Book review of Barton Biggs Wealth, War and Wisdom

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I would like to announce that going forward, I plan to regularise my posts from a monthly to a two-monthly cycle. There are a number of reasons for this shift, the first that I struggle to find the time to write blog posts but more importantly, having covered so many topics over the last 5 years in great detail, I struggle to find the material to publish a post every 4 weeks or so.

Now that we have got that out of the way, I plan to discuss one of the most recent books I have read, Barton Biggs Wealth, War and Wisdom.

The book is quite simply a tour de force, going through the performance in real terms of equities, bonds and real assets like land, property and gold over the last century. The author focuses on select countries, including the United States, the United Kingdom, France, Germany and Japan but touches on other places during the fascinating journey.

I found his writings on what happened to the German wealthy particularly fascinating. The Germans had a traumatic century, with hyperinflation, depression, Nazi rule and war, followed by a brutal post-war era and Communist expropriation and occupation of the east. Those wealthy Germans that physically survived the Nazi era and the 2nd world war that slaughtered millions also had to navigate the destruction of German government bonds, Communist seizure of real assets in the East and the collapse of the German stock market in real terms.

Even in the Allied countries that won the war, wealthy people in the UK and the US faced challenging times preserving wealth in an often politically toxic environment. Some of you may wonder why a book about the fortunes of the wealthy from decades ago would be relevant now.

I would argue that this book should be made compulsory for any wealthy family who wish to preserve and pass on their family wealth to future generations. It covers geopolitical risk, the huge threat posed by inflation and why it is critical to diversify your wealth internationally and into different asset classes.

The long era of globalisation that has so enriched the upper echelons of society across the developed world has now ended. We are in a new era of border controls, trade barriers and the shift back to domestic supply chains and manufacturing hubs. Government interventionism is back in vogue and we are not going back to 2019 again.

So the key lessons for me from reading the book are as follows:

Government (and to a lesser extent corporate) bonds are poor asset classes for preserving wealth in the long-term. Inflation usually destroys the real value of capital invested in bonds and we are probably in the early stages of a new inflationary cycle that will ruin a generation of bond investors again.

Equities are generally better stores of value, long-term, than bonds and should be a core part of anybody with a long-term investment horizon. During particularly dark times, the equities often collapse in value or become largely illiquid, if not closed like the Nazi regime did after Stalingrad. So, whilst equities, long-term do prove a better store of value, don’t rely on them when you need food to eat or energy to keep the lights on.

Hard assets, particularly properties, land and rare assets like fine wine, antiques and even art (Old Masters) can be valuable assets to hold. However, they are often illiquid, difficult to sell and prey to destruction, theft or government seizure. The best approach is to diversity, globally, your ownership of these types of assets to mitigate those risks and try and hold them in secure places.

Gold, particularly where it is stored in neutral places like Switzerland, proved lifesavers for some of the individuals mentioned in the book (including a very rich French Jew who escaped death thanks to wealth held in Switzerland). One of the lesser known aspects of WW2, which I didn’t know until I read the book, was that black (i.e. illegal) marketeers were one of the few financial winners from the whole grim period (assuming they didn’t get executed).

These entrepreneurial individuals risked life supplying highly demanded rationed goods on the black market during the war and the post-war years. Many got fabulously rich by the end of the war across occupied Europe and Asia, and converted their wealth into gold, primarily, and waited out the initial post-war years. Biggs notes that many of the successful industrialists who acquired and developed businesses from the 1950’s in places like France, Italy and Germany derived their capital from their black marketeering during the war.

The darkest chapters in the book talk about the plight of European Jewry. Whilst not documented in this book, I am aware that some super-rich German Jews fled Germany prior to Adolf Hitler getting into power in 1933. They sensed the danger and decided, sensibly, that the best thing to do was sell their assets and leave Germany when they could freely do so.

Biggs book covers those wealthy Germany Jews that decided to stick it out and stay in Nazi Germany. Some convinced themselves that the anti-Semitism was just political talk and that things would return to normal over time. Others were too wedded to Germany and the idea of leaving their homeland was unthinkable.

Unfortunately for those wealthy German Jews that stayed, the wealth consequences alone were horrendous. The Nazi regime imposed an exit tax on Jews which in practise meant that by the time a family sold their wealth at discounted prices, paid the exit tax and managed to leave the Third Reich, they often preserved only a fraction of their original family wealth.

And those that did manage to escape were lucky. After 1939, that prospect ended and tragically death awaited those still stuck in Germany and in occupied Europe. The lesson from it all is be prepared to move to safer jurisdictions if required and follow politics closely.

My FI blog was set-up, in part, because I wanted to explore the likely future geopolitical environment and how individuals, whether wealthy or not, can navigate it in the years to come.

This book is a timely reminder of just how challenging that may be for some of us in the future.

Book review of Barton Biggs Wealth, War and Wisdom

Stagflation and the dynamics of economic contraction

Bloomberg

“The word for this is “stagflation” — we had a lot of it back during the 1970s. Shortages, supply chain disruptions, rising prices in an environment of unadmitted economic contraction — it’s a familiar landscape.

“We’re in the opening stages of a major speculative bubble, and so people are investing in anything they think will gain in price. Cryptocurrencies are tailor-made for such a situation, as they can be manufactured freely and their only value is what someone else will pay for them, so they’re as popular now as investment-trust shares were in the runup to 1929.”

March 2021 post, John Michael Greer

Apologies for the extended delay in posting on the blog, it has been a very busy start to 2021! But I’m back with an update on where we are and this month’s post will focus on the economy.

Before I start, I thought it would be good to discuss the vaccine rollout which, so far, is going well with the vaccines apparently safe to the wider population.

As discussed in my earlier post, the question remains about the potential longer-term adverse side effects triggered by this mass vaccination rollout. Unfortunately, we don’t have enough data yet to know whether these risks are theoretical or real and, if so, how many people would be impacted.

I have tried looking into when you see serious long-term impacts, after a vaccine is rolled out, but it is not always clear. The Thalidomide scandal, where tens of thousands of children were left horribly deformed after pregnant mothers were given Contergan in the late 1950’s/early 1960’s took a few years to emerge. According to Wikipedia, the medication was authorised in 1958 but only withdrawn in 1961 in the United Kingdom, after birth defects were reported.

