Will politics derail the markets?
The US presidential election draws deep interest from investors around the world because of the size and importance of the U.S. economy.
The implications of the upcoming US election will reverberate throughout the US and global economies and potentially have a profound impact on the investment landscape into the future. Leading up to what may be one of the most closely watched elections in history, investors are grappling with a host of issues that are likely to be impacted by the results. PGIM brought together thought leaders to discuss those issues in our AsiaPac Forum webinar, The US Election and What It Means for Global Markets. Following are highlights from the discussion:
To see all of our US Election coverage and to learn more about our webinar series, including exclusive access to upcoming webinars, visit our 2020 U.S. Elections page.
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>> Good morning, everyone. I wanted to welcome all the participants on this call today. I think it'll be a very interesting discussion on the US election, and I'm delighted that we've got people tuning in from over 12 countries throughout our region. And I want to thank each of you for your interest and your participation here today. Before we start, I want to reiterate to you the audience that this is an interactive discussion. When you registered for this event, you were encouraged to submit questions and many of you did. But I also want to encourage you and note that we have a live dedicated Q&A function within our Zoom window here today, and I will be monitoring the questions and will make sure we cover as many of those as we can here today to make sure that we get to the things that are most on your minds. The United States and, really, the world is currently consumed by arguably one of the most divisive presidential election campaigns in history, certainly in living memory. Today's webinar is not going to focus too much on the predictions of what may occur in a couple weeks time, but instead we're going to explore a couple key areas. Firstly, we're going to break down and better understand the machinations of the US electoral process and to get a read on and analyze some of the various scenarios that exist around the US election outcome. And then, secondly, we're going to turn across to and explore the economic investment implications for you as long-term investors by comparing and contrasting the different policy platforms that each of the nominees and parties bring and depending on the different scenarios that may present come Election Day and beyond. So there's a lot of fascinating levels to this discussion, and to help us explore that today, we've got two really interesting and highly credential panelists today. And I wanted to introduce those to you today. First of all, we have Rex Wackerle. And Rex is a vice president in Government Affairs at Prudential Financial, and he's based in Washington. We're very deliberately having Rex join us today for his unique insights into the inner workings of Washington. Rex has spent almost three decades -- well, over three decades -- in the swamp, as they refer to Washington, as a corporate lobbyist, initially, in the defense industry, but for Bank of America, and for the last 20 years, as a lobbyist with Prudential Financial where he's responsible for Prudential's lobbyists in Washington. His primary focus is to understand current and future government policy from both sides of politics, the implications of such policy with a view to influencing for the benefit of our customers, many of you on this call today and our shareholders. I've enjoyed getting to know Rex over the last month or so, and he's shared many interesting anecdotes. He brings a unique insight and an insight as viewing to the inner workings of Washington, and I'm sure you'll enjoy hearing his perspectives today. Secondly, I want to introduce a dear colleague of mine, Dr. Nathan Sheets. Nathan is someone that I've had the absolute pleasure to work with over the last three years during my time at PGIM thus far, and he's [inaudible] chief economist and head of Global Macroeconomic Research for PGIM Fixed Income. Many of you on this call today will have had the experience of meeting Nathan and hearing his engaging thoughts on the macro economy, and we look forward to him sharing his deep insights again today. He plays a pivotal role in our business in supporting our firm's fundamental views on developed emerging economies. He also spends time analyzing global interest rate, currency, sovereign, and credit markets. I think in terms of today's discussion, though, I particularly look forward to him drawing upon his personal experience in public office, whether that be the time he spent as the under secretary in the US Treasury for International Affairs under the Obama administration or -- yeah, where he frequently represented the US government on things like international economic policy, including with China, or his considerable amount of time that he spent at the Federal Reserve Board, where he brings deep understanding of central bank policy and the implements [assumed spelling] on global capital market. So, gentlemen, welcome today to the discussion. We'll have both Rex and Nathan provide some opening remarks. Rex will focus on the electoral process, polling, reach into the policy platforms, and then Nathan will focus on the economic and investment implications and the interplay with the different scenarios or outcomes possible.
