Three weeks ago, Citi’s political analyst Tina Fordham, who listed the numerous potential October surprise “black swans” that could affect the election yet not even she could imagine the return of Anthony Weiner to the front and center stage of politics…
… said that she was getting a Brexity feeling about the November election. As she put it in early October, “this is an unusual juncture but we keep looking at it through the same kinds of lenses. What if it’s all wrong because society, technology, opinion polling methods, and everything else don’t capture marginalized voters in the way they might once have?” “What if” indeed.
The reason for the rhetorical question is that according to Fordham, this presidential race feels more like an election in a developing nation where public distrust in government is high and conspiracy theories are rife. Markets seem unaware how much that low trust raises the risk of an anti-establishment vote. Fordham has focused on the Gallup World Poll on public health, which analyzes two decades’ worth of health records of Trump supporters. The numbers show a correlation between the increase in the number of people going through difficult times – as measured by suicide rates, depression, mental illness and drug addiction – and the rise in Trump’s popularity, Fordham said.
“This is the kind of thing that investors just don’t normally run into, but it provides another useful way to think about things because income inequality is necessary but not sufficient,” she said. “There is something more subtle going on about public expectations and exhaustion and a sense of corruption, elite abuse of power, and lack of control.”
“I’m getting this Brexit-y feeling and I know other investors are as well,” she said. “The thinking is: I didn’t expect Brexit, so I better assume Trump is going to win. That element of investor psychology is at play here.”
* * *
Fast forward to today when in a follow up note, Fordham answers the question whether the FBI announcement is a game changer.
She writes that Friday’s surprise announcement by FBI Chief Comey that additional emails would be reviewed as part of the agency’s ongoing investigation into Clinton’s use of a private email server was sufficiently vague and unusual to rattle markets and see prediction market odds drop from 81% to 75%. She notes that she had warned throughout the campaign that Black Swan risks, including scandals and information warfare, are extraordinarily high, and hence have been less bullish for a Clinton victory than consensus.
She then observes that “these developments do constitute an “October Surprise” that could have a meaningful impact on the race”and cautions that this may not be the end of it: “We continue to emphasize the potential for more Black Swan events emerging making things more complicated for forecasters and pollsters.”
Fordgam also says that she expects high anxiety to continue to November 8th:
The extent to which the 11th Hour development will influence voter behavior is likely to remain uncertain right up until Election Day; typically it takes at least a week before new developments filter through to polls. With just over a week to go, the impact of the FBI’s announcement may be just beginning to register, exacerbating uncertainty. Even before Friday, Clinton’s lead had tightened, from 6.4pp on 20 October in the RCP average to 5.6pp by last Thursday (27 October), in polling conducted between 14 and 27 October, prior to the news breaking. In addition to a lag before polls reflect developments, it is highly unlikely that the FBI will come to a conclusion about the nature of the emails, whether classified, confidential or otherwise, before elections.
That said, Citi’s “Base Case” of a Clinton victory remains unchanged, however she adds that Congressional races will likely be affected:
Our probability of a 75% probability of a Clinton victory remains unchanged due to our longstanding caution over the risks of Black Swans, but these developments have added a significant obstacle to the Clinton campaign, and are likely to further dent voter confidence. However, we do not expect her supporters will switch their votes as a result; an ABC News/Washington poll (conducted 25-28 October) finds that just 7% of Clinton voters say the news makes them less likely to support her. Furthermore, a significant amount of early voting has already taken place. The most concrete impact of the FBI announcement will likely be upon turnout; potentially depressing turnout of Clinton voters, less enthusiastic about voting to start with, and “downticket” voting in Congressional races, where Clinton’s boost in the national polls had looked likely to propel more Democrats to victory in Congress. Here too, our view had been that a divided Congress was still the most likely outcome and we think this is still the case.
In other words, with 8 days left, the black swans in this presidential campaign may remain true to their name.