Welcome to the 16th issue of The Outsider Perspective, brought to you by The Beltway Outsiders.
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Good Friday Morning! We’re 52 days outside the General Election and halfway through the month of September. Early votes started trickling in last week. The polls have narrowed on both the national and state levels, particularly in the battleground states. Hilary Clinton left the NBC Presidential Forum and followed it with a second week of unforced errors while Donald Trump became the most disciplined we’ve seen him during any stretch of the race. If I had to pick a way to describe the race right now I would say: shifting dynamics.
Election 2016: Shifting Dynamics in the Presidential Race
What do I mean by shifting dynamics? I mean the underlying assumptions of both candidates has changed. Clinton was supposed to be the careful, smart, politician running against an amateur. Trump was supposed to be the amateur who stuck his mouth in his foot. We’re seeing those assumptions shift. We’re seeing a shift both in the campaigns and in the campaign fundamentals. Up until now, Trump has been poorly navigating the election. His failures masked Clinton’s gaffes with even bigger gaffes of his own which sunk his campaign. The past 2 weeks have shifted.
Clinton has had bad stretches previously. Those stretches mostly dealt with her mishandling of classified information via her home-brew email server. Those scandals died down. The past 2 weeks have been different. First, she underperformed the NBC Forum, leading her surrogates to bash Matt Lauer for hard questions (which she bombed in answering). Then she gave a speech at an elite fundraiser calling some Trump supporters a “basket of deplorables,” full of homophobes, racists, islamophobes, and other hateful people. This was immediately compared to Mitt Romney’s “47%” speech and President Obama’s line on voters “clinging to guns and religion.” She was hammered in the press for this comment.
Second, Clinton fainted at a public 9/11 memorial service in New York City. This immediately gave credence to the rumors of her poor health. The liberal spin immediately tried to describe her faint as: “a stumble,” “a misstep,” or “she was overheated.” Watch the video yourself. Anyone not trying to spin the story had the same reaction: she fainted. The media meltdown was palpable. One Washington Post writer who spent his time defending why attacking John McCain’s health in 2008 was fair game while Clinton’s health now was not. He was then forced to write: “Clinton’s health is now an issue.” Even though the campaign admitted Clinton was suffering from pneumonia and refused to stay hydrated, the image of Clinton fainting on the curb will echo in this election. No matter how her surrogates are trying to paint her “pushing through sickness” as “heroic.” People will remember the video.
On the flip side, Trump had the most disciplined 2 weeks he’s ever had. He came away from the NBC Forum unscathed. He delivered a knockout prepared response to Clinton’s deplorables line:
“Our support comes from every part of America, and every walk of life,” he said. “We have the support of cops and soldiers, carpenters and welders, the young and the old, and millions of working-class families who just want a better future.”
“These were the people Hillary Clinton so viciously demonized,” he continued, according to prepared remarks. “These were among the countless Americans that Hillary Clinton called deplorable, irredeemable and un-American. She called these patriotic men and women every vile name in the book – she called them racist, sexist, xenophobic, and Islamophobic. She called them a ‘basket of deplorables’ in both a speech and an interview. She divides people into baskets as though they were objects, not human beings.”
Trump then smartly decided to not comment on the Clinton health news. This allowed the press to ignore him and focus all their energies on Clinton. This is not to say Trump had a perfect 2 weeks. Trump U. continues to be a problem with allegations coming up that he bribed Florida’s AG to drop the case (in fact, Trump personally signed a $25k reelection check to the AG trying his case via his charity – which violates federal laws). Also, Newsweek published a massive story digging up all the conflicts of interest and debt issues Trump has with foreign interests. It’s like the stories that have been done on the Clinton foundation’s pay to play schemes. And to end the week, he’s decided to take some bizarre credit for “ending” birther conspiracies surrounding Obama “started by Clinton.” In short, it wasn’t a perfect week by normal standards. But it was perfect by 2016 Trump standards. Clinton takes most of the heat and Trump gets a boost.
