Despite the fact that election forecasting fifteen months in advance is completely reckless, it’s time for markets to begin pricing political alpha to whatever extent America’s 2008 election can be predicted.
While all the talk of a Republican meltdown in 2008 is somewhat overheated – these things always tighten to, at worst, 53-46 barring a major geopolitical event – a Democratic landslide is not outside the realm of possibility, particularly if current Democratic primary trends accelerate Barack Obama to the Democratic nomination. Barack Obama is the Democratic frontrunner, for several reasons beyond superficial buzz and the general appeal of Obama’s “hope-mongering” liberal optimism.
At this point in the 2004 cycle, Joe Lieberman still led most national polls. Richard Gephardt, then the Democrats’ House Minority Leader, was a few points behind. (It goes to show you how much polls matter at this point in the cycle.)
However, that’s a far cry from “the only poll that matters is the one on election day,” and polls do contain lots of useful information. Generally, candidates’ disapproval ratings (“negatives”) do not go down, beyond very short-term or existential (9/11) events. Much as a bad first impression is the only one that matters, once a voter decides to dislike a politician, the voter very rarely goes back. Hillary Clinton’s negatives are about ten points higher than those of her rivals, who are almost as well known; depending on which opinion poll you use, between 46 and 52 percent of voters “disapprove” / “will not consider voting for” Hillary Clinton, even in today’s environment, which is extremely favorable for the Democratic Party. Despite pundits’ daily pronouncements that Hillary is running away with the nomination, those numbers alone are lethal to the Clinton campaign. Considering how perceptions of Hillary have hardened over fifteen years, it’s highly doubtful that she can change those numbers in any meaningful way.
Secondly, many still dismiss Obama as “the buzz candidate,” but his campaign has accumulated 250,000 donors over the past six months – probably at least double Hillary’s. He will crush Hillary Clinton in second-quarter primary fundraising, as he did in the first quarter. As The Atlantic’s Marc Ambinder said, the sheer size (not to mention dollar volume) of Obama’s movement “gives one reason to pause and review the physics of this race.”
Thirdly, surprisingly large segments of the Democratic Party have little love for Bill Clinton (who was the father of NAFTA and godfather of welfare reform) and nothing but loathing for Hillary, who shares complicity in all of Bill’s apostasies while lacking his charm.
The Republican Party is in a pretty grim state, even without facing a much stronger general-election opponent. The geography of the 2008 Senate battlefield means that the Republicans will probably lose more Senate seats; the House of Representatives is less certain, but the Republicans almost certainly will not recapture the House in 2008. Thus, many longtime Republican power players have switched sides to either the Clinton or Obama camps (e.g., Morgan Stanley’s John Mack). The Republican nomination process is in disarray. All major general election candidates (Fred Thompson, Rudy Giuliani, Mitt Romney, and – arguably – John McCain) face significant drawbacks in terms of energizing despondent Republican voters. McCain, who could have been a strong general election candidate, committed political suicide by supporting the extremely unpopular “Bush-Kennedy” immigration bill.
Investors should begin pondering the financial meaning of an Obama presidency, with a Democratic Congress. Judging on speeches Obama has given to the relevant interest groups, Obama would not be mercifully disposed to the plight of the American auto industry. The insurance industry, judging by its donors’ preference for Hillary, sees Obama as somewhat to Hillary’s left on the morass of health-care issues. Pharmaceutical companies will be in for rougher treatment regardless of which Democrat (probably) assumes the Presidency.
It’s too early to judge effects on specific industries, but as candidates lay out more specific policy proposals and the election draws closer, investors should keep an eye on the polls as well as the markets.
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