Strange Politics
As bottom-up stock pickers, curiosities often draw us to think about structural intricacies often ignored by top-down macroeconomic investment processes, for example, whether a company owns or leases the buildings it uses. For better or worse, right now we find ourselves looking into the U.S. Presidential election and other geopolitical intricacies and thought to share some of what we have learned and noticed.
If a Presidential Candidate Drops Out:
Both main parties have octogenarian candidates, so here is a sketch of the process if for any reason a candidate ceases to run for office. Before the Democratic National Committee (DNC) and Republican National Committee (RNC) conventions, a new candidate will be selected by vote at the convention and the new candidate may name their Vice President (VP). If a candidate drops out after the convention, a new presidential candidate will be appointed by the RNC/DNC without a vote, but the VP selected at the convention remains the VP candidate. The RNC convention is scheduled for mid-July, and the DNC convention is scheduled for mid-August, so we should know the slate of candidates in about a month.
If the Electoral Votes are on a Razor Thin Margin:
Maine and Nebraska cast electoral votes using the congressional district method, whereby the candidate with the most votes in the state receives two electoral votes and the remaining electoral votes are determined by the results within districts of the state. Nebraska divided itself into three districts, and Maine divided itself into two districts.(1) There may come a day when Nebraska and Maine are among the most important states in getting to 271 electoral votes, which is partly why each state chose the congressional district method. All other states apply a winner take all method to allocating electoral votes. Historically, this leads candidates to focus efforts on population centers of each state and deemphasize areas of low population density.
If a Third Party Candidate Receives Significant Electoral Votes:
It seems to us that a smaller percentage of likely voters fully embrace the lead candidate of the party they usually support. If a third party candidate won enough electoral votes that neither of the two major parties received over 270 votes, then the House of Representatives holds a contingent election. According to the 12th amendment, each state’s Congressional House delegation may cast one vote among the top three candidates from the general election.(2) Representatives elected in November 2024 will participate in the decision, so we cannot know the composition of delegations in each state yet.
Minor Party Enthusiasm and Broader Political Discontent was the Primary Feature of the Recent U.K. Elections:
Smaller parties from the right, middle, and left cumulatively received 43% of all votes! It seems the population is ready to try something other than a predominantly two-party system. The Labour Party is now in charge for the first time in 14 years, but only received 34% of the votes, in the second-lowest turnout election since 1918.(3) This clearly demonstrates that the U.K. has not shifted hard to the right or even to the left. Time will tell if Labour policies resonate with the people and are effective.
French Snap Elections, Another case of Dissatisfied Citizens:
In 2022 France’s far right party increased its controlled seats in the national parliament from 8 to 89 (4), and it has continued to increase, and is now expected to have 143 seats (5), but remains a long way from being in control. It would have gained even more seats were it not for a rally around the far left in the second and third rounds of voting. The centrist president called for snap elections which proceeded to boost representation of both the far left and far right, and no group has a majority. Now the government is gridlocked to the point where it might not be able to agree on a Prime Minister, in which case the current Prime Minister will stay in a caretaker role. Concerns about France’s debt seem to have been growing for some time and a gridlocked government may not be able to enact policies to address debt and other issues.
A Note about Population Dynamics, Germany:
Germany is the largest European country in terms of population and economic importance.(6) The total population has tended toward steady but slow growth for many decades, despite the fact that deaths have consistently outnumbered births since 1972 for more than 50 years. The natural population decline has been offset by a steady flow of immigrants. Globally, the primary cause of immigration has been strife, causing people to seek a better life for themselves and their families in a new location. For Germany, the vast majority of immigrants came from European countries during the twentieth century; however, the twenty first century has been marked by a wave of Middle Eastern immigration.(6) In our estimation, the cultural differences between where the immigrant originated and the then present German culture was less pronounced in the twentieth century than the twenty first century, and the level of welcoming accommodation to the immigrants is much more pronounced in the twenty first century than the twentieth century. It is estimated that fifteen percent of the population are not German citizens (6,7) as defined by Article 116 paragraph 1 of the German Constitution (8).
We are watching European countries as they work to find the right balance of immigration levels and the various considerations to integrate new people.
In Conclusion:
While all the above are interesting and potentially important, our goal is to provide some counterpoints of optimism that the democratic institutions of the modern world and the incentives that drive capitalism will prevail in these stressful times. We believe that the same “Know what you own. Know why you own it.” long term investing process, which worked very well for many through both the twentieth and twenty first centuries, should continue to be just as relevant as ever. What we hope this essay demonstrates is that we are thinking critically about important topics and are staying on guard and open to new sources for compound growth.
Redmond Asset Management, LLC July 2024
The opinions contained in the preceding commentary reflect those of Redmond Asset Management, LLC (RAM). The stated opinions are for general information only and are not meant to be predictions or an offer of individual or personalized investment advice. They also are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. Any type of investing involves risk and there are no guarantees. Redmond Asset Management, LLC does not assume liability for any loss which may result from the reliance by any person upon any such information or opinions.
Redmond Asset Management, LLC is an independent, SEC registered investment management firm located in Richmond, VA and is not affiliated with any parent organization. RAM was founded in 2005 and registered with the SEC on December 22, 2005. The company offers investment management services for equity, balanced and fixed income portfolios to corporate, institutional, and individual investors.
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