More on Politics and Markets

Author: David R. Kotok, Post Date: June 30, 2020
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David R. Kotok
Chairman of the Board & Chief Investment Officer
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In this 2020 political year, the issues, including COVID-19 and the Black Lives Matter protests, have political forecasts about as complex and difficult as anyone can imagine. An intensely divided country only adds to the complexity. Current polling notwithstanding, we still believe it is too soon to forecast a winner of the presidential contest. But we must remember that politics will determine the coming taxation and regulation of businesses from federal policy. It may determine the same in many states as well.
Remember that it is the Electoral College that counts, not the popular vote. Biden can win California only once, regardless of popular vote; Trump can win Texas or Utah only once. Florida (29 Electoral College votes) is becoming too close to call in our view. COVID-19-caused outcomes put the state in the possible swing column instead of solid “red.” The failure of the state’s unemployment payment system, installed by former Governor Rick Scott and inherited by Governor DeSantis, has created a huge state-specific issue. We live in Florida and already see a full-blown presidential campaign underway.
Forecasting whether or not the Republicans will hold the majority in the Senate is also difficult. The contest appears close. It would take a major surprise “red wave” for the Republicans to regain the House of Representatives. A large number of Republicans are retiring – three Republican senators and 27 Republican House members (“List of US Congress incumbents who are not running for re-election in 2020,”  https://ballotpedia.org/List_of_U.S._Congress_incumbents_who_are_not_running_for_re-election_in_2020). Our base case forecast is for the House to remain in Democratic control.

We again refer readers to the ongoing odds revealed at http://www.predictit.org. Please remember that these are constantly changing and reflect current betting odds set by a betting crowd.

Now let’s get to a particular Republican primary, which happens to be in northern Maine. It may seem obscure, but it may not remain so.

The leading Republican candidate is Adrienne Bennett (https://ballotpedia.org/Adrienne_Bennetthttps://www.adrienne2020.com/). She is favored to win in a primary contest with two other contestants, Eric Brakey (https://ballotpedia.org/Eric_Brakeyhttps://ericbrakey.com/) and Dale Crafts (https://ballotpedia.org/Dale_Craftshttps://dalecraftsforcongress.com/). See “Debates kick off tonight ahead of Maine’s July 14 primary, but without 2 prominent candidates,” https://bangordailynews.com/2020/06/08/politics/debates-kick-off-tonight-ahead-of-maines-july-14-primary-but-without-2-prominent-candidates/. The winner of this primary will try to unseat the incumbent and first-term Democratic congressman, Jared Golden (https://ballotpedia.org/Jared_Goldenhttps://golden.house.gov/).

We’ve met Bennett, spoken with her, and remember her staff work in the Maine statehouse when she was there during the era of Governor Paul LePage’s administration. Bennett visited a Camp Kotok gathering at that time. Historical note: Lepage visited twice. Camp Kotok has always invited officeholders whether Democrat or Republican. Bennett was articulate and responsive to investors who were interested in Maine, and she helped provide information we requested. Recall that she was employed by the state to be helpful during what could be characterized as the controversial LePage administration. She is a hard-working single mom. Pre-COVID-19, she was engaged in “retail politics” in northern Maine, which is important in the mostly rural and small-town district. We know this district well, having visited it for three decades; it is the home of Leens Lodge. It is the region that includes the St. Croix River Valley area of Maine where Camp Kotok gatherings have occurred over the years.

Bennett supports the Trump campaign agenda. She has criticized Maine’s Democratic governor, Janet Mills, for not opening up the Maine economy sooner. She enthusiastically supported an initiative to bring the Republican National Convention to Maine (https://www.adrienne2020.com/2020/06/04/sign-here-invite-president-trumps-convention-to-maine/).

We expect the likely contest in November will be Bennett versus Golden.

