American Pie
14 Sep, 2020
READ TIME 4 mins
Rod Skellet
Equities Investment Strategist

Cause the players tried to take the field
The marching band refused to yield
Do you recall what was revealed
The day the music died?

Don McLean (1989)

November 3rd will be an important date for most Australians. First and foremost, being the first Tuesday in November, we will know who won this year’s Melbourne Cup, whether or not crowds are allowed on course. In a massive switch to online during COVID-19, be it work or entertainment, one thing we could expect is that the TAB and other online betting outlets will be planning a blitz of domestic media platforms in the lead up. As big as this event from Australia’s perspective, the other critical event on November 3rd is, of course, the US Federal election.

Without passing political judgement on who may win and who may lose, one thing we should be aware of is the process and the impact of COVID-19 and what could potentially happen with the postal votes.

It is becoming increasingly evident, that this election will be close with the margin of the winning candidate potential down to less than 1%.

The US Voting System

In the November 2016 Federal Election, there were 245.5mln people in the US over the age of 18 who had the right to vote. Of this, only 157.6mln had registered to vote and only 137.5mln actually voted, giving the US a relatively poor turnout of 56% of eligible voters actually voting.

Compare that to Australia, where our turnout is 79% of those eligible to vote actually voting, albeit it is a legal requirement here in Australia to vote, with voting being compulsory, where it is optional in the US.

On election day, eligible voters vote for their preferred party. This is called the popular vote. Winning the popular vote is important, but it is the role of the Electoral College, which is critical in determining who becomes President. The Electoral College consists of 538 Electors.

To become President, the successful candidate must get 270 Electors to vote in their favour. Each State is granted Electors based on their Congressional Delegation; two votes for its senators in the US Senate, plus a number of votes equal to the number of each State’s Congressional districts. In all states, it is a winner-takes-all system, where the Electoral College vote reflects the overall winner of the state-wide popular vote. The States of Maine and Nebraska are the exceptions, with each state having a variation of proportional representation.

It has been over twenty years since the US woke the day after the election, not knowing who the President would be. When George W Bush and Al Gore fought the 2000 election, the decision took 36 days to be confirmed, with Al Gore winning the popular vote, but Bush eventually winning the top job. The vote came down to Florida, with Bush winning on recount by a mere 537 votes or 0.009% margin, which gave Bush Florida’s Electoral College votes to bring his tally to 271 and the Presidency.

Voting in 2020

What is the prospect that we could see a delay in the announcement of a winner in 2020?

Voting in person is the most popular method of casting votes but in this era of COVID-19, what impact will social distancing have on the ability to vote and will the ability to operate and service voting machines be impacted by skilled worker shortages? Problems during the recent Primary elections show that problems with in-person voting could well be a problem in many states. Reductions in the number of polling stations and extending the time polling stations to stay open, to give all people who wish to vote the opportunity to vote, are issues that could impact this year’s poll.

This leads to the contentious issue of postal votes.

Prior to Abraham Lincoln’s Presidency, all votes in US elections were postal. In 2016, some 40 million postal votes were lodged by post, and this year it is expected to be more than 80 million as a result of COVID-19. There is genuine concern that should there be delays in delivering postal votes that the result too will be delayed.

This issue is compounded by differing rules in each state on what constitutes a valid vote. In Pennsylvania, only those postal votes received by 8pm local time on polling day will be counted, whereas in California, any vote post marked on or before the election day is valid, even if it takes weeks to arrive.

The process of counting postal votes is also more problematic.

Each voter is registered, so the signature on the postal vote must be compared to the signature on the registration card. With a surge in postal voting expected in this election the scrutinizing of postal votes will take longer than usual, potentially impacting the announcement on determining the winner. This process of verification is also subject to challenge, with the roll of “poll watchers” coming into focus. Poll watchers ensure that the ballot counter perform their role correctly.

Ballots that are challenged are put to one side before being recounted or rejected. With increased postal votes, this process could be protracted. In addition, there are concerns that both parties are recruiting poll watchers whom critics fear will contest ballots and either get them thrown out or at least delayed.

All of this uncertainty points towards this election potentially facing legal challenges.

Whoever is running second, in a close-run election will surely not concede and may use all avenues available to contest the result.

Al Gore learnt that lesson the hard way in a supreme court ruling some 36 days after the election, 5-4 against, determining that he could not request a 2nd recount on the Florida vote after conceding. All of this uncertainty could lead to a further protraction in determining a winner, and from a market’s perspective, getting focus back to running the country and dealing with issues on stimulus and international trade. The market does not like opaque situations and not knowing who will govern the US could certainly impact market sentiment if a decision is not known within a week or so of election day.

The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.

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