I just don't think it will be revolutionary. And the same thing for healthcare. We're probably not going to see a public option. That's really difficult to do. Probably need 60 votes, not 50. And again, I just don't think the caucus -- the conference is there. So anticipate some changes for sure, but probably a little bit more incremental than you might think if you're reading Biden's policy website.

Greg Dowling (39:07):

So what about capital gains, buy backs, anti-trust, some other market-related topics?

Libby Cantrill (39:14):

So capital gains, this is something else that I do think could get traction. Biden has put out a plan that would basically parity the ordinary income tax level with capital gains for those who have more than a million dollars in capital gains. So it's really targeted at high-income earners, but you could maybe see something like that getting traction, that could get some pushback though, again from moderate Democrats, but I think there will be a push to do that. In terms of share buybacks, I'm not sure you're going to see... That a difficult thing for them to legislate. I'm not sure if you're going to see them do very much on that. There will probably a lot of rhetoric around it, but I am not sure if they'll actually be able to do very much.

Libby Cantrill (40:00):

And then on antitrust. Interestingly -- and I always pointed this out when Elizabeth Warren's candidacy was on the rise -- is that the federal, the administration, the executive branch could only do so much on antitrust. They can make it much harder for new companies to merge. I guess they could theoretically look back at some mergers that the FTC has approved. But really there is a very specific provision in the law, in the statute that there has to be consumer harm. And I think it gets more difficult to make that argument with some of these technology companies, that there is a lot of consumer harm. Now you might be able to -- a very enterprising antitrust lawyer may be able to make those arguments, but unless Congress changes that statute, changes that bar, if you will, and makes it much more expansive, the Executive branch can only do so much.

Libby Cantrill (40:55):

So I don't anticipate like a breaking up of Amazon, for instance. I do think there will be many more hearings on Amazon and the other technology companies, I think there will be probably some more Department of Justice investigations into some of those technology companies -- especially around data privacy and what have you --but if you actually think about like really big, bold, market moving things, I'm not sure we should expect that. With that said, that sector will be under pressure. Pharmaceuticals will be under pressure -- from a litigation perspective and from a drug pricing perspective Democrats want to do something. Traditional energy will be under pressure. So you will definitely have some sectors that absolutely will be more under pressure under a Democratic administration because of what some of the things that the executive branch can do.

Greg Dowling (41:41):

So what's the other side of that. So what is a second term of President Trump look like from an economic perspective?

Libby Cantrill (41:47):

Well, [laughs] one thing about President Trump is that he's kind of rerunning on some of his 2016 greatest hits, which were very effective in 2016. It makes it a little bit hard from like a political analysis perspective because he hasn't actually really released exactly what he would be doing. And interestingly, for this RNC, Republican National Convention, there is no party platform, which is sort of interesting. It's one of the first times in modern history where there hasn't been a party platform agreed to by the party. So it's a little bit hard to know exactly what he will be doing, but I think what we can expect is if there's a divided Congress, it means that you probably can't cut taxes anymore, because you can't get through a Democratic House. What could get through a Democratic House, an infrastructure bill, so more traditional infrastructure versus what you would see under Biden, which would be a much more expansive definition of infrastructure -- broadband, making office buildings, green, and what have you. Under a Trump administration it'd be more like roads and tunnels and bridges and all those things.

Libby Cantrill (42:57):

And then I think you'll see more focus on some of the industrial policies that President Trump has spoken to, in some ways they've tried to put into place, whether it's export controls on China. Maybe you see something pass Congress that incentivizes manufacturers to bring back manufacturing in the United States -- its a very bipartisan issue, needless to say. So you could see him sort of advancing some of those things. But it's a little bit hard as an analyst, I have to say, because Trump hasn't really given us that much in terms of what exactly he would do in a second administration.

Greg Dowling (43:31):

Gotcha. Gotcha. Well, that's great. So let me ask you this. I know this creates -- these elections every four years, it's a world of activity and long days for you. What is the first thing that you're going to do once the dust settles from this election?

Libby Cantrill (43:47):

Ugh. Try not to go on television and try to analyze it in real-time, which is what happened in 2016 after getting no sleep on election night. Yeah. I mean, again, this is sort of the -- it's a busy season for me going up until election. And then honestly, after the election, it's busy as well, because then we're trying to figure out from like an economic and markets perspective what's happening. So maybe talk to me in like the end of 2021 after we have a full year of a new administration under, or an administration under our belt. And hopefully I'll be taking a longer vacation. But I'm sure, like everybody listening, this has been a pretty trying year even if you don't cover politics. We hope everyone's safe and able to take some time off, because my goodness, we all need the mental rest, don't we?

Greg Dowling (44:33):

Absolutely. Well big FEG thank you. Thanks for doing this, I know you're so busy. But hopefully our listeners will find this very helpful as they try to process all the noise around this election.

Libby Cantrill (44:45):

Thank you. Thank you so much, appreciate it.

Greg Dowling (44:48):

Thanks Libby.

Greg Dowling (44:49):

If you are interested in more information on the topic, please go to our website where we will have a list of relevant FEG publications, and don't forget to subscribe to our communications at www.feg.com/subscribe so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client. Therefore, nobody should consider these FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views or opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of FEG.

 

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