>> First of all, Cam [phonetic], thank you. As Cam said, my role in this is to try to explain the US elections this year in a very limited time. I really want to spend more time answering your questions this morning, but I'll do the best I can in the time that I have to get into this. This year, control of both The White House and the Senate, the US Senate, are up for grabs in very, very close elections. I see more and more signs of a blue wave, if you will, for Joe Biden, but as I'll raise in my remarks, there are a lot of signs that it could be a lot closer than we think, again, as 2016 was. But let me get right into it. First thing, what we know. We know there's going to be a record turnout this year. In 2016, 137 million people voted. This year, the estimates right now with the early voting going on is about 150 to 160 million. Just to give you a frame a reference, in the United States, there are about 198 million registered voters. So we're getting up there around 80-81% of all registered voters will vote in this election. Two weeks from tonight on the East Coast time as I sit here, the polls will be closed. And so the voting and the counting will begin, and we'll get into that counting a little bit as well too. Those are what we know. But 2020 has been full of unexpected items popping up out of nowhere, and I still expect a couple more things could pop up that could change, around the edges, the outcome of this election. But I will say that the numbers seem to be pretty locked in. Either you really like Trump and you endure his behavior, but you generally like his policies, or you can't wait to get rid of him. There doesn't seem to be a big in between. Earlier in the year, there was about a 10-12% gap of undecided voters. I think this close to the election, at best, that may be 5 or 6%, but that 5 or 6% in these close swing states could still determine how the ultimate winner is. I try to put together what are the decision points that people are making around this, those that aren't locked in? And I came up with three kind of dynamics that I think people are weighing right now, and the first one is how is Trump doing on COVID? It's a referendum on how his policy has been on COVID. And I think the answer to that is pretty miserable. I think that's a high negative for him. That's where you see a lot of the Biden campaign constantly going after that. The other thing that people are gauging this on is the economy. How has he done with the economy? Well, there's kind of a pre-COVID and after-COVID debate going on right now. Pre-COVID, I think, generally, people thought he did a pretty good job. After COVID, if and when we finally get through this, a lot of people -- I think the majority of voters also think he might do a better job at reopening the economy as well. So I give the nudge to Trump in that category right now. And I'm speaking mainly on the domestic economy, not the international economy. And then, finally, I think the third factor is I call it tolerability or likeability. Neither one of these candidates ultimately -- these ultimate candidates were really first choice in a lot of ways. I mean, Trump was the incumbent, so that's that, but, you know, Biden is seen as too old. He's frail and inside-Washington guy, whereas Trump is seen to be too divisive. He's reckless and, frankly, just exhausting. And I think a lot of people that don't support him feel that way. So where this goes in that 5 or 6% that has to decide, I think it'll come down to those three areas. We have our last debate on the presidential level this coming Thursday, Thursday evening here. I won't be surprised if Trump is a lot more measured in that and tries to act more presidential because after the last debate and then all the COVID White House mess, I think he lost a lot of standing in this tolerability index, if you will, in that swing vote. So he's got a lot to make up for. I think he'll let Biden talk more, hoping that maybe he'll make a mistake in what he's saying and that gives Trump the opportunity to go on the offensive a little bit in the last week or so of the campaign, but we'll see. The popular vote, as far as who's voting for Trump or for Biden, Biden will win that, just as Hillary Clinton won that popular vote four years ago. Biden's going to win that, but in this country, we decide it by electoral vote, and each state is assigned a certain number of electoral votes. And you have to get to 270 to become president here. Right now, if you took all the blue states -- that represents Biden -- and all the three shades there, he's at 278 electoral votes right now. So it's looking very positive for him. There are 91 what I call tossup states with their electoral votes still out there to get, and then Trump in all the shades of red has 169 electoral votes right now. Now, what I really think we should focus on are these lighter two shades of red and blue and the brownish gray number. Those votes in those states are still up for grabs, and so it's not without question that Trump can still make some traction, solidify that lighter shade of red, get a lot of tossup and eke into that lean Democrat of 66 votes as well. He could still eke this out. It's all about turnout, to be honest with you, and the burning question this year, can the polls be trusted? We saw last four years ago, this electoral map four years ago, the two weeks before the election probably looked very similar except it showed Hillary in front, and it probably showed Hillary front maybe right up until the day or so before the election. And so, you know, are these accurate polls that we're relying on for doing this? Well, there was an earlier poll this year where people were asked "Are you hesitant to share your opinions with