The Election: It's The Food-Stamps, Stupid!

In November 2008, President Barack Obama won the popular election for President by 9.5 million votes.  A burgeoning financial crisis and weakening economy helped his candidacy at the time, but four years on the sluggish pace of economic recovery is a headwind to his re-election.  Consider, for example, that there are currently 12.8 million people unemployed in the U.S., or that an estimated 8 million adults entered the SNAP (Food Stamp) program since November 2008 (total increase in enrollment: 15.6 million).  Presidential elections are won in the Electoral College, of course, so in today’s note ConvergEx’s Nick Colas parses out this employment/food security economic stress for the key “Battleground” states.


Statewide data for unemployment and food stamps show that the jobless rate has increased in all but 3 states since the 2008 election cycle, and that every single state plus DC has experienced a gain in the number of residents receiving nutritional assistance from the federal government.  Seven of the 8 swing states this election year are more economically stressed than the national average in terms of unemployment and/or food stamps, while 2 of the 3 states “leaning” toward Obama are worse off than the national average.  Romney, behind in the electoral vote count by most analysts’ figures, theoretically stands to gain from a weak national economy, but he’ll have to earn the vote of an estimated 4 million Americans in 14 key battleground states to have a shot at the White House.

Nick Colas, ConvergEX: It’s Jobs And Food Stamps, Stupid

Note from Nick:  I know three things about the upcoming U.S. Presidential election.

  • One: it will be close, likely decided by a few million votes in a handful of battleground states.
  • Two: the debate between incumbent and challenger will come back to the current state of the domestic economy from the current “Big ideas” smokescreen.
  • Three: many Americans, even after three years of economic “Recovery,” face fundamental questions over employment and food security.  Beth puts it all together in today’s note.

Are you better off now than you were 4 years ago?  The answer is likely dependent on whether or not you’ve got a job.  On average, real personal incomes are up 2.1% in the last 4 years, which is good news for those who are employed.  But for the incremental 3.4 million people who have lost their job in the last 4 years, well, this isn’t exactly relevant.


Ronald Reagan famously asked this same question during his enormously successful presidential campaign against Jimmy Carter in 1980.  The economy had endured a recession earlier that year, so for many voters the answer was a resounding “No”.  The 2012 election cycle is similar, though the magnitude of the Great Recession is decidedly greater.  Which naturally leads to the question: Are enough people worse off now than 4 years ago to allow Mitt Romney to capitalize on a weak economy in Reagan-esque fashion?


We’re not here to make election predictions or candidate endorsements – you’ll be flooded with enough of these in the coming weeks.  Our election analysis focuses on 2 state-by-state indicators of economic stress: unemployment and food stamp recipient count.  We’ve written repeatedly on these topics over the past few years and have a good handle on what makes these numbers “Tick.”


State unemployment rates are on average 24.2% higher now than they were during the 2008 election cycle.  In the table following the text, we show state-by-state unemployment rates for the 4 months leading up to and including the presidential election, as well as jobless rates for the past 4 months.  Our “election cycle” unemployment rate is simply an average of October and November 2008, and the current rates are based on July 2012, which is the most recent month for which data is available.  The biggest gainer is Utah, where the jobless rate is currently 6.0%, or 73.9% higher than its election cycle 2008 rate of 3.5%.  Only 4 states have lower unemployment rates now versus then: North Dakota (-13.0%), Massachusetts (-2.4%), Vermont (-1.0%) and interestingly enough, Michigan (-6.7%).  We can thank the auto bailout for that, along with the uptick in light vehicle demand since the cyclical lows in 2008/9.


Meanwhile, every single state saw an increase in the number of residents receiving food stamps over the past 4 years, with an average gain of 68.2%.  Also in the accompanying table, we show the number of people per state who received nutritional assistance from the federal government in 2008 and May 2012 (the most recent month for which data is available).  The number of food stamp recipients more than doubled in 4 states, led by Nevada at +146.2%.  Louisiana (+12.6%) and North Dakota (+20.6%) experienced by far the smallest rises.


Now in terms of the November election, the economic plight of certain states simply doesn’t matter in terms of predicting the outcome.  Their collective minds are made up; they’re voting either for President Obama or Governor Romney, and there’s not much either candidate can do to change the fact.  So those states aren’t highlighted in our comprehensive table following the text.  The states shaded in gray are pure swing states, according to yours truly and more importantly also according to most election analysts.  The Blue states are leaning toward a Barack Obama reelection, though Romney has a chance.  Similarly, the red states are favoring Romney, but Obama has hope.  We’ve displayed these 14 “battleground” states in a separate chart to outline which election-critical states are more economically stressed than the overall nation in terms of the 2 factors described above (unemployment and food stamp recipients).


Four battleground states are weaker than the nation in terms of both joblessness and food stamps: Colorado, Nevada, New Mexico and Wisconsin.  Unfortunately for Romney, none are a “catch” since they all have a relatively low number of electoral votes, and one (New Mexico) is already leaning toward Obama.  Three states are actually better off than the nation as a whole on both accounts: Michigan, Missouri and Ohio.  It’s therefore unlikely these states will be motivated purely by economic reasons to vote for Romney.  And two of them – Michigan and Ohio – benefited substantially from the auto bailouts of 2009, an economic outcome that candidate Romney has sharply criticized.


The remaining 7 states are worse off than the rest of the nation in terms of either unemployment or food stamps (but not both).  For example, Florida’s jobless rate is actually lower now (7.6%) than in November 2008 (7.8%), but the state saw the second-highest gain in the number of its residents receiving food stamps.  The labor market gets a ton of press, but signs of economic stress appear in more ways than unemployment.  So these 7 states still represent substantial opportunities to appeal to voters under economic duress.