It is for this reason that pregnant mothers are generally excluded from vaccination programmes, given the potential risks to the unborn.

The 2009 swine flu vaccine – which I discussed in this post – was initially considered safe and approved for wider public use in September 2009. It looks like the first people to be vaccinated was in October/November 2009 but it was only in August 2010 that the European Medical Agency suspended the use of Pandemrix, given the reported triggering of narcolepsy.

So, to summarise, it took approximately 9 months before a vaccine that was given to 30 million Europeans was withdrawn due to safety concerns. Given that most of these vaccines have only been given since December/January 2021, a 9-month time-frame would mean any serious late side effects might become apparent by September 2021.

I have also read that scientists find the first 2 months of a mass vaccination rollout as the most critical, as it is likely that any serious side effects would be reported within those crucial 8 weeks. You can also argue, as John Greer does, that the Moderna and Pfizer vaccines are a revolutionary type of vaccine – mRNA – that we don’t have a track record unlike the more “traditional” vaccines like AstraZeneca/Oxford vaccine.

Ultimately it is the individual’s choice on whether they wish and indeed when, they choose to take a vaccine.

Moving on from vaccines, let’s discuss the state of the global economy.

The global economy contracted in 2020 and economists are predicting some kind of economic recovery this year, on the back of a fading virus and vaccination programmes. This doesn’t get us back to February 2020, economically speaking for the majority of countries, and it is likely to take years to get back to that 2020 peak according to the economist models.

I would argue that we will never, globally, return to that peak in economic condition and any recovery – which I’m sure there will be – will only partially take us back to a pre-pandemic level. Or, to put in more bluntly, we are now on the other side of the Long Descent, past the peak, and now in an era of economic contraction.

I agree with John Greer, who has recently written on his blog that the world is now entering into an era of stagflation; rising energy prices functioning as a tax on all economic activity, and drove the seeming paradox of inflation concurrent with high unemployment.

My parents, who were young professionals in the 70’s, remember fondly the days of high inflation and interest rates. They were able to acquire properties in London, and with their secure jobs, benefited from rising prices and inflation eating away at the real value of their mortgage debt. After the 70’s, the housing market boomed even further and they were able to trade up the housing ladder into the 4-bedroom house they own now.

For those with secure incomes stagflation can be a good decade, as my parents can testify. But for those who suffered from mass unemployment and relied on state benefits, I can imagine that the era of high inflation was grim and difficult. So be wary of taking on excessive personal debt in the years to come as it may come back to bite you.

In 2019, in one of my posts discussing the eventual economic Dark Ages, I made a series of recommendations on how to navigate these times.

I would still go along with this advice but would be more specific about equity allocation. In real terms, the stock market in the 70’s did badly as galloping inflation crushed the real value of stock portfolios.

The sectors of the stock market that did well during that decade were defensive stocks like utilities, healthcare and infrastructure along with commodities and gold miners. This article here goes into further detail the pros and cons of various stagflation investment plays.

A sensible portfolio would probably have a focus on healthcare, blue-chip defensive stocks and quality commodity resource companies.

The other hard asset that usually does well in these times is arable farming land and properties in quality locations.

Those Americans that brought discounted properties in California during the 1970’s would be laughing now, given the sky-rocketing rise in value properties over the last fifty years. The key is to buy properties in places that are likely to grow in real terms in the coming decades, something easier said than done.

I also agree with John Greer that crypto-currencies are in the early stages of a speculative bubble that is likely to inflate further as the Biden stimulus cheques start arriving in millions of Americans accounts in the coming months. A small number of cryptos are quality tokens with huge long-term potential, but there is no denying that it is a highly volatile asset class that tends to go through cyclical bulls and busts. Right now, we are in a bull cycle, that is likely to carry on for a while longer, but at some point, it will reach that manic phase, after which the bubble will burst.

For those readers, like me, who are invested in this exciting if highly speculative market, I suggest that once you sense that we heading into the late stages of a bubble, to sell and get out and invest the profits into something I have suggested in that list above (not crypto!).

Overall, my thesis remains that we are broadly tracking the Limits to Growth megatrend, and we peaked in global economic activity in 2020.

2021 will be a story, like most years going forward, of economic contraction amid a broader macro environment of supply chain disruptions, geopolitical tensions and rising prices. The crypto and stock markets are enjoying the “sweet spot” of the central bank money printing bonanza, but the party can’t go on forever.

I expect that the Biden stimulus cheques, along with a re-opening of the US economy, will drive a mini-economic boom in 2021. The optimism generated by this will drive the stock market (and crypto market) into mania territory towards the latter end this year.

If I am correct, this is likely to be a good time to crystalise profits, get out and ensure that you have a comfortable safety net as the stagflationary forces of higher prices, interest rates and mass unemployment come down the road.

Stagflation and the dynamics of economic contraction

A long hard slog

“It takes one to two years of repeated tests and long-term assessments to figure out if a vaccine is safe and effective, and the Pfizer vaccine—the first one approved in the US and Britain—got a total of eight weeks of hurried testing before it was approved for sale. It’s quite common for problems with pharmaceuticals—even horrific problems—to take months or years to surface, and the Pfizer and Moderna products belong to a type of vaccine—mRNA vaccines—that have never before been successfully used on human subjects, so no one anywhere knows what will happen when millions of people take them.”

John Michael Greer, “Into the Unknown Region” 

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Hope is a powerful but dangerous emotion.

Right now, millions are hoping that the arrival of the vaccines will restore the pre-2020 world back, after the nightmare of lockdowns, restrictions and job losses.

The truth is, nobody knows for certain whether the vaccines will allow a return to normal or not. Politicians, investors and businesses have premised the hope of a better 2021 on the assumption that the vaccine rollout will be successful and the virus conquered.

Whilst I am not a scientist and certainly not an expert of infectious diseases, I have been doing a lot of reading around the subject to get a sense of 2021’s trajectory. Let’s start by discussing some of my initial forecasts of Covid in 2020. Whilst on the one hand, my early thinking that the virus would have largely faded away by early Summer proved correct (at least in Europe), I got the Second Wave horribly wrong.

