|
|
Election+Business
|
|
Good afternoon. Welcome to the first 2020 edition of our dive into the U.S. election and what it means for businesses, investors and the economy. I'm Theo Francis.
|
|
|
|
This week, we take a look at financial-market predictions for a Trump re-election and the Democratic field, as well as the potential ramifications for energy markets of the U.S. killing of an Iranian general.
As always, we'd love to hear your feedback and ideas. Just reply to this email. And if someone forwarded you this email, you can sign up here.
|
|
|
2020 Countdown
43 weeks to Election Day, Nov. 3, 2020.
1 week to the Iowa Democratic debate.
4 weeks to the conclusion of the Iowa caucuses.
4 weeks to President Trump's State of the Union address.
|
|
|
|
|
WHAT ARE THE ODDS? A futures contract that pays $1 if former Vice President Joe Biden is the Democratic nominee will cost you about 41 cents, compared to about 30 cents for his nearest rival. Photo: Jessica Gallagher/Dispatch Argus via ZUMA Wire
|
|
|
|
|
Wanna Bet? The Market Has a View on the 2020 Election
|
|
|
🛎️ The Takeaway: Futures markets — and betting books — for the U.S. presidential race are in full swing.
|
|
|
|
|
Odds are that Bernie Sanders wins Iowa, Joe Biden wins the Democratic nomination and Donald Trump wins the presidency — but loses the popular vote (again).
Those aren't my predictions. They're Mr. Market's, thanks to a small but busy domestic futures market in election outcomes, as well a robust overseas betting book.
You can pay 43 cents to win $1 if Sen. Sanders wins the Iowa Democratic caucus, and bet 41 cents to get $1 if Mr. Biden wins the party nomination — the priciest options, representing the likeliest outcomes, available at the moment for those races. It'll set you back 48 cents to win $1 if Mr. Trump rides to victory in November, but only 26 cents to bet he wins popular vote.
|
|
|
|
|
Across the Atlantic, bookies in the U.K. will give you 6-to-4 odds that Mr. Biden wins the Democratic presidential nomination — bet $1, you'd win it back along with another $1.50 — but 3-to-1 odds that Mr. Sanders does. The odds for Mr. Trump winning in November are almost even, at 10-11, compared with 5-6 for a Democrat generally.
The U.K. bets are technically only available to political junkies outside the U.S. The U.S. generally frowns on Las Vegas-style betting over domestic elections. But commodities regulators have given the nod to a few futures markets designed to produce data for researchers, with some limits.
The granddaddy of the field, the University of Iowa's Iowa Electronic Markets has been running nationally since the early 1990s. It offers a winner-take-all market on the presidential popular vote (currently favoring the eventual Democratic candidate) and a vote-share market (roughly 55% for the Democrat), as well as markets on Congressional control. A Democratic presidential-primary market is expected to launch soon.
|
|
|
|
|
The more polished PredictIt, an online market run by New Zealand's Victoria University of Wellington, offers a wider range of election and other political bets, including markets on which Supreme Court justice will step down next (Ruth Bader Ginsburg at 78 cents) and whether the U.S. House will adopt a third article of impeachment before March 31 (5 cents).
Since they exist for research purposes, both markets put a lid on your losses — and potential gains — to some degree. The Iowa market limits total bets to $500. PredictIt limits an individual's investment in any given contract to $850.
In some cases, betting markets can provide nuanced information, says Alex Donohue, a veteran U.K.-based political betting analyst now at betting-information website US-Bookies.com. Odds in the U.K. suggest punters are skeptical that Michael Bloomberg will win the Democratic nomination — but think he’s got a decent chance of beating Mr. Trump if he does.
"A lot of times, you'll see buzz in the betting markets that predates buzz in the polling or in the media," Mr. Donohue told me.
Meantime, Mr. Trump's odds, at 10 to 11, aren't as impressive as they seem: Barack Obama's odds were 1 to 3 at a similar point in 2012, and George W. Bush was 1 to 2. (Of course, four years ago, the odds were against Mr. Trump 5-to-1.)
"He's in a pretty poor place relative to other incumbents," Mr. Donohue said. "You would expect an incumbent to have shorter odds to win a second term."
