Is the US election Joe Biden's to lose?

With the November presidential election closing in amid the Covid-19 crisis, incumbent Donald Trump is currently trailing to Democrat Joe Biden in the polls.

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  1. Charles Stanley

Friendly fire can be the most damaging. Donald Trump today is battling against his former National Security Adviser, John Bolton, who is busily promoting his new book. Mr Trump has made it easier for him by trying to make it the book ‘the President does not want you to read’. As a result, more of us know that John Bolton thought Mr Trump was out manoeuvred by Russian leader Vladimir Putin and offered inappropriate and ultimately self-defeating concessions to China in an attempt to reach a deal.

This matters because it falls just a few months before the presidential election. It comes on top of the devastating news of the Covid-19 outbreaks, which have demolished the president’s grand strategy. He planned to go to the electors with a story of how much richer and stronger the US had become in his four years. He planned to point to record employment, low unemployment, self-reliance in energy, a flourishing oil and gas industry, higher incomes for the lower paid, lower taxes and a revived manufacturing industry in the old Democrat states he had won over. Instead he now faces record unemployment, an oil and gas industry in sharp retreat, falling incomes and manufacturing impaired by lockdowns.

We changed our base case from a Trump re-election as soon as Covid-19 hit the shores of the US. Today we are advising that it is still too early to call the election, but investors do need to be ready for a Biden Presidency. If you believe the polls, Joe Biden will win. He typically held a lead of around 5% in recent weeks and is now moving towards a more reliable 10% lead, given latest developments.

This is occurring despite the absence of big campaign meetings, and without a series of defining main speeches from the challenger. Lively exchanges are being pushed out on social media, but big campaign rallies are difficult in current conditions. It is events the candidates cannot control that are driving these changes.

It is tempting to say it is now Biden's to lose. We are in unprecedented times, when the economic news is so bad you would normally expect the incumbent to lose by a wide margin. So why hesitate?

The Trump offer

We need to look at the revised Trump case. His supporters say there were always shy Trump voters. The Democrat-inclined media have done such a good job vilifying the man and his more extreme tweets, that some floating voters who like the underlying policies of the President would not tell anyone outside the privacy of the ballot box they voted for him. It is also possible the polls are better at capturing the votes of the articulate more liberal-inclined voters than they are at getting a truly representative sample of blue-collar America that Trump speaks to. It is also true that those who lag in polls often claim they are wrong but may be consoling themselves with wishful thinking.

The president's people put out daily statements and pictures that are well crafted, displaying Mr Trump as a champion of the poor, the unemployed and of the minority communities. They hope that the solid work done to get more Americans into work, and to offer more opportunity, more energy and more manufacturing in his first three years will lead voters to want more and to regard the Covid-19 disaster as an act of God that no president could have surmounted.

The biggest thing on the president's side is the Federal Reserve Board. Mr Trump's sweeping victory against Fed prudence and orthodoxy, made complete by the damage done by the virus, has buoyed the stock market and given some compensatory money to those who have lost jobs and business activity from the loc downs. Just as the Fed has come to the aid of all asset owners at a time when otherwise there would have been a deep bear market, so the Fed may have kept some of Mr Trump's voters with the President. The cash payments and the relaxed fiscal stance are also keeping some voters on side.

Friendly neo-con fire

That is why John Bolton hurts much more than Joe Biden. Everyone expects Joe Biden to say Trump handled the Covid-19 crisis badly. To hear John Bolton saying the president handled the relationship with China badly, and failed to stand up to Putin, is more likely to detach Republicans from support for their man than the words of Joe Biden.

John Bolton is a neo con, a man who has always thought the US should intervene militarily in a wide range of places around the world and generate regime change. As adviser he was in a fundamental disagreement with Mr Trump about various Middle Eastern and Asian countries, where the president wished to withdraw from US military engagement and to concentrate on his policy of America first.

Mr Trump thinks that with the US self-sufficient in energy it does not need to fight wars in the Middle East. John Bolton thinks the US needs to confront Russia there. Mr Trump will have to get out this distinction, where he is probably closer to the views of many US voters than Mr Bolton.

The president calls Mr Biden ‘Sleepy Joe’. Mr Biden has not made a reported major public speech since 2 June, when he broke silence to discuss the policing issues that have been dominating the media. His age of 77 could become an issue, and his choice of Vice President will be of more than usual significance.

His policies include substantial tax hikes on richer individuals and companies, a pivot to Green Deal policies that will hit the oil and gas industries, and an extension of Obamacare with impacts on health and pharmaceutical companies. His website is policy rich but is not as politically active day by day as you might expect, given the narrowing time to polling day on 3 November. We will keep watching the contest, as the two candidates are offering very different economic approaches which will have different impacts on the stock market as a whole and on sectors.

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