My thinking was that the authorities would successfully contain any second return of the virus in the winter months, and factoring in the massively increased number of tests, making it more of a ripple rather than a wave. Initially, this seemed to be reasonable enough, particularly with hospitalisation and death rates remaining low in Europe during September and October.

Unfortunately, my ripple thesis blew up in November and December, after soaring rates of sick people with Covid forced government after government to impose new lockdown style measures. And in case there was any lingering doubt, the soaring death rate across Europe and the United States in December makes it clear that we are in the midst of a Second Wave.

An interesting question is how much the more transmissible “Kent” variety of the virus is responsible for this massive surge in cases. Either way, I clearly under-estimated the lethality and adaptability of the virus despite all the measures governments have imposed to get control of it.

For me, that’s a sobering thought as we now collectively dare to hope that the worst is (nearly) over.

The best-case scenario is that all the vaccines approved are safe, effective, have no medium-longer term health effects and will be rolled out speedily to a population prepared to take them by October 2021 in sufficient numbers that herd immunity is reached. After that, we can return to normal.

The risks to this best-case scenario, which is the de facto base case for the majority of governments, businesses and markets, are manifold.

Assume that the vaccines are safe, effective; what happens if governments mess up the logistics of rolling them out to populations or that insufficient numbers are prepared to take the vaccines? So far, the vaccination rollout for many countries has been shambolic with significant numbers of the population like in France seem determined not to take any vaccine. That’s just one risk.

Should one of the vaccines have serious longer term health implications, and this is only discovered after millions have been vaccinated, it could discredit the entire global vaccination programme amid public outcry. Even those vaccines that are safe could be crushed amid the uproar.

Another risk is the virus successfully adapts to the vaccines, and returns with a vengeance in the Winter months in a more lethal form to kill hundreds of thousands more vaccinated folk. Unlikely? Well, scientists are already worried that the South African mutation may prove immune to the existing vaccines and we are barely into the new year.

The mainstream media, like everybody else, wants to think that the vaccines will get us out of this nightmare. The media, are after all, like the rest of us. Hope is a powerful emotion but can blind us to unpalatable realities. And my fear is that serious concerns about these vaccines are being ignored by the mainstream media and we may only find out when it is too late.

So, for those who wish to know more, I recommend reading here and here in regard to concerns relating to the Pfizer vaccine. For the Moderna vaccine click here. And for the Oxford vaccine this article here is a very good read.

Moving on, let’s review my forecasting performance last year (you can read my forecasts here).

My first prediction was that Sir Keir Starmer would win the Labour leadership election (with a 75% probabilistic rating). Got that one spot-on. Sir Keir won in a landslide in the end and vanquished his rivals.

My next prediction was that Donald Trump would win the US election (60% probability). Whilst I have covered this before in my post-election analysis here, it is worth reminding what I wrote at the beginning of the year, before Covid reared its ugly head.

“Should Biden become the Democratic Party candidate the prospects of a Democratic victory in November increases (at least compared to his rivals), however, on the balance of probabilities I would predict that President Trump is more likely than not to get re-elected for a second term in office.

The reason for my call is that Trump has managed to erase much of the once mighty Biden lead in battlefield states and we are still in the early days of this presidential campaign. The booming economy in the “flyover states” and the wider cultural weaknesses of the Democratic Party suggest that enough voters will hold their noses and vote for the Donald again.”

Well, we all know what happened to that booming economy in the heartland states, it crashed with the advent of the Covid pandemic in Spring. Without that pandemic, I am reasonably confident that Trump would have pulled off a win.

The cultural weaknesses of a woke-obsessed bicoastal Democratic Party were shown in the poor performance of the party in the November elections. They lost seats in the House, failed to win a clear majority in the Senate and performed poorly in governor and state level elections across the country.

A fair point is that I should have adjusted my forecast in the light of the pandemic rather than doggedly sticking to my probabilistic forecast that Trump still had a likely narrow edge in the election.

So, to conclude, this is one where I got wrong, but in my defence, I always took seriously a Biden challenge, reflected in my 40% probabilistic chance of him winning the election.

My final forecast was also on the bullseye; that Britain and the EU would agree a shallow good-based trade deal prior to 31st December 2020 (70% probability).

Prime Minister Boris Johnson agreed to a deal with the EU on Christmas Eve, in line with my forecast at the beginning of the year.

So, overall, a solid performance, even if I did get the US presidential election wrong.

Now let’s look into 2021.

The Republicans keep control of the Senate (70% probability)

My first forecast, which we will hopefully find out if I’m correct or not soon, is whether the Republicans manage to win one of the two Georgia senatorial races to keep the Senate in GOP majority hands.

Despite a recent surge in support for the Democrats, my forecast is that the Republicans will manage to win at least one of the seats in the Senate. There are sufficient number of conservative voters, many of them who may have voted for Joe Biden, who don’t trust the Democratic Party with control over the Senate, House and the White House.

A narrow Republican majority in the Senate will keep Biden on a conservative, centre-right and sensible governing path.

An approved Covid vaccine will be withdrawn for safety reasons (50% probability)

This is a forecast that I really hope I’m wrong. However, having widely on the subject, I think there are genuine safety concerns relating to the Covid vaccines fast tracked through, specifically but not only the Pfizer vaccine.

It is therefore my forecast – with a 50% probability – that at least one approved vaccine will be withdrawn at some point should sufficiently numbers of people die or get severely ill after being vaccinated.

The political and economic backlash, should this occur, would be enormous.

In the medium-longer term, I do think that despite the long hard slog ahead of us, we will eventually conquer the pandemic, through a mix of reaching effective herd immunity, the use of existing and widely available drugs, such as Ivermectin to reduce the Covid death rate and Covid vaccines being rolled out.

Ether becomes the new Bitcoin (80% probability)

Back in 2017, I discussed the early signs how institutional money was starting to dip their toes into crypto-assets.

Well, after a tough bear market, crypto assets, in particular bitcoin, soared in 2020. Big Money, whether hedge funds, pension funds, insurance companies or high-net-worth billionaires, have been pouring capital into bitcoin and enjoy the rich returns.