Readers may be wondering why we are spending time focusing on this rural district, given that our last discussion of 2020 politics concerned the far more widely watched contest between AOC and MCC in the New York Democratic Primary (“AOC or MCC,”

https://www.cumber.com/cumberland-advisors-market-commentary-aoc-or-mcc/).

That New York primary race made national news. AOC prevailed.  This one makes the Bangor Maine local newspaper.

What makes the Second Congressional District (northern Maine) important on a national scale is that it could possibly decide the presidential election under certain mathematical formulas. This fact was noted in the run-up to the 2016 presidential election. Aaron Zitner, writing for the Wall Street Journal, explained, “Remember that Maine is one of only two states – Nebraska is the other – that don’t award all of their Electoral College votes to the statewide winner. Instead, these states award one vote to the winner in each congressional district, plus two votes to the top vote-getter statewide.” See “How Maine Could Decide Election 2016,”  https://blogs.wsj.com/washwire/2016/10/03/how-maine-could-decide-election-2016/. John Mauldin also contemplated the potential importance of Maine’s second district in the last section of his November 6, 2016, Thoughts from the Frontline (“The Election: Making Difficult Choices,”  https://www.mauldineconomics.com/frontlinethoughts/the-election-making-difficult-choices).

Because Maine allocates electoral college votes by congressional district, the political direction this northern district takes may have an outsized impact on presidential politics. (We are presuming the southern district of Maine will be a Democratic win.)

What of Nebraska, the other state that utilizes a similar system? Like Maine, Nebraska awards two electoral votes to the statewide winner but also awards one vote for each of Nebraska’s three districts (https://www.270towin.com/content/split-electoral-votes-maine-and-nebraska/). At this point Trump looks likely to win most if not all of Nebraska’s electoral college votes. (See NPR’s “2020 Electoral Map Ratings: Biden Has An Edge Over Trump, With 5 Months To Go,” https://www.npr.org/2020/06/17/877951588/2020-electoral-map-ratings-biden-has-an-edge-over-trump-with-5-months-to-go).

Because we think the nation’s electoral college decision could be very close in 2020, we believe small variables like the outcome in Maine’s Second Congressional District may, repeat, may take on larger significance than would normally be ascribed to a rural district in a small state.

Consider how Jaren Golden’s predecessor, Republican Bruce Poliquin (https://en.wikipedia.org/wiki/Bruce_Poliquin), who was a top vote getter twice, lost his seat to Golden in 2018 under Maine’s then-new ranked choice voting rules. Voters ranked their choices on their ballots; and when Poliquin’s 46.1% of the vote fell short of the 50% required to secure victory, the candidate with the lowest number of votes was eliminated; and the vote was recalculated using the remaining candidates on ballots, according to how voters ranked them. When Poliquin again won the highest percentage but less than 50%, a second contender was eliminated; and with only Poliquin and Golden left, the ranked choices of voters were used to declare Golden the winner (https://www.usatoday.com/story/news/politics/elections/2018/11/15/election-2018-rep-bruce-poliquin-loses-maine-race-jared-golden/2014423002/). That election is a fascinating study in how different voting systems can impact election outcomes.

For his part, Bruce Poliquin is now awaiting Senate confirmation of his appointment by President Trump to the SIPC (“Poliquin to head Securities Investor Protection Corp.,” https://www.mainebiz.biz/article/poliquin-to-head-securities-investor-protection-corp). Poliquin has good experience in the financial sector and an operating knowledge of financial markets. He was also the State Treasurer of Maine during his career. My view is impacted by personal friendship with Bruce. I contributed to his campaigns when he ran for office. He visited our Camp Kotok group several times. He was and is helpful to the Global Interdependence Center and its programming. In every element of the GIC issues agenda, Bruce set aside partisan politics and sought to advance the work of this neutral, non-political organization.

This primary in Maine is on July 14. The primary results and the subsequent northern Maine Congressional general election campaign may remain mostly off the national radar screen, or they may gain prominent national significance if the Electoral College is very close. As we said at the beginning, it is still too soon to forecast these outcomes.

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