pollsters?" Twelve percent of Republicans said yes, and 11% of independents said yes. We call those voters shy, S-H-Y, shy Trump voters because generally that's what they are. They won't come out and say that they are for Trump. Now, that was an earlier poll this year, so what's that percentage now? Most these people made up their minds one way or another and shifted into a Biden or a Trump category. We really won't know that until election night at this point. There's also another element, and that is people in the general demographic area that fit either a typical Biden voter or a typical Trump voter, who didn't vote in 2016. And as you can see, surprisingly, there were some large number of some voters that did not participate that fit into these different demographics. And the Trump camp has been very, very aggressive over the last four years and including the last year in doing door-to-door, face-to-face canvassing to find these unregistered voters, register them for Trump, whereas Biden campaign has been a little more timid because of COVID. They've been doing it over the phone, and it's really seen as not quite as robust as the Trump effort has been so far in these areas. So these are the swing states. What I can tell you, I've got numbers from four different swing states that have reported these new numbers as of now, one of them being Florida. In 2016, there were almost 330,000 more registered Democrats in the state of Florida than there were Republicans, and Trump still won the state. Over the last time period of about a year and a half, Trump has registered 200,000 more Republican voters in Florida than the Democrats have. So those numbers have eked even closer as far as raw numbers. The question is, do they get out and vote the way they've been registered? And what's the turnout on the Democratic side for this? They also have Pennsylvania. Pennsylvania, the Trump campaign has registered 200,000 more Republican voters that they've identified, whereas the Biden campaign has registered 70,000 more Democratic voters. It's a spread of 130. Again, a lot more Democrats registered in Pennsylvania than there are Republicans, but he's closed that gap a little bit. And, again, in 2016, Trump did win Pennsylvania, eked it out. In North Carolina, the numbers for the Republicans of plus 45,000, and in Arizona, they're about even, but those two states Trump won as well. And he's got to win these states this time around as well. So they're making every effort that they can to make sure that they do win these states. Now, quickly, before I run out of time. I probably already have. But let me touch on the House and the Senate, quickly. On the House, it's going to stay under Democratic control. There's not a debate there. There are 435 seats. Democrats control 35 more than the Republicans do, which means Republicans have to swing 18 seats. At best, I can see the Republicans gaining 8, but I also see the more likely possibility the Democrats could gain as many as 12. So Nancy Pelosi will remain Speaker of the House in the House of Representatives. The Senate is a lot more interesting. Right now -- and that could flip -- right now, the Republicans hold a 53-47 person margin in there, and each election year, every two years, a third of the Senate is up for reelection. This year, that means 23 Republicans and 12 Democrats are up for reelection because there's two additional races because of early retirements or deaths in the Senate. And it just so happens more Republicans are up in this cycle because six years ago they had a better election night than the Democrats. Of these 23 seats and 12 for the Democrats, the Republicans really have 6 solid that are in play, and the Democrats really only have 2 that are in play. So I think it's common knowledge the Republicans will pick up the one seat in Alabama which would give them a 54-46 advantage, but then after that, it gets really dicey for the Republicans because these six seats that are in play for the Republicans are extremely close, and I feel some are definitely slipping away. Those are in Colorado, Arizona, Maine, possibly North Carolina, Georgia, and Iowa. There are also another six that if it's a blue wave that night -- that means that Biden and the Democrats have an overwhelmingly successful night -- I could see other states coming into play that the Republicans are defending like Alaska, Kansas even, maybe even Texas, South Carolina, definitely, Georgia seat. There are two seats up in Georgia in this election. One of them is a special election and then also Montana. At the end of this, the dust settles. If you ask me how this will turn out, again, it's a range, and it depends on what kind of night each party has. It could end up 51-49 Republicans still in charge of the Senate all the way, I think, to 54-46 Democrats in charge of the Senate before this is over. And I think that gap makes a little bit of a difference too because if the Democrats have a much bigger majority -- You've heard a little bit about the filibuster. It's a Senate rule that can slow down legislation that has been used, frankly, abused in the last 20 or so years in the Senate to really halt legislation. It was the mechanism that Mitch McConnell then Senate majority leader -- which he still today -- said that he would use to make President Obama one-term president. Well, that didn't work out for him, but as far as slowing down legislation, it certainly has. Democrats, if they get a large margin in the Senate, I think they'll feel emboldened to, if not eliminate the filibuster, certainly tear it apart a lot so that it'll be easier to get a lot of the legislation that they want to get through through faster. And with that, I'll leave it that and turn it over to Nathan.