I expect this trend to continue in 2021, but the focus will start to switch away from bitcoin to the second largest crypto asset, Ether. My specific prediction is that at some point in 2021, the price of Ether will reach $1,500.

If it hadn’t been for the SEC regulatory move against Ripple, it is quite likely that Ripple (or the XRP token) would have also benefited from the “wall of money” cascading into the crypto asset space.

Fortunes will be made in 2021 in this exciting if volatile asset class and if you choose the right tokens, big returns can be yours in the months ahead.

So, to summarise, 2021 will probably “feel” more like 2020 than 2019. Lockdowns in many parts of the world till Spring, a semi-normal Summer and the risk of things going terribly wrong again in the war against Covid during the second half of the year.

The economy will rebound to a certain extent, but with Covid and the related lockdown measures impacting the developing world in particular, it looks likely that we will continue that descent from the peak in early 2020.

We have only started the Long Descent journey, from the peak of industrial civilisation to our eventual fate of a deindustrial Dark Ages centuries ahead.

Time to toughen up and prepare for the shocks, expected and unexpected, that will come our way in the decades to come.

A long hard slog

The cavalry is coming

Wilkimedia

“One of our themes over many years has been the waning influence of economists on political decision-making. Their influence reached a peak sometime in the first decade of this century, and has been declining ever since. It was the financial crisis and its aftermath that triggered the change. The pandemic is doing the same to the community of scientific advisers. This is true in the UK at least, but we think it is beginning to happen elsewhere too.”

Eurointelligence briefing

“I expect a significant number of people will line up to get the vaccine. (Look for the people who have masks on when they’re alone inside their cars — they’ll be in that line.) I hope for their sake that an experimental vaccine of a type never before approved for use on humans, that’s been rushed through the testing process so quickly that there’s no data at all on middle- or long-term effects, and has a serious risk of setting off severe immune system reactions with a sharply increased risk of autoimmune diseases, will turn out to be perfectly safe anyway…”

John Michael Greer, A Faint Whiff of Lemonade

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The end was in sight.

You could sense the hope in the air.

And in their hundreds of thousands of people across the West lined up to take the miracle vaccines in hospitals and dedicated Covid vaccination centres.

The politicians, the regulators and the scientists promised that the medical risks of taking the revolutionary new vaccines emerging from the labs of America and Germany was remote. Celebrities were lined up to take the vaccines on live television to reassure the public.

And for a few months’ things went well. Until it didn’t.

On social media, cases started to get reported of patients suffering severe side-effects from the Moderna and Pfizer/BioNTech vaccines. Exhaustion, hair loss and the failure of internal organs were the common signs circulating on the internet.

At first, these social media reports were censored and cancelled by Big Tech, determined to root out anti-vaccination misinformation online. But people carried on spreading them, and in the weeks that followed, brave medical doctors started blowing the whistle.

And then the dam burst.

The mainstream media, overwhelmed by the growing number of stories of people with increasingly catastrophic health consequences after taking the Moderna/Pfizer vaccines, reported it. Panic followed, medical regulators banned any further vaccinations and a huge backlash against the scientists followed.

Fantastical? Maybe, but the facts are – as outlined by Greer’s post at the top of this blog – that the Moderna and Pfizer/BioNTech vaccines are experimental, revolutionary and have never before been approved for use on human beings.

We can hope that there are no serious side effects and they prove as miraculous as they appear on paper but nobody will know for certain until millions start being vaccinated from next week.

Nor do many people know – and to be fair nor did I until recently – that something similar happened during the Swine Flu pandemic in 2009/2010. The swine flu pandemic was one of those near misses that the world dodged over a decade ago until we got unlucky in 2020 with the Covid-19 pandemic.

At the time, there was a very real fear that swine flu was the Big One – the global mass pandemic that would kill hundreds of thousands – and a vaccine called Pandemrix was rushed through. Regulators approved it and, in the UK, key workers in the National Health Service were vaccinated.

Politicians, regulators and scientists all said that the vaccine was safe.

Except it wasn’t.

Some NHS workers were unlucky and developed narcolepsy as a consequence of receiving the vaccine. Narcolepsy is a chronic sleep disorder characterized by overwhelming daytime drowsiness and sudden attacks of sleep. It can also lead to sudden loss of muscle tone and can have disastrous implications for those unlucky enough to suffer from it.

As this BuzzFeed article notes, many of the NHS staff were unable to work again and had to retire at an early age. Their lives were ruined. And they still haven’t got acknowledgement from the NHS or the UK government of what happened.

I encourage you to read the article, it is truly harrowing.

These miracle vaccines – and one can also include the Russian Sputnik as well – could prove to be one of the most revolutionary medical break throughs in biotechnology in the 21st century.  Cancer, and other fatal diseases could be ended should they work.

And this is very much the consensus view of the establishment. Financial markets have priced in successful mass vaccinations in 2021 that will end the Covid-19 pandemic and allow a staged return to normal by 2022.

But nobody is talking about the possibility that these vaccines have disastrous side effects. Because if they do, the implications will be huge.

The men and women in the white coats in the hi-tech labs are very much the high priests and priestesses of our own secular religion; the faith in progress. The emergence of these vaccines is proving that “the science” and the wider faith in progress is vindicated.

But what happens if the vaccines are discredited like the Swine Flu vaccine was in 2010? Given the stakes, it will discredit the scientific establishment in the eyes of millions and lead to an outpouring of public anger and grief at those who promised that the vaccines were safe to take.

The scientific community haven’t had a great track record so far during this pandemic as noted by the Eurointelligence briefing.

The World Health Organisation (WHO) initially said that the virus was not spread human to human. It went on to recommend against border lockdowns even though super spreader individuals were spreading the virus from China around the world.

After the world panicked and politicians locked the borders, there was further confusion from the scientific community on the effectiveness of masks. Now we are told it must be mandatory but only 6 months ago, we were told there was no scientific evidence that masks work.

But this confusion, mixed messages and failings can be explained away to a certain extent. Some responsibility will be shifted to the politicians who ultimately made the decisions. Others can be put down to the partial and at times false information given to the WHO by the Chinese government in the early months of the pandemic.