The Polls have shifted accordingly…
This has all led up to a narrower race. What was once a 4-5 point Clinton lead can now be considered a 2-3 point Clinton lead. Which means we’re in the margin of error for most polls now. So where are we now? As Sean Trende said this week, “So I see we’re at the “the race could go either way but everyone [including me] thinks it will come up heads” phase of this thing.” Clinton’s narrow lead led Nate Silver to warn: “There’s still a lot of denial among Democrats about how tight the race has become, despite abundant evidence from high-quality polls.” Some compare this to Brexit. I wouldn’t go that far. Brexiters actually led the polls in a high turnout election. Trump has not done one key thing so far: lead the polls. But the “expert” opinions on the polls do match Brexit: everyone assumes a Clinton win. Which creates a horrible echo chamber for contrarian views. It’s not impossible for Trump to win. It was impossible about 5-6 weeks ago. But there has been a shift. Trump isn’t so much gaining new voters as Clinton is losing them.
So what are we watching? As I said above, shifting dynamics. Were this a typical Presidential election, the GOP would be expected to win the Presidency. The fundamentals of 2016 fit a GOP winning cycle. That’s still true. Fundamentals are things like economic performance, Presidential approval polls, and voter sentiment against the incumbent party. All of these factors generally point towards the GOP. What has been masking the fundamentals up until now has been Trump’s oversized presence in the race. He sucks all the oxygen out of a room. The negative press he has received has seriously harmed his ability capitalize on the fundamentals. But we’ve seen a shift in the last few weeks that I think will last. It’s no longer about Trump. It’s a news cycle election. This isn’t a pivot by Trump, it’s a shift in the driving forces of the campaign, which favor Trump.
What I mean by news cycle election is this: Both Clinton and Trump are hated by most of the country. They have their small base. But everyone else hates them. Whenever Clinton or Trump make the news, it’s because they’ve done something horrible. Again. Neither of them is capable of a positive news cycle. Their polls numbers, positive or negative, are driven more by negative news stories on their opponent than positive news on them. When Clinton’s coverage sank in the news, she was able to run up a large lead in August. But as the polls have factored in more of her negative press from the last two weeks, she’s fallen back to earth. Trump has been able to close the gap.
What is the dynamic shift here? Clinton spent over a year hiding from the press. She’s being forced to come out from hiding and answer questions. We already knew Trump was going to use the news media to run his campaign instead of relying on traditional campaigning. His campaign ground game and data operation is unserious and useless. Clinton wanted a traditional campaign. But the race has shifted into a news cycle campaign. Trump has dominated the news up until now. Which makes him the less interesting choice to cover for journalists. They already know what he is going to do. Clinton implodes every time she’s forced into the spotlight. That leads to more clicks and higher ratings. This makes the debates even more important. Compared to Trump, Clinton is fresh meat to journalists wanting to attack and get scoops over their competitors.
I stand by my prediction that Clinton will not only tank the debates. She will implode in at least one of them. The negativity from that implosion will harm her campaign. Potentially irreparably. But even this does not guarantee a Trump win. Trump still has an uphill battle…
Trump’s path to 270
Here is the problem for Trump. He could win Ohio and Florida and still lose the election. He doesn’t need to win the popular vote, but he does need to pick up more than what he has now. He has to pick off something from: NV/NC/VA/NH/PA/ME. The problem: He’s behind in all those states. He has to take Ohio and Florida with something from the states I’ve listed. If he loses either Ohio or Florida, this election is over. The most plausible options for him are NC, NC, NV, and ME. It is highly doubtful he can pull off VA or PA at this stage in the race. Both are leaning heavily towards Clinton right now.
I’ll end the Presidential race section with the following observation by Sean Trende:
Look, it’s fun stirring the pot on twitter, but let’s step back for a second. Here’s what I think we can say with *SOME* certainty: (1) Clinton’s post-convention bounce faded to a 4/5 point lead by the end of August. Since then, it has closed further. (2) Polling is sparse, which makes the averages lag a bit, and makes it hard to say in the short term when things move. (3) The recent spate of polls are not good for Clinton. One or two you can dismiss as an outlier, but when you have sequential polls showing a 3-pt race in ME, and Trump up in OH, NV and CO, it’s hard to conclude this race hasn’t become very competitive. (4) Clinton had a run of awful news. That’s sort of how politics works. Polls *should* move against her.But the news cycle will snap back. The analogy is Trump’s post-DNC week, when Dems were pronouncing the race OVER. But, obviously it wasn’t. And it still isn’t. I do think HRC still has the overall advantage, but I also think the “baseline” for this election is close enough that the “noise” that accompanies presidential elections is enough it could relatively easily put DJT over the top.