>> All right, well, very good. It's a pleasure to be here and have an opportunity to speak to you. Let me begin with a couple of broad overview statements that I think are important. The first is that this election really is a clash of economic values and economic philosophies between these two candidates. I think, for Trump, his goal is to unleash the private sector, as an agent of growth. And consistent with that, he's cut taxes. He's deregulated. I think he would seek to do more of the same during a second term. And then abroad, he's got this America First agenda where the idea is to use US influence, to use tariffs, to try to create opportunities for US firms abroad, which I think he recognized has created some headwinds to near term growth. But his view is that over time it will create a platform for the economy to grow more rapidly over time. Now, in contrast, I think Joe Biden sees the challenge as unleashing the power of government to address inequalities that we have in the economy and in society and other kinds of distortions and to do that by focusing on investing and people and healthcare and the environment, education, and so forth. So I think you have two very different perspectives and approaches as to what we should do to best grow the economy and what the government's role is in that. Now, as a more practical matter, I just wanted to echo a point that Rex made is that given that the Democrats are going to hold the House, if President Trump is reelected, regardless of what happens in the Senate, he's going to have to work with Democrats. And so I think a Trump victory is likely to be one that's going to have a tone and is going to feel pretty similar to what we've experienced over the last few years, where it will require a lot of negotiation. And broadly speaking, I think we're more likely to have gridlock than anything else under a Trump victory. And let me just talk in a little bit more detail about what a Trump victory might mean versus a Biden. And again I think Trump will, broadly speaking, be more of the same. I do think that if Trump wins that he'll be able to reach agreement on some form of stimulus. He's endorsed a $1.8 or $2 trillion package at this stage. I think if Democrats win the Senate and he's president would be somewhat bigger stimulus than if Republicans do, but I think we're in the $1-2 trillion-dollar range in either scenario. I think he'll attempt to cut taxes more, but I don't think that Nancy Pelosi and her colleagues in the House are going to support that. He'll continue to seek to deregulate. Climate is not a priority for him and will not be. And, importantly, I think he will continue on with a unilateral approach to China that focuses on tariffs and other kinds of measures and further trade wars. My hunch would be it might even be escalated relative to what we've seen over the last few years, and it could also proliferate into other jurisdictions, including the possibility of a trade war with Europe. And his operating style, well, Trump is who he is, and it's been unconventional and unpredictable over the last years, and it will stay that way. Now, for a Biden administration, I think that especially if Democrats win the Senate and we've got this blue sweep that we will see a big stimulus package that will support the economy and support markets during the first quarter. Think it will be short-term stimulus like unemployment benefits and support to state and local governments but probably also a down payment on some of the infrastructure, and healthcare, and environmental investments and spending that his supporters have endorsed. Now, this is an expensive agenda. What he wants to do is going to cost. Consistent with that, Biden has endorsed higher taxes on corporations and higher taxes on high-end earners. An important point -- and I think that especially in the blue wave -- that we will see higher taxes. But an important point -- I don't think they'll do it while we're fighting the virus. Those higher taxes are more likely to come during the second half of 2021 or late in the year once the virus has abated. Let me also say a word. I think regulation is important. I think the Biden team, their view is the regulatory pendulum has swung too far under Trump. And by regulating a bit more, we could have a cleaner, fairer maybe even more efficient economy than we have now. And my expectation is we'd see more regulation on the environment, on firms and the way they treat their workers, perhaps on firms and the way they interact with consumers on the energy sector, perhaps on the tech sector because of privacy issues and the like. So there would be more regulation. Big emphasis on green. On China, given the realities of US political situation right now, I think that Biden will stay tough on China, but it will feel different. I'd say strategically similar in that it will stay tough, but tactically different than Trump in that it will be multilateral, and he'll work with our allies around the world on issues related to Chinese openness and their economic policies, potentially, also rejoining the Trans-Pacific Partnership, which I think would be an important step. Kind of putting all this together, my sense is that when markets look at these two candidates, they see pros and cons. They see things they like and areas that are more concerning. For Trump, markets have generally liked the lower taxes and his efforts to deregulate, but I think the trade wars and his style -- you don't know what he's going to do from day to day -- have created uncertainties and are wearing thin. For Biden, I think the markets would very much welcome a big stimulus package and are very much focused on that as a possibility in the event of a blue wave. So they welcome the stimulus, the more conventional style, the more multilateral approach to China, and international economic policy more broadly, but I think there are still concerns about regulation and taxes. And so I think it very much is a mixed bag. I don't think a victory by either is going to be a big market event at this stage. If anything, the markets, because of the stimulus, might respond even a little bit more favorably to Biden. But after four years -- and I think this is what we found in our poll -- after four years, the stock market has moved up under presidents of both parties -- that it's going to be underlying economic fundamentals and underlying economic performance that's really going to drive equities and probably be more important for markets than the differences between these two candidates. So, Cameron, let me stop there and pass the floor back to you.