The vaccines, on the other hand, will be a make or break moment for the global scientific establishment. If the work, our high priesthood will be treated as heroes and heroines saving us from the Covid pandemic.

If they prove to have catastrophic health implications for some who get vaccinated, it will be Science’s Waterloo moment. Millions will lose faith in the system, science and progress itself. It will accelerate our descent into the Long Descent as millions turn to alternative faith systems, whether political, religious or New Age.

Eventually, as predicted years ago by John Greer, the angry mob will viciously turn against the “killer scientists” and burn down the hi-tech labs that created these monsters once the populace finally gives up on progress.

The cavalry is coming

Election vote counting

All,

I may have slightly jumped the gun proclaiming Joe Biden as the winner of the presidency.

There is still a chance, probably small but not impossible, that Arizona may be called for Trump. ABC news is not projecting it as a Biden win yet.

Pennsylvania, a key state for Trump, looks competitive and we will find out within the next day or two (hopefully) who has won. Also, Nevada, which is likely to end up in the Democratic camp, looks very close at the moment.

So to summarize, whilst I think it is likely that Joe Biden will narrowly win the election, I haven’t entirely ruled out Trump springing a last-minute win, particularly if you see some mail-in votes rejected should it go to the courts in the coming days and weeks.

Election vote counting

Election result: the night after

The Sun

Whatever your personal politics, I think we can all agree that that was one hell of an election night!

The stunning victory of President Trump in storming the key swing state in Florida in the early hours indicated that we were about to see a repeat of 2016. On the betting markets, the probability of a Trump victory soared to nearly 80% and the Chinese yuan currency started to crash.

Ohio, another key swing state, where mainstream polls had shown for months that Trump was tied with Biden, Trump smashed it with an eventual lead of 8%. At that point it was probably Peak Trump, because after that, the race got tighter and tighter.

Georgia and North Carolina, both critical seats for the GOP to win, remain to close to call, although both are likely to end up in the Trump camp once all the votes are counted. Arizona, which was always going to be a tight race, surprised me by going for Biden. I really thought that this election cycle it would have stayed in the Red camp.

But it was the Rust Belt that was always key to this election. In my last blog post, I wrote that I was nervous about the Rust Belt, given the very tight polling coming out of those key states, even among the outlier pollsters I followed. That was why I kept my probabilistic forecast of Trump winning at only 60%. It was also a key factor why I kept my betting deposits to a minimum.

In the end, my forecast that Trump would just edge Biden in these battlefield states looks likely to be proved wrong (PA and Michigan remain to be called).

On the plus side I did successfully anticipate the surge of support for Trump among blue collar minority voters, particularly in places in Florida, and his rural base who came out in large numbers for Trump and GOP candidates in the Senate and House.

On the negative side, I had underestimated the chances of strong turnout among key demographic groups who were tired of the Trump reality show and shocked by his poor handling of the Covid crisis. These voters voted for Biden in sufficient numbers to overcome Trump’s fired up base in those battlefield states.

The Senate is looking likely to remain a majority for the GOP which, if true, will be a crushing blow to the Democrats. Without a majority in the Senate their agenda will be crippled from Inauguration day. For those of my readership who are Trump supporters and fear a Biden presidency, that reality – assuming the GOP do keep their majority – should reassure you in the coming years.

So, there was no Blue Wave and a Biden electoral college landslide.

 But also, no Red Wave and a comfortable victory in the electoral college as forecast by me.

Clearly, I got it wrong and I own that. But the mainstream pollsters and pundits forecasting a Blue Wave were also wrong as well.

For me, the vote by the American people seems to be “none of the above”. Joe Biden becomes president but without controlling the Congress and unable to get his policies and agenda through Washington D.C.

Although the popular vote will go to Biden, his electoral college vote win will be below 300, not a resounding mandate to end Trumpism or reshape America in a radically different direction in the 2020’s.

A Biden presidency will be an interregnum, a slowing down of those long-term trends that had accelerated under the disruptive and populist Trump era.

On a personal note, whilst I have doubts about Biden’s capacity to do the job, he seems like a decent enough guy and on the international stage will do some good. I suspect that in foreign affairs, for all the change in optics and style, the substance will not be materially different.

America will continue to pursue its new Cold War against China which has emerged as a bipartisan consensus under the Trump administration. The new Biden administration will also push the EU to get tougher on China, spend more on their militaries and take greater responsibility for their own backyard (good luck with that!).

A Joe Biden presidency will engage more with multilateral institutions like the WHO and WTO, something that is a net benefit in my opinion, and do more on dealing with climate change. I also think that Biden, who was the most sceptical of the military wars during the Obama administration, will also quietly continue Trump’s diplomacy in the Middle East and efforts to withdraw troops from the quagmires of Afghanistan and Syria.

I may be wrong, but Biden does not come across as a warmonger to me.

On domestic policy, the fact that the Democrats will only narrowly win the presidency, and likely lose their bid to take back the Senate, will highlight that they can’t lurch to the Left. To get those blue-collar voters of all races back they will need to do what Sir Kier Starmer is trying with Labour in the UK, and reach out to those patriotic, small c conservative voters rather than pandering to their progressive base.

So, whilst you may see some progress in areas like infrastructure, I’m sceptical that you see a big shift in domestic politics in the coming 4 years.

As for the Republican Party, I imagine that Donald Trump will retire to his media empire but remain a key influence within the GOP. If the GOP are smart, they will build on what Trump has succeeded but find a candidate who is more polished, less divisive and better able to reach out white Middle America. They also should continue to focusing on those blue-collar issues (immigration controls, security, law and order etc) that have brought in African-American and Hispanic demographics who used to vote Democratic.

Election result: the night after

Can the Donald pull it off (the Sequel)?




Just prior to the 2016 presidential election, I remember agonizing whilst writing my final forecast on the election. Should I stick with my call, made at the beginning of the year, that Trump would win the election, or go with the overwhelming consensus of the Pundocracy that Hilary Clinton would be America’s first female president?

Well, in the end I stuck with my forecast, based on my reading of the fundamentals, that Donald Trump would likely win the election. And we all know what happened next.