The election markets offer slightly different standings than some other widely watched measures of the presidential horse-race, including fundraising and opinion polling. End-of-year campaign finance disclosures show Mr. Trump leading the pack on that front, followed by Mr. Sanders.
|
|
|
|
|
Recent Wall Street Journal/NBC News polling (PDF) suggests that Mr. Biden is in the lead nationally for the Democratic nomination, at 28%. About a third of registered voters in the poll said they are almost certain to vote for Mr. Trump in the general election, while 48% said they were almost certain to vote against him; the rest said it depended on the Democratic nominee.
A 2008 paper found the Iowa market’s ability to predict elections outperforms national polls, while another paper suggests those most active in trading in the market — price-setters, in market parlance — tend to make fewer mistakes.
The bottom line: These kinds of predictive markets are your best bet for calling election results, especially this far out or when there's a sudden shift — such as a new scandal — that polls don't immediately reflect.
"They provide a full measure of what's likely to happen on an election-by-election basis that's quite useful," said David Rothschild, an economist at Microsoft Research who earned his doctorate from Wharton Business School in market design.
"The favorite doesn't always win,” says Mr. Rothschild. “No one should look at the betting market and say the most likely outcome will definitely happen."
Of course, 2016 proved that point.
— Theo Francis
|
|
|
|
|
|
Chart of the Week: Revisiting the Tax Cut
|
|
|
|
The 2017 tax overhaul reshaped what Americans and U.S. businesses pay in taxes. One result: Overall tax revenues as a share of the economy have fallen. Within that smaller revenue stream, more of it is coming from individuals, rather than companies. Two years into the new tax regime, it is increasingly clear the tax cuts contributed to economic growth—but often just reinforcing existing trends, and have not produced enough growth to pay for themselves, as many backers promised.
|
|
|
|
|
|
-
Looking at the known unknowns. Fear of a recession led the list of worries in 2020 for U.S. chief executives, up from third place last year, the Conference Board found, despite forecasts for a slight increase in global growth. Full story.
-
An "all-of-the-above" strategy. Meet Swati Mylavarapu , the 36-year-old investor who has helped catapult Pete Buttigieg into second place for fundraising in the Democratic primary field. Full story.
-
Tackling the American way of education. Faced with Democratic candidates' proposals for sweeping student-debt forgiveness, President Trump has asked for proposals to let borrowers refinance or eliminate debt through bankruptcy. Full story.
|
|
|
|
|
|
|
Mideast tensions have worsened the outlook for U.S. wheat growers, as futures fell 2.2% — as fears of another troubled export market offset optimism that a China trade deal could be in the offing.
|
|
|
|
|
|
A Facebook ban on "deepfake" technology — ultra-realistic doctored videos — would apparently allow less sophisticated efforts, including recent videos of House Speaker Nancy Pelosi and Joe Biden.
|
|
|
|
|
|
U.S. businesses and consumers are paying essentially the entire cost of Trump administration tariffs on China, a New York Federal Reserve study of customs data concluded.
|
|
|
|
|
|
Q&A: What U.S. Tension with Iran Could Mean for the Energy Debate
U.S. energy editor Miguel Bustillo talks about how American energy policy and geopolitics are emerging in the 2020 election.
|
|
|
|
Q:
|
What is the energy-market context for President Trump’s order to kill Iranian Maj. Gen. Qassem Soleimani with a drone strike in Iraq, and how is it likely to play out in the presidential race?
|
|
|
|
A:
|
The targeted killing of this Iranian military official puts foreign policy on the map and energy security back up on the stage in the campaign.
One of the remarkable things that’s happened with U.S. energy production in the last decade is that the U.S. has become a lot more self sufficient. The country now produces more oil than any other — the U.S. is producing more than 12 million barrels of oil a day on average, compared with around 5 million barrels a day in 2010. That is largely the result of fracking, which has changed the U.S. economy and oil markets around the world. The U.S. still imports a lot of crude, but it’s in a very different position than 10 or 20 years ago. That changes the geopolitical context in a lot of ways.