>> Thanks, Nathan, and thanks, Rex, for your opening remarks. There's pretty fascinating comments that you've both made, and we'll certainly explore some of those issues in a bit more detail over the next, you know, 20, 25 minutes or so through our Q&A. I just want to take this opportunity again to kind of encourage people to use the Q&A function on the Zoom platform. We've certainly had some questions come through before, and we've got a couple coming through now that we might turn to, and I might just kick off if that's okay, Rex. Yeah, we've spoken about in these kind of opening remarks a little bit about the importance of having kind of the control of Senate or maybe not. Yeah, can you discuss your views on this, and could it be that a Republican-controlled Senate if Biden wins the presidency could still be a productive environment? And then kind of parallel to that, we've got a question from the audience that kind of dives into, yeah, this notion of a split Congress. Yeah, House to Democrat, Senate to the GOP, and Biden in The White House, and what might that mean for US fiscal policy and broader US economic performance over the next four years? Maybe kick off with you, Rex, and, Nathan, if you've got any comments that you'd like to make as well.
>> What I said was, in some ways, that combination of Republicans in control of the Senate, Democrats in control of the House, and The Biden White House may actually work believe it or not. And the reason I say that is the House Democrats are going to want to work with Biden. They're of the same party, and he's going to lead, as opposed to, in the last Congress, other elements of the Democratic Party were kind of leading the House of Representatives much [inaudible] than I think Nancy Pelosi would have liked, but she's trying to take a little of the steam out of things there with the more liberal element of the way keep their energy going etc. If the Republicans stay in control of the Senate, remember, Joe Biden was their colleague for many, many years. He was United States Senator since the early '70s, and then after that, he was President Obama's kind of go-to person in working out deals with the Senate. And so he's very well liked in the Senate on both sides of the aisle and is seen as a bipartisan guy that tries to get things done, and I think that generally the Senate would want to work with him as well. So I think there could be some pretty large things done in that type of scenario. Now, if it's a Democratically-controlled Senate, and House, and White House, again, you know, they can do a lot, but if they keep the filibuster, that will limit them. And so their big plans would be limited to one or two things in the first year and maybe one in the second before they're in the middle of a midterm election. And so there wouldn't be quite the good feelings. I could see the Republicans that are now in the minority running to guerilla warfare type thing and working against any of the proposals that Biden and the Democrats are trying to do. So in some ways, I'm kind of rooting for that outcome that you laid out.
>> In my mind, the one combination where economic policy could be discreetly different than what we've seen over the last -- let me say over the last decade -- would be this blue-sweep scenario where I think that the Democrats would utilize the power of government in a very focused and activist way. And I think we would see meaningful spending, probably a vigorous regulatory agenda as I laid out. And I could see the economy looking and feeling different in that scenario than in the others. You know, if it is a mixed outcome, then I think kind of more of the same. I hear Rex kind of sketching out the upside case. Then maybe we could do a little bit better than gridlock if Biden is in The White House and Republicans have the Senate. It allows Biden to kind of be the dealmaker. Could we maybe get some infrastructure from that kind of a situation that would have positive implications for the economy? Could we maybe get something that is more truly tax-reformed than what we've seen in recent years? So there might be some of these kinds of technocratic kinds of issues where you could engineer there wouldn't be as maybe as highly politicized where you could engineer some agreement. I do think there's an upside, but it would be around a baseline for most of these non-blue sweep scenarios around a baseline of more or less gridlocked.
>> Hey, Nathan. It's Rex. Quick question. Do you have any concerns about if it's a Democratic sweep that the more liberal element of the party tries to take the party further left saying "We're the reason that we have this sweep" and then causing fissures in the party and kind of handicapping them from doing as much as they'd like?
>> My observation -- and I'll defer to you on this -- but my observation is it is easier for parties to maintain discipline and unity when they are in the opposition. When they are governing, it starts to show the fissures. And the reality is Senate Democrats range from Joe Manchin, the senator from West Virginia, who is a very moderate politician all the way to Bernie Sanders and Elizabeth Warren. That's a very broad range, and some of the more ambitious proposals aren't going to get -- if Democrats control the Senate -- aren't going to get any Republican support. So that means that Chuck Schumer will have to keep all of those Democrats together, and I do think that reality is going to be a limiting factor. On some, you know, proposals, for example, regarding the Supreme Court and expanding the number of justices, I don't think the Democrat's majority in the Senate will be large enough to allow those kinds of things to happen. So I think that will be a constraining reality on a lot of things.