So, I’m in the same situation again and this blog post will be my final forecast on the election. Much has happened since my last blog post and here is my take. Trump’s second debate performance was considerably better than his first and he scored a win among the small but potentially vital pool of undecided voters. Frank Luntz focus group of undecided voters, where he went down badly in the 1st debate, overwhelmingly favored Trump after that final debate.

The undecided voters agreed that Biden came across as elderly, weak and at times confused. President Trump, on the other hand, was described as controlled and presidential. Not surprisingly, afterwards, only 1 undecided voter planned to vote for Biden, 8 were for Trump with the remaining individual was torn between not voting and voting for Trump.

So, overall, 1 – 0 to Trump.

Since then, the mainstream polls have narrowed a bit although they still show a strong lead for Biden in the national vote, and lesser so, in the battlefield states.

However, the early voting trends so far suggest a different story and Florida is the canary in the mine. As reported in the Politico recently, turnout among core Democratic demographics, particularly younger Hispanic and African-Americans is down whilst turnout among Republicans has been strong. In Nevada, turnout in rural white areas has been sky-high and the evidence suggests that this is happening across the country.

If, and it is a big if, we see those fired up white rural Trumpian demographics turn out in the Sunbelt and Rust Belt states tomorrow in the numbers some are projecting, a Rural Wave will be unleashed on the Democratic Party.

Massive turnout from the rural white population, some of them who have never voted before, will give Trump the victory in the majority, possibly, in all of the Rust Belt. This would be in line with the primary data from Washington State election results discussed in my last post.

Michael Moore, one of the few figures from the American Left who forecasted the electoral shock of 2016, is warning that the enthusiasm levels among Trump’s blue-collar base is off-the-charts and Democrats should not be complacent going into this election. I agree with him.

The Democrats haven’t helped themselves either by only late in the stage adopting a get-out-the-vote ground strategy of knocking on doors. If the Democrats lose this election that will be a key post-election theme.

Looking at the polls that were reasonably accurate in 2016, Trafalgar Group (which factors in potential “shy Trump” voters) is indicating that Trump will win across most of the Rust Belt and Sunbelt. Only Minnesota – that stayed Democrat in 2016 – will remain in the Biden camp if their last poll was right. The Big Data/People’s Pundit pollsters are showing a close but still competitive race in the Rust Belt battlefield states. They do not factor in “shy Trump” voters, but every poll shows that voters themselves think such a thing exists.

Interestingly, their underlying polling data suggests that suburban voters are the most likely to be shy in their vote. Does that suggest that Trump will out-perform expectations among suburban voters on Election Day, like he did in 2016? We will find out soon enough.

Both Trafalgar Group and Big Data/PP are saying that late-breaker voters are moving to Trump on the back of the economy which is the number one issue for voters, not Covid. We saw the same thing in 2016, with late-breakers going for Trump not Biden. Now if you accept the premise that the mainstream polls are inflating Biden’s lead as Moore himself thinks, the shift among the remaining undecided voters to Trump is significant.

There is a real risk that even with the above; e.g. turnout differential among key Democratic and GOP groups, a possible “hidden” Trump vote among primarily suburban voters and the remaining undecided voters swinging to Trump that Biden could still edge it out in tight battlefield races. And that is why I stick to my call that there is a 40% probabilistic chance of a Biden win.

On the flip side, the likely Rural Wave coming, strong early voting data for the Republicans, poor turnout among millennial minority voters and the signs that undecided voters are swinging to Trump all suggest to me that Trump has a good chance of winning most, if not all, of the Rust Belt states. Robert Barnes, a political obsessive and betting genius says that given the similar demographics across the Rust Belt, then it is likely that all states will vote in a similar way. In other words, it is likely that either candidate will win the Rust Belt sweep.

He also makes a very good point that based on history, it is highly unlikely that a candidate can win Florida but lose the Rust Belt. Of course, it is possible, just very unlikely. With even mainstream polls showing a very tight race in Florida, it would be odd if Trump won Florida with a decent margin but went on to lose the entire Rust Belt.

So, my overall prediction is that Trump will win Florida, probably comfortably and with-it Arizona and North Carolina which have similar demographics.

President Trump faces a tougher battle in the Rust Belt States, and here, I am cautiously confident that he will likely edge out Joe Biden in the majority, if not all, the Rust Belt battlefield states. The biggest risk, however, to my forecast is that this prediction is proven wrong.

I also think that New Hampshire is now likely to go Republican, partly due to the collapse of the student vote that weakens the Democrats but also the energized turnout of rural New Hampshire for President Trump.

I have also made a last-minute change, tilting Nevada, to a tight win for the Donald.

So, to conclude, my final forecast is that President Trump is likely to win the election (60% probability) with an electoral college win of 326.

270towin.com

Whilst this is my baseline case for Trump’s electoral college map, I do think there is an outlier chance that the Rural Wave could overwhelm the Democratic defenses in safe Democratic states like Colorado, Maine, New Mexico and so on. Whilst unlikely, that could push the final tally closer to John Greer’s forecast of 350 electoral college forecast. As I said, unlikely but not impossible depending upon the turnout today.

I have placed a series of modest political bets on this outcome via Betfair but have played it cautiously given the risks (40% in my estimation) that I get the Rust Belt wrong and Joe Biden wins the race. However, given the fundamentals, the registration and early voting data and the odds, it is worth a punt. I remind everybody that you should never bet money you can’t afford to lose.

We will find out shortly (hopefully) if I am wrong.

On a wider note, however critical this election may be, ultimately, it is a contest for two elderly white men for the presidency, with both becoming lame ducks by the last year or so of the presidency.

Bigger things are going on. The Long Descent has started, hundreds of millions are facing starvation as a consequence of Covid lockdowns and there are early signs of a religious war brewing between the Muslim world and Europe with innocents being beheaded on a nearly daily basis. Once this election is over I will be covering these massive issues on this blog.

Note: I made a number of minor changes to this blog post on 03.10.2020 (moving my final forecast from 320 to 326).

Can the Donald pull it off (the Sequel)?

US election update: the current state of play

Vox

So where are we at this point in the race?

Before I start, lets discuss polls.

During the 20th century, American political polling was driven by the Gallop Organisation (Gallop) who were considered the gold standard of pollsters.

