- The Presidential race is much tighter today than it was a week ago.
- Donald Trump’s weak response to the Coronavirus crisis has caused his edge in the 2020 election to disappear.
- The caveat is that Biden and the Democrats have to avoid looking like they’re taking advantage of the situation for political gain.
It was just a week ago that the Presidential hopes of Joe Biden and the Democratic Party looked extremely bleak. Biden looked to have sewn up his party’s nomination but no one was particularly excited about it. This remains true for the party’s far left elements that supported Elizabeth Warren and Bernie Sanders. Warren withdrew from the race and refused to endorse a candidate. Now Sanders’ supporters are pitching a fit and claiming that they won’t support Biden’s bid for the White House. Taking a page from the Hillary Clinton playbook, they’re blaming anyone and everyone for Sanders’ floundering campaign–except for Bernie himself.
At the time, it looked as if Donald Trump had to just keep his base together and coast into a second term. Following Warren’s withdrawal, I made Trump a -170 favorite to win re-election. Most of the other bookmakers around the world were in the same ballpark–the consensus line at the major UK books was -160 or -150. Trump had gone from being a small underdog (+125 or thereabouts) in December to a decent sized favorite. The prices on his re-election carried an implied probability of 60% to 61.5% so things were looking good.
HAS TRUMP ‘SNATCHED DEFEAT FROM THE JAWS OF VICTORY’?
The dynamics of the Presidential race looks dramatically different today than it did a week ago. Let’s take a look at my revised odds to win the 2020 Presidential Election:
ODDS TO WIN THE 2020 PRESIDENTIAL ELECTION
Donald Trump -110 Joe Biden -110
The race now looks like a ‘pick’em’. I’ve got it priced at -110 on each side–this represents a 52.4% implied probability. For those of you unfamiliar with oddsmaking the reason it doesn’t add up to 100% is that these lines reflect the ‘vig’ or house edge. This is how sportsbooks make money. In reality, I see the Presidential race as a ‘coin flip’.
This is all based on Trump’s poor response to the Coronavirus crisis where he has gone from expressing optimism that it wasn’t going to be ‘worst case scenario’ to looking completely lost and not having a clue how to demonstrate leadership. It’s important to keep in mind that Biden and the Democrats haven’t done anything to cut in to Trump’s lead–the President did this all on his own.
TRUMP’S ADDRESS TO THE NATION MAY HAVE BEEN THE TURNING POINT
If Joe Biden ends up winning the election in November you’ll be able to make a good case that the exact moment the tide began to turn was Trump’s address to the nation on Wednesday night.
One of the fascinating things about markets–odds markets, financial markets and otherwise–is the ability to watch situations change in real time. All you need to know about Trump’s speech can be seen in the reaction of the Dow Jones Industrial Futures market. After a day where the DJIA lost 1,464 points the futures initially indicated some optimism and by the time Trump’s speech began they were up around 400 points. They began to nosedive as the speech progressed and by the time it ended the DJ.1 futures were down nearly 1,000 points. The selling continued after the speech as the futures dropped more than 1,000 points. At the time of this writing, they stand at 22,364.00 or -1211 points. They likely would have dropped further but they hit the ‘limit down’ which suspends trading in the event of a 5% drop in the DJIA index.
The big news from Trump’s speech was a 30 day ban on travel from Europe that exempts the UK. The exemption is likely based more on politics than anything else–the current WHO tally shows several European nations have a lower infection rate than the UK. Trump made things worse by his insistence on blaming European countries for the spread of the virus and calling it a ‘foreign virus’. There may be some truth in saying that European containment could have been better but this certainly wasn’t the time to get in a xenophobic zinger. There’s also little to suggest that travel bans are effective and might even be counterproductive. The WHO, for example, recommends against them. At least Trump didn’t carry through on his original plan of prohibiting travel from Mexico–Mexico has had only 7 reported cases.
Trump’s task at this point is two fold: 1) Show leadership and reassure the American people. Think George W. Bush after 9/11. 2) Calm the financial markets with some type of economic stimulus. Instead of doing that, Trump’s Europe travel ban did nothing more than kick the already reeling airline and tourism industries squarely in the groin.
THE DEMOCRATS REMAIN IN A TENUOUS POSITION
It’s not all good news for the Democrats. Trump might be reeling at the moment but they have to be extremely careful to not appear to be exploiting the Coronavirus crisis for political gain. Trump can still turn this around which could also reverse the odds movement. Biden still has to deal with Bernie Sanders–instead of focusing on doing his part to defeat Trump the Vermont Senator is putting his ego first and continuing his campaign. This costs the party time, money and other resources they could otherwise devote to the general election.
Democrats in Congress could also screw things up for Biden. They haven’t exactly distinguished themselves with their leadership either and there’s a profound risk of appearing ‘obstructionist’ and blocking Trump’s proposals to mitigate the impact of the situation. It’s debatable if the payroll tax cut that Trump proposed earlier in the week was a good idea but the way the Democrats in Congress summarily dismissed the idea was a very bad look. This is not the time to offer a ‘competing agenda’. The Democratic leadership in Congress needs to act conciliatory and co-operative even if they don’t mean it. Anything that can be perceived as politicizing the Coronavirus situation could really hurt their chances to take the White House.
And then there’s Biden himself. On balance, the best thing for him to do might be ‘nothing’. He doesn’t want to look like he’s campaigning hard while the White House struggles with a tough situation. In fact, it probably wouldn’t hurt him to announce that he’s suspending his campaign altogether. This would send a message that his priority is the well being of the American people and also serve to marginalize Sanders. He could even pull out of the next debate on Saturday night–best case scenario for him would be Sanders on stage by himself in an empty auditorium ranting like a loon. The optics of that would further damage Sanders’ campaign more than anything Biden could say or do. Biden should just appear calm, cool and collected while sending a message that his focus is on helping the President and his colleagues in both parties to deal with the Coronavirus situation.