>> Now we're talking a lot about [laughs] outcomes. I guess there's actually no certainty there [laughs]. There is going to be an outcome. There's a lot of talk about this notion of a contested election. We've got a couple of audience questions on this. So I know we could [inaudible] a webinar in its own right around the machinations of the contested election, but, Rex, can you spend, yeah, a couple of minutes talking about under what circumstances we could see that contested election and what the different kind of machinations of that are, please?
>> Sure, I'd be happy to. And like you said, Cam, we could spend an hour on this, all the possibilities around this. The possibilities are riper in this election than I think they have been in 100 years -- to be honest with you -- of some type of contested election. I know in 2000, we had Florida and the hanging-chad debate and all that, but we had two candidates that were very reasonable. And at the end of the day, one said, "You know what? The country is more important than I am as far as winning this thing, and we need to move on." We have one candidate specifically this time that is not going to move on. He is going to keep pushing this until he's the winner or at least exhaust every opportunity he can. And that I'm talking about the President. As I mentioned earlier, to win the presidency, you have to get the majority 570 electoral votes. Interesting thing is about that number is it's an even number. And so there is a possibility that you could split that number right down the middle. There are 64 possible outcomes or combinations of this. You could end up with a 269-269 tie. This year, I saw something the other day, and unfortunately I didn't keep it, but if three states flip that Trump barely won and they flip to Biden this year, you could get that 269-269. One of them was Pennsylvania, but I can't really remember the other two. Now, I don't think this is going to happen this year, and I also can tell you all, rest assure, we have a process to figure out this type of a tie. What we don't have and has never been confronted before in modern history is all these close swing states that could determine the outcome of who gets what electoral votes going forward and how that will be determined. Quickly, let me say, in this country, each state, all 50 states, are responsible for their own rules and regulations around voting. And so you get a complete potpourri of 50 different combinations of when you register, how you register, how you get your mail-in ballots, etc., etc., etc., what counts and what doesn't, and all these things. So you start with that. But then this year, we've got something on top of that that makes it even different. Three combinations that people are, frankly, very concerned about. First of all, cybersecurity. We think we're on top of that, outside influence on the Election Day as far as the polls and the final results. We think, in this country, we're on top of that. We don't know. We won't know until Election Day. So that's one. The second one is the physical constraints around COVID and voting physically now. Because of COVID, there's going to be a lot more mail-in ballots. To give you an idea, there will probably be 80 million mail-in ballots this year, which is twice as many in 2016. So the question is "Can our system handle that many mail-in ballots and get them to the right place at the right time under all these different state rules so that they can be counted in a timely manner?" Jury is out. We'll see. And then there are other problems, the problems of disinformation running around this country on social media -- from one campaign in particular, but both campaigns are a little bit guilty of this -- and telling voters when to vote and how to vote. And it's not just the campaigns; it's outside influences as well. So all these things have come together right now, and it leaves a lot of questions. Meanwhile, we've got a president out there that's saying the election is rigged, and he's managing to convince -- because of all these dynamics at play -- he's managing to convince a lot of people to the point where I saw a poll the other day that almost half of registered voters think that there may be some kind of fraud in the election. Now, there are always instances of this, but, you know, most the time, people wouldn't even think about that. So that's a problem. Now, let me run through quickly. I know I'm getting longwinded here, and if you want, cut me off. But let me run through one scenario that is making the rounds here in Washington about what could happen this year. The President has been encouraging his supporters to vote in person. He's been against mail-in balloting although he's doing it himself. He doesn't like it. He uses it as a whip to say it's wrong, and it's fraudulent, etc. So he's encouraging -- and has been -- all his voters to show up on Election Day and vote. Thus, there will probably be more Trump voters on Election Day in some of these close-swing states than there are Biden voters. So start with that. And add on top of that there's something that's been happening in this country the last 20 years, and the trend has gone up and up in this area, and that is late-reporting ballots. There are three categories of late-reporting ballots in this country. One is the urban centers. Urban centers, because they're more people, it just takes more time to count all those ballots. Those are generally Democratic voters, so put that away right now, but that's out there. The other thing, absentee ballots, and especially this year. Absentee ballots are going up, and up, and up, and as well as mail-in ballots, which are generally much more Democratic than Republican voters as well. And then, finally, provisional ballots. These are the ballots when shows up