However, once mobiles and the internet went mainstream, from the 90’s onwards, polling got more complicated and the voters harder to find. The days when most voters were contactable by a landline were over. As landline polling became less reliable with younger folks, the polling, even for experienced professionals like Gallop, got harder.

In 2012, in their final forecast, Gallop projected that the Republican Mitt Romney would win the 2012 election. That was wrong. Obama won comfortably. Shortly after that, Gallop gave up on election forecasting polling.

Since 2014, polling has become increasingly useless as a guide to predicting who will win elections.

We all remember how the polling overwhelmingly indicated that Hilary Clinton would win the presidency. All those state polling which showed her miles ahead of Trump in the Rust Belt days and weeks before the election melted upon impact with electoral reality. Things barely improved in 2018, with polling totally wrong with the Florida election, to give just one example, where the Republican candidate Ron DeSantis won. Ignoring the outlier Trafalgar Group, the average polling lead for his opponent was 5%. DeSantis won the election by 0.4%.

There are many reasons for the decline in polling over the last decade, but a key reason is its extremely difficult to reach voters these days. Many people refuse to answer pollsters, especially Republicans and those living in the countryside. Also, folks who work during the week simply don’t have time to answer pollsters. So those pollsters that don’t do their work through the weekend, will not get a proportionate sample and capture those voters (often Republican leaning types) who are too busy to waste time answering polling questions (which can run to 72!).

Getting polling right is expensive, takes time (longer than most pollsters allow) and should use multiple ways to get to those hard-to-find voters who are key to an accurate polling sample. Most pollsters simply fail to do that these days which is why they have been unreliable during the previous election cycles. Even those pollsters, Big Data/People’s Pundit (PP) and Trafalgar Group (TG), who do a better job than most, aren’t perfect.

So, when trying to work out who is going to win an election, I don’t rely on public polling. Registration data is a very useful metric. It proved to be more reliable in 2016 then the polling, which overwhelmingly suggested that Clinton would win the election. Only certain states provide party-based registration data, but of the data available its looking good for the Republicans, in particular the battlefield states of Pennsylvania, Florida and North Carolina.  

Primary election data/models are also useful because they are a powerful proxy for turnout and enthusiasm for each side. A few different political analysts use primary data. One is Professor Helmut Norpoth, whose Primary model has forecast the majority of US elections. His forecast, based entirely on the primary election data, is a Trump landslide in November. There are those who critique his model but despite that he has a better track record then most pollsters so I take their criticisms with a pinch of salt.

On a common-sense level, his model makes intuitive sense. If millions of people are prepared to vote for Donald Trump in a primary election with no real opposition (unlike 2016) in historic numbers, its likely that those same Republican voters will come out in big numbers on election day.

A variation of that primary based model is the Washington State primary results.

Henry Colson of the Washington Post reviewed the data and wrote “…the party that led in the primary also won the seat in the general every time. That track record is why the state’s recent primary results are so important. With more than 99 percent of the votes counted, Republicans have a higher share of the total vote than they did in 2018 in eight of the state’s 10 congressional districts.” The conclusions from the Washington State data are;

  1. Republicans are doing 5% better in rural and small metro places compared to their 2018 mid-term performance.
  2. On a national scale Trump will be much more competitive in swing states such as Wisconsin and North Carolina than the polls currently show.
  3. Trump and GOP House and Senate candidates across the country could out-perform expectations once again. Indeed, nine of the House GOP’s top Democratic target seats have at least substantial portions of voters who live in rural and small-town areas. Key Senate targets in Maine, Montana, North Carolina and Georgia have similar profiles.
  4. The Republicans are struggling in metropolitan suburbia and haven’t improved since the 2018 mid-terms results.

The above data matches what I am reading in terms of registration (GOP are doing much better than the Dems in registering new voters, particularly voters who have never voted before) and the more reliable pollsters out there. Other non-polling metrics also indicate an enthusiasm gap, whether they are Trump/Pence signs which vastly outnumber Biden’s or the huge numbers turning up for Trump rallies across America in comparison to the Democrats.

We are still three weeks away from election day but overall, I am still reasonably confident (with a 60% probability) that President Trump will get re-elected.

So, what about the electoral college map? Well, everything I am reading and watching seems to suggest that despite what the mainstream polls are suggesting (remember all those media articles suggesting Texas was going blue in 2016!) The GOP are looking pretty good in Florida, Ohio, Utah, Georgia, North Carolina and Arizona (which despite a small shift away in registration numbers should remain red).

Trump’s polling among African-Americans and Hispanics are better than 2016 and he is doing particularly well among Cuban and Venezuelans in Florida. In 2016, according to exit polls, Trump got 8% of the African-American vote. Even the mainstream polls suggest that he will do better than that this time around on the back of rising support among working class Black men (between 11 to 15%).

Among Hispanics, Trump polling is now consistently in the 30’s, a significant improvement on his 28% share of the Latino vote received in 2016. Rich Baris, has commented that 2020 will be a class/income-based election, with blue-collar voters of different backgrounds and races starting to coalesce around the Republicans whilst the Democrats consolidate among the upper-middle class. This is very much John Greer’s thinking – who accurately forecast the 2016 election – that class is the major factor driving an electoral realignment within American politics. The Democrats are increasingly the party of the high-income elites and the upper middle classes whilst the Republican Party under Trump is increasingly a blue-collar and middle-income mass party across the flyover states.

Of course, alignments are a decades long process and don’t happen in one election cycle. But the trends you saw in 2016, with working class non-college educated whites shifting to the Republicans whilst college educated white females increasingly moving to the Democrats is likely to accelerate. What is more interesting, and far less picked up by the mainstream media, is the growing support for the GOP among blue-collar minorities, in particular men, from Hispanic and African-American backgrounds. Greer has written for a while that it is this shift that will prove key to Trump’s re-election in 2020 which he thinks will be a landslide with approximately 350 electoral college votes.

The other key consideration is turnout. Students are usually a powerful card for the Democrats in getting their vote out. This year, thanks to Covid, colleges are locked down and student registration and turnout will be significantly reduced from 2016. The data from Washington State suggests – and this tallies with what other analysts are saying – that pollsters are under-estimating the turnout among rural non-college educated Republican voters who will come out in droves for Trump.