The key for this election: the “noise,” or news cycle, could well be the tipping point for the next President of the United States. Trump’s lack of a ground game, GOTV operation, data operation, or any semblance of a campaign will continue to hamper him. The question is whether he can generate enough “noise” events to push himself over the top.
The Senate Race shifts away from Ohio and Florida
While Clinton and Trump battle away in Ohio and Florida, the Senate races in those same states are becoming less competitive. And Democrats know it. As I’ve reported the last few weeks, Democrats have moved money and resources out of Ohio and Florida. DailyKO’s, a liberal site, has moved Ohio’s Senate race from Lean Republican to Safe Republican. They’ve been tracking Democrats moving resources out of Ohio and Florida for weeks now and see little hope for the Democratic candidates in those states, absent a miraculous wave campaign win for Democrats. This isn’t conjecture on DailyKO’s or my part, these are also the beliefs of the Ohio Democrats on the state level. They openly expect Ohio to elect a Republican Senator in November after seeing the GOP run up an 11 point lead in the Senate race.
With Ohio and Florida appearing lost, Democrats have turned their attention to North Carolina. Democrats see a huge opportunity in North Carolina to turn the entire state blue. Republicans are worried they could lose House, Senate, Governorship, and Supreme Court in this election. Democrats had already poured some money into a House race in NC. Now they have started pouring money into the Senate race. If Democrats can run the table in NC, they believe they can shift gerrymandering in the state to make it more competitive for their purposes. They also believe they can win over the state Supreme Court with their preferred nominee. Expect to see more money poured into North Carolina, both for Senate and Presidential purposes. Democrats view NC as a blue wall state to prevent Trump from winning. If they play it right, they could create a blue state for future elections.
As a reminder, Democrats are trying to win as many Senate seats as they can in 2016 because they fear massive losses in 2018. If Republicans can hold the Senate in 2016, they will have a huge opportunity in 2018 of expanding their majority.
Last Note: Evan McMullin continues to get on the ballot, but has hit a problem in Florida
Evan McMullin has added more states to his list. He won’t be on all state ballots, but the goal is to be on enough of them to make noise. In a memo leaked to the press, the campaign lays out their main path towards winning:
Do well enough, in enough states, to deny Clinton or Trump the 270 electoral college votes needed to win, and then prevail via support from the U.S. House of Representatives. If nobody hits 270, the House would elect the next president from the three candidates with the most popular votes.
It’s an implausible path to winning. But it does provide a haven for people who can’t vote for Trump or Clinton. What also needs to happen is that McMullin needs to gain traction in Utah to start showing up in polls there. If he can show he can take one state, others will take notice. Complicating matters though, Florida is openly blocking his access to their ballot. McMullin was nominated by the Independent Party of Florida, the 3rd largest party, and currently the state is refusing to place him on the ballot. You can read more here. I suspect a potential lawsuit. But we’ll see. Of all the candidates available, I like McMullin the best. But with the polls showing a narrower race. That will make it harder on him to gain any traction among the GOP.
Foreign Policy
New Syrian Ceasefire is holding… for the moment
The US and Russia agreed on terms for a ceasefire in Syria, focusing on the city of Aleppo. The ultimate question is whether or not the deal holds. All previous ceasefires pursued by the current administration have fallen apart. The AP lays out the details of the ceasefire here. Aside from the deal particulars, the ceasefire does nothing to sort out the mess of groups targeted by Assad and Russia. Putin has been using the war as a chance to shore up Assad and keep Russian influence in the region. In the process Russia has targeted US backed Syrian groups on the ground. The ceasefire fixes none of those problems.
Hopefully for the people of Aleppo, the ceasefire holds. Both and AP and WSJ have reported that part of the deal is already being broken. Humanitarian aid is not being allowed into Syria to help civilians. While some remain optimistic the ceasefire holds, I remain pessimistic if humanitarian aid is being denied before John Kerry’s signature has time to dry on the deal.