physically to vote at an election site, but their question is whether they can actually vote in that election, and so they fill out a provisional ballot, and then those ballots are taken to the next step. It is determined whether they can be counted or not. Now, those tend to be college students and people that are more mobile and things like that. Now, all three of these categories over the last 20 years have gotten more Democratic and increase the numbers significantly. It hasn't changed the presidential election yet, but it has changed a Senate's race. In 2018, Martha McSally, the incumbent in Arizona, was ahead on election night, but by the time all the ballots were counted over the next several days, her opponent, Kyrsten Sinema, was declared the winner. It also happened in two House races in Orange County. And as these numbers grow and especially in these swing states, what you could see happen -- it's called the blue shift, by the way -- and what you can see happen is here on election night, Trump will be out there declaring, "Look, I'm ahead in Pennsylvania. I'm ahead in Florida" -- not so much Florida because they are counting early. But some of these other swing states. But as the days go by, as more of these ballots are counted, his lead will erode and maybe shift to Biden. That plays right into his narrative of the election being rigged and stolen from him. And then from there, we go into a whole different universe. That shows the process of how it usually works, but that process this year with all these questions, and all the debates, and all the lawsuits -- There have already been over 200 lawsuits filed about who can vote and who can't. But these specific dates are set forth in the Constitution, but they may be overwhelmed by the debate over which votes count and how they should be counted to the point it could be pushed back into January almost. And I could go on, but I won't. But there's a lot there that is going to cause a lot of angst to people.
>> Thanks, Rex. Nathan, we've got an audience question that kind of follows on a little bit from that theme around contested election and that specifically what can you expect in terms, yeah, credit spreads in the event? And maybe you can expand that to kind of, yeah, markets and volatility in the case of a contested election?
>> You know, I think that a contested election would be a huge vol event for markets, a huge source of uncertainty. And some my expectation is that risk assets, including equities and probably credit spreads as well, would be hit. Where it's a little trickier is some of the safe haven assets that typically during those periods of stress we see the dollar appreciate and rates fall. And would we see US assets and the dollar operate in the same kind of safe-haven way if we were going through an event, a severe contested election that was really questioning the foundations, the rudiments of our system? I think our working assumption is safe haven would be an effect, but that's something that I think we would be watching closely. Final comment is I think the good news that this is likely to be a time-limited thing. I think what markets want to see is an outcome. And if that's Trump, I think they've lived with him for the last four years. They can live with him. And if it's Biden, they can live with him. But the markets will just want a resolution. And eventually our system does provide mechanism for there to be a resolution. So it will be really a -- I think -- a disruptive vol event for a short period.
>> We've got about eight minutes left, Nathan. I want to cover something on inflation. I'll also want to spend maybe a few minutes on foreign policy because it's, you know, particularly in the region. But, yeah, markets are somewhat deuced [assumed spelling] at the moment, and investors are wondering the extent to which kind of more stimulus can be scoured up further and what impact that might have on inflation over time. Have you got a view on kind of inflation out into the future?
>> So my sense is that many of the trends that characterize the global economy before the pandemic are likely to continue on the other side of the pandemic. So we were in a soft-growth, low-inflation, low-rates world before, and I think that that will continue to be true. And I think that reflect deep structural factors in the global economy, including aging demographics and many DMs [assumed spelling] but also in some emerging markets like China and Korea. I think it reflects rising levels of leverage in our economies and the fact that inflation expectations are just rock solid, anchored on the down side. So my expectation is going forward that we are going to continue to be in a low inflation, perhaps even disinflationary world. Central banks are going to have to keep rates low and that there will be a lot of stimulus. And this kind of low inflation equilibrium that we've been in, it's not clear to me what jolts us out of it. The central banks are trying, but they've been trying for a while with limited success.
>> Yeah, let's switch gears a little bit now. We touched on foreign policy a little bit in the opening remarks. The prime minister of Singapore was quoted as saying that the most important objective for whoever wins the US presidency in November was to stabilize relations with China because the rest of Asia depends on a stable US-China relationship in order to have a secure and predictable environment. I think that's true of broader Asia. It's certainly true for any implications in terms of countries like Australia that, you know, have their own strong, yeah, trade links with China. Have you got any thoughts on kind of the steps that US and China can take to improve this relationship and whether that, you know, depending on the outcome, you know, how that plays out?