My forecast, and this is currently interim and not final, is the following:

  • The Republicans will keep their majority in the Senate.
  • The Republicans will do better than expected in the House but I’m not in a position, right now, to predict who will definitely win a majority in the House.
  • Trump is likely to win the southern states of Arizona, North Carolina and Florida. I’m also confident he will win Utah and Ohio again.
  • Among the Rust Belt states, the election looks very tight at the moment, with both TG and PP in their latest polls showing Trump 2 to 3% behind Biden in the key Rust Belt state of Pennsylvania. The Rust Belt looks competitive but Trump needs to win over the independent and remaining undecided voters to get those key states over the line.
  • Nevada, with its large Hispanic population, could also be in play. A recent Politico article warned that the Democrats could lose the state and recent chatter online suggests that the Trump campaign are increasingly bullish about flipping the state. I’m going to tentatively predict a narrow Trump win in Nevada.
  • Outlier states, primarily Colorado and New Mexico, both with large Hispanic populations, may prove closer than the mainstream polls suggest.
  • New Hampshire is likely to remain Democrat.

So, to summarise, I think the Trump team have around 250 to 260 EC votes that are reasonably secure and a cluster of battlefield states, primarily in the Rust Belt, in play over the next few weeks. If, and it is a big if, the Democrats manage to win the Rust Belt – Minnesota, Wisconsin, Pennsylvania and Michigan, Joe Biden will win the election.

However, if my hard predictions prove correct, and in addition Trump wins over say 2 out of the 4 Rust Belt states, he wins the election. And that excludes any further wins in the south-west, like Nevada. Despite what the mainstream media and polls suggest, the pathway to a Trump win is wider than they think but this election is not over yet and the winner will likely be decided in the Rust Belt.

I will proceed to make a final forecast shortly before the election.

US election update: the current state of play

First Debate: reaction

CNN

Let’s say you had to choose between “decency” versus the “obnoxious arsehole” as your tribal leader? Most of us would choose the decency candidate every time over the arsehole.

But how about a “decent but weak” candidate versus the “strong but an arsehole” leader?

Well, that’s a bit more complicated. Strong is good. We want a strong leader, ruthless when required, to defend us in a tough and scary world. We can live with then being an arsehole if they protect us and our families.

A decent but weak leader might be the nicer one, maybe the one you would rather have a drink with, but are they going to be able to defend your tribe? If they are weak, probably not. And that is important in a tough world filled with dangerous competitors.

And finally, how about the strong versus weak candidate? Well, that’s a no-brainer, you will always go for the strong leader.

Within the context of the US elections, the Democratic Party and their allies in the corporate media are promoting the first narrative. Trump is the obnoxious arsehole and Biden is the nice, decent candidate who can restore honour to the United States.

The Republicans are promoting the “strong versus weak” narrative, with Biden the weak, liberal leader who isn’t up to the job of being Commander in Chief.

My sense is that the voters, by the end of these round of debates, in particular the undecided voters, will see the middle narrative; a weak but decent Biden versus a strong President Trump who is also an obnoxious arsehole.

The question then becomes who will the American electorate vote for on election day and which factor wins, decency over strength in the privacy of the ballot box.

I agree with the verdict of two contrarian voices, Scott Adams and Tom Luongo, that Trump’s performance was very poor.

Indeed, Tom wrote that Trump couldn’t have performed worse last night and Scott Adams has withdrawn his support (temporarily at least) for Trump as a consequence of that debate.

Having said that, both also agree that Biden probably performed the best he can, given his clear cognitive decline over the last year.

Assuming that the two further debates happen, the likely trajectory is that, with expectations reshuffled, Trump will perform better, or be seen to have been versus the 1st debate and Biden will perform worse. That’s not a certainty but it is certainly likely.

After all, historians note that incumbent presidents normally screw-up their first debate. Obama famously performed badly against Mitt Romney in 2012 but went on to win that election comfortably. A poor 1st debate is not necessarily the end of the world for a sitting president. It’s true that Trump is behind in the polls and needed a better performance last night, which is why I call it a narrow Biden win.

However, I also agree with those who say that Trump came across as the more dominant candidate in the debate in comparison to Biden. If President Trump is to win this election, he needs to improve his game, tone down the aggression and ruthlessly expose Joe Biden as a weak candidate who isn’t up for the job.

If he can do that, he will most likely win the election.

Whilst the debate was definitely a setback for the president, I don’t think its necessarily game over. I know some will disagree with me on that one. If you do, check out the comments from the CNN focus group of undecided voters after that debate. The majority who spoke were pro-Trump*. Even I was surprised by that.

In 2016, I remember when the “grab them by a pussy” video came out shortly before the election (and just before the 2nd debate). It caused an uproar. Trump polling dived, the media overwhelmingly concluded his campaign was finished and most political experts agreed. Only a few of us oddballs still thought he could win, myself on this blog, John Greer and Scott Adams among others.

The lesson from that is be careful to write-off the Donald. He might be down but it is foolhardy to assume he is also out.

*Note that the majority of polls suggest that Biden was seen by the electorate as the winner of the debate in case you assume, I am saying that Trump won that debate among undecided voters. My point being that the Democratic/media narrative isn’t necessarily what undecided voters are seeing.

First Debate: reaction

Herd immunity and the politics of recovery

Coronavirus: What is herd immunity? And how will it help prevent spread of  COVID-19? | UK News | Sky News

Sky News

 

“For many, the epitome of incompetence would be the president of the United States. The US has experienced exceptional death rates in relation to population. But its economy has got off relatively lightly: the US is expected to outperform Germany in minimising the damage with an expected fall of around 5 per cent in GDP, very painful but hardly in the territory of the Great Depression when GDP fell 30 per cent from peak to trough. The United States has benefited from the enormous monetary stimulus provided by the Federal Reserve as well as the big, bipartisan, fiscal stimulus from Congress (at least until the impasse of the last few weeks). But we also have to ask: did Trump help or hinder? Continue reading “Herd immunity and the politics of recovery”

Herd immunity and the politics of recovery