US is trying to remove biological weapons from ISIS
On Tuesday, US forces struck 50 targets around Mosul, Iraq. The object of the air campaign was to destroy biological weapons facilities controlled by ISIS. US intelligence heavily suspects that ISIS is using chlorine and mustard gas in attacks. Similar to how Assad is gassing his people. The US also finished moving 500 metric tons of biological weapons out of Libya to prevent them from falling into the hands of ISIS. The weapons cache was leftover from the Gaddafi regime toppled by the Obama administration. The US fears the instability in Libya is so severe the Libyans couldn’t prevent a biological weapons plant from falling into ISIS hands.
These moves underscore two points: First, ISIS has obtain chemical weapons, is actively using them, and is trying to accumulate more. Second, Libya is far from the success story Clinton and Obama paint it to be. The threat of ISIS taking over more chemical weapons was severe enough to require US forces moving them out of Libya. These types of threats point out how current US policies in the Middle East endanger not only American lives but those of our allies.
An ISIS armed with chemical weapons is even more dangerous. Particularly as their homegrown jihadists grow in number. French intelligence suspects there are 15,000 homegrown radicals in their country alone. The French are uncovering terrorist plots in their country ever single day. That’s just France. Germany, Britain, and other European nations are saying similar things about finding more and more homegrown terrorists. These types of reports will cause more alarm as the President is promising to increase the number of refugees accepted in America by 30% in 2017 (110k total). Which is a 57% increase since 2015. Americans will demand more accountability and transparency on the vetting process for refugees. There are valid concerns here about ISIS terrorism and the potential for chemical warfare.
North Korea tests their 5th nuclear weapon
North Korea is ready to conduct an additional nuclear test at any time, South Korea’s Defence Ministry said on Monday, three days after Pyongyang’s fifth test drew widespread condemnation. North Korea set off its most powerful nuclear blast to date on Friday, saying it had mastered the ability to mount a warhead on a ballistic missile and ratcheting up a threat that its rivals and the United Nations have been powerless to contain.
“Assessment by South Korean and U.S. intelligence is that the North is always ready for an additional nuclear test in the Punggye-ri area,” the site of all five nuclear explosions, South Korean Defence Ministry spokesman Moon Sang-gyun told a news briefing. “North Korea has a tunnel where it can conduct an additional nuclear test,” Moon said.
On Monday, Siegfried Hecker, a former director of the Los Alamos National Laboratory in the United States and a leading expert on North Korea’s nuclear program, said Pyongyang’s claims that it had standardized a nuclear warhead for mounting on ballistic missiles and could produce as many bombs as it wanted had to be taken seriously.
Writing on the 38 North website which monitors North Korea, Hecker estimated the country had stockpiled sufficient plutonium and highly enriched uranium for approximately 20 bombs by the end of the year and had the capacity to add about seven more a year. “Its ability to field an ICBM fitted with a nuclear warhead capable of reaching the United States is still a long way off – perhaps 5 to 10 years – but likely doable if the program is unconstrained,” Hecker added.
South Korea is not taking this threat lightly. The South Korean military has devised a plan to wipe out North Korean leadership before a nuke is ever fired:
A source said the plan, dubbed, Korea Massive Punishment and Retaliation (KMPR), is intended to launch pre-emptive attacks on North Korean leader Kim Jong-un as well as the regime’s military leadership if signs of their impending use of nuclear weapons are detected or in the event of a war.
Under the KMPR, the military would divide Pyongyang into several districts and completely destroy a certain section in which Kim and other military leadership are suspected to be hiding, before they use a nuclear weapon, the source said.
And despite a rogue nation developing nuclear weapons, China is refuses to pursue sanctions against North Korea. China would prefer to stick with “negotiations.” North Korean nukes makes it harder for the US to provide help to allies in the region and push back on Chinese saber rattling in the South China Sea. The negotiations ploy is simply a means to delay action on North Korea so the story falls from importance.