>> I think this is an enormously important question. I very much appreciate you raising it and framing it this way. That said, unfortunately, today I don't think anyone at least in Washington is thinking in those terms. I think that the tone, the discussion in Washington now is very hawkish and is likely to continue certainly under Trump, but under Biden as well. But stepping back and thinking what can we do to strengthen relationships between the two countries and create a more stable world? I think on the US side, there are two key realizations that I think we've lost sight of. The first is that China is going to rise as an economic power. Inevitably, given its size, its influence, it's history, it's going to happen, and the question is, you know, how long it will take for it to occur, one, and how China feels about the rest of the world once it's risen. And I think there's a strong case for the rest of the world to be constructive in helping China in this process. And then, secondly -- and this was a point that in previous years I think Washington was aware of -- that China's rise can create opportunities for the United States and for the rest of the world. And I think those two key facts we've kind of forgotten in the debate. On China's side, I think that many in the United States feel that there was an implicit agreement between the United States and the West in China -- as a joined WTO and entered the international system -- that China would take steps to open its economy and to make it possible for foreign firms to compete effectively in the Chinese market, that there would be controls and respect for various kinds of technologies and so forth. And I think there's a sense that China hasn't fallen through, so I think China needs to take steps to make clear that it is open to foreign competition and is going to allow foreign firms to operate, truly, on a level playing field in the domestic market that from where we are right now, Cameron, there's a long way to go before we're able to make meaningful progress in terms of improving relations.
>> Rex, I don't know if there's anything you would add on kind of foreign policy in general, but any remarks that you'd make on foreign policy? Otherwise, I'm going to have to kind of just, you know, wrap up with a final question.
>> I would only put it in a nutshell like this. I think foreign policy under Biden administration would be much more coherent and easy to understand. I think he would take us in a certain direction, and we would all, as a country, understand that direction more. I think you would open it up back to kind of the way it was under Obama and previous administrations and moving in that more globalized environment, although, you know, he's going to keep a stiff upper lip when it comes to China. I don't think that relationship is going to get rosy overnight, but, again, as Nathan already said, I think that it will get better. It would improve. Under Trump, expect more of the same, except Trump will be unleashed in his next four years in that there's no reelection. And so there's nothing to confine him, if you will, into certain categories and stay focused, and that's, frankly, worrisome.
>> We've got one minute left. I'm going to nail you both down. I said we wouldn't focus on the outcome, but, you know, how can you not ask the question of, yeah, "Who do each of you think that is going to be the winner come Election Day or whenever the outcome is decided?" and maybe just leave one thought for our investors or around kind of a risk or something that they should be thinking about. Rex?
>> Well, I'll go first. I think when the dust settles -- and I don't think we'll know election night, although I see a trend that could be a blue trend -- but I think when the dust settles, it'll be President Biden come January 20. And more than likely, a Democratic Senate and House, although that Democratic margin in the Senate could be very close.
>> And I agree with Rex. It looks like the wind is blowing in Joe Biden's direction. It also kind of looks and feels like the Democrats will pick up the Senate, but it's going to be a very close call. It will limit -- as we discussed -- kind of room for maneuver during the next several years. In terms of the thought for investors, maybe the most important market implication of this election is sectoral differences and sectoral effects that I think under a Biden administration will have winners in renewable energy and infrastructure, firms that are reliant on China. The municipal sector will get big stimulus and will likely be a winner, but there will also be losers in a Biden administration on the regulatory side in particular. But I think that's where the biggest market effects are likely to be felt over the next several years.
>> Well, thank you, gents. We've kind of reached our time. I've had actually a lot of fun doing this today, and I really want to thank you for both of your insights. You bring a great deal of subject expertise to this, and I'm sure our participants, and listeners, and investors have gained a lot out of it, so thank you. I also want to thank the audience for their participation today. We had a good attendance. We had lots of good questions. If we didn't get to your question, I'll encourage you to reach out to your PGIM representative, and we'd be happy to kind of have some further discussions offline. And I'm sure Rex and Nathan would welcome further discussions as well. I'd also just point you to an election landing page that we've got on the pgim.com website, which is going to be a collection of all the US election commentary, and thought pieces, and research, so, please, if you're interested in that, visit pgim.com/elections, and you can learn more. That's a wrap-up for today. I want to thanks again, gents, and we'll speak to you shortly.
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