<<The InvestMentor
Nov. 7th Prediction: We Will Elect a New President
by William L. Valentine, CFA
November 4, 2000
I'm going to stick my neck out here and make an Election Day prediction. I predict that on November 7th, the American people will elect...a new President! A bold prognostication? Not really, but it's the only dependable one-and for investors, it's the one that matters most. Before I explain the last statement, I'm going to give you a more specific forecast of the presidential election and how it might make history. Then I'll talk about how Election Day will impact the stock market and whether or not there are ways to "play" the outcome, by candidate.
I've been obsessing the presidential election, I must admit, and it's not just because I want to see my guy win. This could turn out to be the closest election victory of all time-literally. It stands the chance of making history with either of two likely outcomes. That's because even though Bush is consistently leading by a small margin in the overall poll of likely voters, the race is a tossup on a state-by-state basis. Given that the state-chosen electoral representatives will chose the next President, we may end up with a long lasting controversy surrounding this vote.
When I tallied the current votes by state, I found there to be a dead heat: 269 electoral votes for Gore, 269 votes for Bush. I'm not guaranteeing that will happen, but it very well could. In that case, the House of Representatives would likely vote Bush into office. The House hasn't decided a race by voting since 1824 when John Q. Adams was elected over Andrew Jackson.
In the event that the states tip to favor one candidate over the other, it's also possible that one fellow wins the overall populace vote, while the other carries the necessary states to win the election. That hasn't happened since 1888 when Ben Harrison beat Grover Cleveland with more states, but fewer actual votes than Cleveland.
Either outcome would raise the issue of a Constitutional Amendment to change our voting system.
At this point, Bush can pretty much count on Alaska, Alabama, Arizona, Colorado, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, North Carolina, North Dakota, Nebraska, Nevada, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Utah, Virginia, and Wyoming. These states count for 209 electoral votes.
Gore should lock up California, Connecticut, Delaware, Hawaii, Illinois, Massachusetts, Maryland, Maine, New Jersey, New York, Rhode Island, Vermont, Washington DC, and West Virginia. Collectively, these add up to 180 votes.
Thirteen states worth 127 electoral votes are locked in statistical dead heats:
State Electoral Votes Best Guess
Arkansas 6 Bush
Florida 25 Gore
Minnesota 10 Gore
New Hampshire 4 Bush
Oregon 7 Gore
Tennessee 11 Bush
Iowa 7 Gore
Michigan 18 Gore
Missouri 11 Bush
New Mexico 5 Bush
Pennsylvania 23 Bush
Washington 11 Gore
Wisconsin 11 Gore
With a self-proclaimed statistical margin of error of who-the-hell-knows-what-will-happen, I read the race like this:
Right now, Bush wins in an electoral vote tie. However, there are many permutations of how the toss up states might go-especially the first six in the table above, each of which has yet to consistently lean toward either candidate (Arkansas through Tennessee). Best case for Bush, should he carry all of the six, would be 311 votes to Gore's 227. Best case for Gore would be 290 to Bush's 248, if he carried those six immeasurable toss ups.
But we can't discount the occasional upset. In fact, if Gore carries Pennsylvania with Missouri or Tennessee, it could be all over before they start counting ballots in the West. On the other hand, if Bush gets Florida or Michigan, it will be his night. Anything can, and will, happen.
Now you know why my only firm prediction was that we'd be voting in a new President next Tuesday. And for investors, that's all that should matter.
Since World War II, there have been seven elections that produced a new President. Following six of those elections, we saw the market rally from Election Day through year-end. Thus, the last two months of the year are positive 86% of the time when a new President is chosen. That's a good thing, and may be explained by the optimism accompanying a new man in the White House.
And what stocks do well in the event of either candidate winning? It's harder to say than you might imagine. If you were to base your investing solely on what each candidate promises, you could infer certain sectors would benefit more than others. For example, both candidates imply that there's money coming to defense companies. And hypothetically, each candidate should have a different impact on certain industries like health care, insurance and education.
But the fact of the matter is that investing in a stock as a forecast for who wins this election is not smart money-especially in an unpredictable year. This election is a toss up and you're betting on a 50/50 proposition in either candidate's case. Betting is the operative word, here.
Regardless of who gets elected, those notorious promises are unlikely to be implemented in any recognizable form, especially if the opposite party controls Congress. Thus, it's best not to "play" the election in the form of certain investments.
There are plenty newly-discounted stocks with great fundamentals to consider, without having to add in the Election-factor. And in any event, the market's likely to rally between now and year end. So as an investor, I'm perfectly content to see either man get elected. As a citizen?...well that's another story, best left off these pages.
William L. Valentine IV, chartered financial analyst, runs Valentine Ventures, LLC, an investment management firm of individuals' assets, using global stocks and bonds. Valentine is also a contributing editor at Quicken.com, and a syndicated investment columnist >> |