North Korea is a lesson for the United States. What is happening in North Korea is the future for Iran. The Clinton administration cut a deal with the North Koreans that kicked the nuclear problem down the road. And here we sit now with a nuclear North Korea, working on nukes and missiles capable of reaching the United States. China is protecting them. Iran would receive similar protection from Russia if they ever became nuclear capable. China covers for North Korea in the UN. Russia does the same for Iran and Syria. The Obama Iran Deal does the same thing as the North Korean deal. It kicks the can down the road and allows Iran to become nuclear on a slower timeline.
In the meantime, the US will have to navigate a nuclear power on the Korean peninsula, threatening South Koreans, Japanese, and US interests. If China holds the leash on North Korea, they will force their regional neighbors to accept anything they dictate. The next administration must figure out how to disarm the North Koreans.
Other items to watch:
John McCain has vowed to stop the Obama administration from splitting up US Cyber Command in the waning months. McCain argues that such a massive endeavor would be unwise in the waning months of an outgoing administration. The chaos that would ensue transitioning between administrations while Russian, Chinese, and Iranian hackers actively attack us unwise. McCain is right on this one. – Reuters
The UK is moving to protect not just government systems, but also “important” private sectors in their economy from cyber attacks. Think of it like too big to fail, but for cyber attacks. If it works, look for the Feds to propose the same in the US. – BBC
The UN is hypocritical in how it consistently attacks Israel, but refuses to use the same language to condemn humanitarian disasters in any other country. You see Israel condemned for settlements, but humanitarian disasters and human rights abuses go unanswered. – The WSJ (Google the title to bypass the paywall)
Iran threatened to shoot down 2 US Navy planes. The Iran Deal has given the Iranians considerable boldness in opposing the US in new ways every week. The Military Times
The first Congressional veto override might happen soon. Obama is set to veto a bill that would allow 9/11 victims families to sue Saudi Arabia for damages from the 9/11 terrorist attacks. Obama is worried the precedence would open a can of worms internationally on rule of law. He has a point on this. Congress likely to override the veto by a wide margin. The Washington Post
US Intelligence Agencies are struggling to catch up to Russian hackers. Former espionage efforts have atrophied after intel agencies were not focused on Russian for the previous 2 years. “U.S. spy agencies “are playing catch-up big time” with Russia, a senior U.S. intelligence official said.” One Congressman called US intelligence’s inability to predict Russian aggression the single largest intel failure since 9/11 – The Washington Post
The Economy
Markets are getting skittish during a quiet period
It’s a quiet period in the markets right now. No major economic news is expected until next week. No Fed statements and no important economic reports. So why are the markets so volatile right now? The markets had been quiet for the past month. Now, each day sees ups and downs outside normal parameters. And there has been a deluge of statements from prominent businessmen, hedge-fund managers, and top traders about the market being in bad shape. I’ve yet to see a concrete answer on what is happening right now. But there are some potential clues.
GDP Growth projections by Wall Street were lowered
Current projections were cut by 0.2%, to 2.8% overall. Subpar GDP growth is being pushed by drops in consumer spending. Analysts were seeing consumers cut spending across the board, from small purchases in stores, to big purchases like appliances and furniture. Less spending by consumers provides less income and growth for businesses. Wall Street’s less optimistic projections are getting confirmed by the government as well. The Fed is lowering it’s GDP estimates.
What does this mean? Slower spending and lower GDP means slower growth. Slower growth would slow earnings in the stock market. This is especially true with the Fed wanting to hike interest rates.
The Election is slowing growth
Some economists are predicting that the current US election is causing the market to tighten up. The uncertainty of which candidate will win and what the future holds places anxiety in the market. From the Atlanta Fed. Uncertainty about the election could cause businesses to slow investment so they can project and plan more clearly after November.
Regulations are restricting investment
In a recent paper by the Brookings Institute, they suggest current Dodd-Frank regulations are making banks and investment firms harder investments and no more safer than they were prior to the 2008 recession:
Big banks are no safer now than they were before the financial crisis, according to a new analysis by a Harvard duo that includes former White House economic advisor Larry Summers.
Not only does the paper assert that the possibility of a too-big-to-fail scenario still looms, but they also said the increased regulatory environment actually has played a part in keeping the system endangered.