Last year, a major attack on the chief Saudi Arabian oil-production facility caused an oil shock, but after a few weeks, crude prices had completely stabilized. That's remarkable when you think about the history of oil and oil shocks. The impact of these geopolitical tensions is maybe more short-term than they would have been in years past.
|
|
|
|
Q:
|
How much of the U.S. production surge was the result of Trump policy or regulatory changes, as opposed to market forces?
|
|
|
|
A:
|
It’s largely a result of what was going on in the market. The Trump administration has pursued a policy that former Energy Secretary Rick Perry and other administration officials have called “energy dominance.” That is, to pump as much oil and natural gas as possible and spread the bounty of that U.S. surplus as much as possible around the world.
So the administration has rolled back a number of regulations and opened more public lands for drilling. Those have really been on the margins of what’s happened. Most of the oil production in the U.S. is on private property not public lands, so there’s only so much you can do by rolling back rules on drilling in places like Alaska. The changes to environmental rules have had a limited impact — a lot of those are still bottled up in the courts.
|
|
|
|
Q:
|
Trump has openly talked about oil prices, tweeting more than once that OPEC should push down prices. Gas pump prices are an issue for any election, where does that stand today?
|
|
|
|
A:
|
Prices were fairly low during the 2016 election, and are historically very low right now in the U.S., thanks to high production here and a global surplus. There is ample supply despite geopolitical tensions in places like the Middle East and Venezuela. Things are very good for American drivers right now. A few days ago I went to my local Costco in Texas and filled up for less than $2 a gallon. The latest tensions in the Middle East could change that, but it’s a great situation for an incumbent politician running for re-election.
|
|
|
|
Q:
|
What have the top Democractic candidates proposed on energy policy — how similar or different are their plans?
|
|
|
|
A:
|
The Democratic positions are the polar opposite of Mr. Trump’s. Some candidates, such as Mr. Sanders and Ms. Warren, are proposing to ban fracking altogether or severely curtail it. These are aggressive policies against fossil fuel companies and steps toward a radical shift away from fossil fuels altogether, to a world where we generate electricity from renewable sources.
A lot of people in the business world are skeptical that a Democratic administration and Congress could accomplish some of the more radical proposals, such as a ban on fracking, at least in part due to the impact on regional economies.
Mr. Biden and Pete Buttegieg have generally been more measured in their energy rhetoric. I’m not aware of them talking about banning fracking.
|
|
|
|
Q:
|
How worried are energy executives and voters in the oil patch about a Democratic victory?
|
|
|
|
A:
|
A radical government-led transformation of the energy system is not something oil and gas executives are cool with, to put it mildly. In places like Houston, there’s a lot of concern about the Democratic rhetoric on energy policy. Energy is a major driver of regional economies in places like Texas and New Mexico. Likewise in Pennsylvania, fracking-related jobs have been a big contributor. In certain battleground states, oil and gas are big employers. In other parts, like Indiana and some midwestern states, wind energy jobs are big.
Still, the CEO of Pioneer Natural Resources and others are saying, let’s wait and see what really happens and if more practical proposals end up on the table. Harold Hamm, founder of Continental Resources, a large energy company and fracking pioneer, recently invited Sen. Warren to his home state of Oklahoma to go to a fracking site to see for herself what it’s like to work in the sector. That struck me as unusual, he is a very pro-Trump, partisan guy.
|
|
|
|
|
-
Heavy lobbying by big companies may have blunted provisions intended to offset the cost of the 2017 tax overhaul. (New York Times)
-
Questions remain around Russian hacking attempts at an election-technology company with systems that experienced problems in the 2016 election. (Politico)
-
Two high-profile business leaders who died in 2019 — Lee Iacocca, "The Businessman President Who Wasn't," and Ross Perot, "The Father of Trump" — set the stage for today's executives in politics. (Politico)
-
The FBI raided the home and office of a K Street lobbyist who claimed doubtful ties to President Trump. (Washington Post)
|
|
|
|
|
We'd love to hear from you. This week's question: How seriously should business leaders take the resuts of early contests like Iowa and New Hampshire?
Share your thoughts by emailing us at voices@wsj.com. We'll feature select responses in a future newsletter.
We're delivering our Election+Business newsletter weekly through the 2020 election. Let us know what you think by replying to this email.
|
|
|
|