“We find that a substantial part of the reason banks have become riskier and effectively more leveraged is a decline in their franchise value,” the researchers wrote in a white paper for the Brookings Institution. They added that “it appears plausible that a large part of the reason for declines in franchise value is regulatory activity and the prospect of future regulation.”
In essence, the paper argues that the regulatory pressure through Dodd-Frank and other measures has made banks a tougher investment.
Why is this important? The Brookings Institution is a liberal think tank. The paper’s author was liberal considered by the Obama administration to head the Fed. In other words, liberal economic minds are saying regulations from Dodd-Frank are harming banks and reducing their value. They are tacitly admitting the conservative and libertarian free market critique of Dodd-Frank for the past 8 years. The CNBC report goes on to add the following:
Banks have underperformed the market by a wide margin since the policy came online in July 2011. In the period since, the KBW Nasdaq Bank Index is up about 50 percent, while the broader S&P 500 has risen more than 95 percent.
The authors, though, say their research on risk, volatility and expected returns calls “into question the view of many officials and financial sector leaders who believe that large banks are far safer today than they were a decade ago.”
Critics of Dodd-Frank have long argued it has unduly hampered and killed the competitive landscape of banks and investment firms. GE completely got rid of their investment division because of Dodd-Frank regulations. And in the end, Dodd-Frank is unlikely to prevent the very harms it seeks to end. The result is more bloated bureaucracy and regulations. Less room for investment and growth.
In the end, while I can’t point to one factor causing people to be skittish on the market right now, there are a number potential factors at play. I would argue free markets need to be allowed to solve the problems. Regulators clearly don’t know what is happening in the markets they oversee.
On a lighter note:
If you want examples of cities with great income growth, look to the American South. Southern cities like Nashville, Birmingham, and Atlanta are leading the way on income growth around the country. Nashville leads the way with 10% income growth. From the WSJ:
In many ways, this growth of Southern cities should be no surprise. The southern U.S. has grown faster than the rest of the country for some time. Already the largest Census region in 2000, with 35.6% of the U.S. population, it’s since grown to 37.7%. Southern cities, in general, have lower costs of living than their counterparts on the coasts, making the region appealing for migration.
What I’m Reading
“We’re the only plane in the sky.” – Politico Magazine
Politico Magazine published a story on the flight of Air Force One the day of the 9/11/2001 terrorist attacks. The author collected over 40 hours of interviews with people involved in every hour of the day. From the moments President Bush learned of first plane crashing into the building, to the last minute of the day:
For the next eight hours, with American airspace completely cleared of jets, a single blue-and-white Boeing 747, tail number 29000—filled with about 65 passengers, crew and press, and the 43rd president, George W. Bush, as well as 70 box lunches and 25 pounds of bananas—traversed the eastern United States. On board, President Bush and his aides argued about two competing interests—the need to return to Washington and reassure a nation and the competing need to protect the commander in chief. All the while, he and his staff grappled with the aftermath of the worst attack on American soil in their lifetimes, making crucial decisions with only flickering information about the attacks unfolding below. Bush struggled even to contact his family and to reach Vice President Dick Cheney in the White House bunker.
The people interviewed include White House staff, reporters on the plane, fighter pilots escorting Air Force One, as well as base commanders. The oral history covers each moment in the day from each person’s perspective. It jumps around, but it is powerful. After landing at a military base, one of the interviewees described the feeling after non-critical press and staff had just been removed from the plane:
Ellen Eckert: The plane is like the Twilight Zone. It’s really eerie. There’s just no one on board anymore. The staff cabin is empty, the guest cabin is empty. That’s when it was really coming apart for me. I saw one of the agents was standing in the hallway, and I went up to him, “So this is the safest place to be? This is Air Force One, right?” He said, “Well, listen, don’t mention this, but we might as well have a big red X on the bottom of this plane. We’re the only plane in the sky.” That was scary. I went into the bathroom and used one of those Air Force One notepads to write a letter to my family—six siblings and two parents. They’re never going to see this, it’s going to burn up in a fiery inferno. One of the flight attendants opened the door and comforted me and gave me a washcloth to wipe. “We’ve got this. We’re all together.”
If you have the time, the piece is well worth your time. The day that America was truly together, as one.
Thanks for reading!