By our calculus of economic stress, therefore, Florida is the most important battleground state on the list, should Romney choose to capitalize on a weak economy the way Reagan did.  It comes with 29 electoral votes, and while its unemployment rate is up “only” 15.8% from 4 years ago, the number of Floridians receiving food stamps grew a whopping 132.6% during that same time.  According to Real Clear Politics (…) Romney is a near lock for 191 electoral votes, compared with the 237 votes already reserved for Obama.  Either candidate will need 270 votes to win the election, so Romney’s got to find 79 more to seal a victory.  The 23 states leaning “red” carry 36 electoral votes, so assuming Romney is able to secure those votes, he needs to earn 43 votes from the 8 true swing states.  Without Florida, he’d have to win Ohio, Virginia, Wisconsin AND one of the following: Colorado, Iowa, Nevada or New Hampshire.


However, one critical issue is worth noting.  Even though many people are receiving food stamps, unemployment benefits and other government transfer payments because of a weak economy, are they likely to vote for a candidate in favor of reducing such benefits?  Does the risk of receiving less government aid offset the risk that the economy doesn’t improve substantially?  We can’t answer these questions, but this could prove to be an important point as the election heats up.


Again, our goal isn’t to make predictions or recommendations.  It’s to highlight the economic stress level of key battleground states, and should Romney want to make an appeal to votes a la Ronald Reagan, then Florida, Wisconsin, Ohio and Virginia are good places to start


One last point, of a more general nature: we believe that the polling in this contest will tighten up this week and throughout the rest of the campaign.  It will, in our view, come down to the question of economic confidence because – as we have shown here – the state of the country on this count is far from robust.

Click chart for LARGE version…

Monsters With Ominous Acronyms: From A Nation of Investors To A Nation of Fed Watchers

Wolf Richter

People are holding their breath. Fed Chairman Ben Bernanke is to speak in Jackson Hole on Friday. QE3 or not to be, that’s the question. There isn’t a soul in the markets that can shrug off even a single syllable of what he’ll say. And if his answer isn’t a clear and solid yes—with details on how much, by what mechanisms, and until when—market participants, analysts, bloggers, and TV economists will parse his speech down to the last iota and look for commas that they haven’t seen before, and they’ll interpret it and reinterpret it ad infinitum until the desired outcome has been established, namely more QE—regardless of what he says. Headlines have been stirring the excitement. My blood pressure is up, my nails are bitten down to the quick. I haven’t slept in days. I’m ready. Oh dear Ben, I’m praying, let us have more QE.

ECB President Mario Draghi had his moments recently, but his outfit isn’t an omnipotent institution like the Fed, not yet at least. It has been designed as a curiously emasculated place, subject to its treaty-imposed single mandate of price stability and language that precludes any kind of QE. But these aren’t times for normal interpretations, and so the treaties have proven ineffectual in keeping the printing press unplugged. But what’s hampering the ECB in living out its wildest dreams à la Fed? Strong opposition from the Bundesbank. While it only has one vote within the ECB, same as Cyprus, it has a bully pulpit, and it has turned up the megaphone.

Investors are also watching the Bank of Japan, which buys just about anything, including equities, to keep them from crashing further. The Bank of China is now expected to prevent a hard landing, or a soft landing, or any kind of landing, though China’s landing gear is out, and the flaps are extended all the way. There are other central banks we keep an eye on. They all coordinate their moves and hobnob at shindigs, like the one in Jackson Hole, and they whip us into a frenzy with their words. Central planning at its best.

And so we have become watchers of central banks, and we bet on their pronouncements rather than invest in what we think might work economically. Meanwhile, the Fed is pulling, or perhaps pushing, on a variety of strings to accomplish its goals, whatever they may be. It’s setting prices and yields, it’s causing capital to be shifted in the wrong directions, it’s propping up banks. And it works. Central planning has been successful in the past as well.

For example, among the famous German car makers there was, you might recall, VEB Sachsenring Automobilwerke Zwickau. It produced one model, the Trabant. This was in East Germany under the communist regime. It was the best-selling car of all times in East Germany. And just about the only one. It was even exported to other east-bloc countries. Designed in the 1950s and produced without major updates for 30 years, it sold over 3 million units by 1989! Today, 32,997 “Trabbis” are still registered in Germany. Its two-stroke engine, if it runs at all, leaves a toxic cloud of oily smog behind. Despite its tiny size and nearly imperceptible acceleration, it gets a lousy fuel economy. It’s slow, uncomfortable, unsafe, malodorous… one of the worst cars ever built. The proud product of central planning.

But rather than create decrepit manufacturers that build things that belch oily smoke, modern central planning has created monsters with ominous acronyms… TBTF, ZIRP, NIRP. And like the central planners in charge of the Trabbi, they have mastered the art of repression, but this time its financial repression—so the government and banks can borrow at near zero cost, and below the rate of inflation, while demolishing whole classes of investors and savers, or worse, inducing them in their desperation to chase after the next bubble, only to be blown up.

Ray of hope: the Trabbi has become a collectors’ item of sorts, admired for its failings and showered with derision. Prices have soared from zero after Reunification to well, not a whole lot more. And people take them out for drives on sunny Sundays and gingerly coax them down side streets and country roads. Just don’t get on the autobahn.

Central banks shroud themselves in secrecy. But when shenanigans seep to the surface, they just get worse and worse. The latest is a sordid bribery and kickback scandal at the Reserve Bank of Australia that appeared to be neatly contained to two subsidiaries, until now. Read…. Central Banks, The Veil Of Secrecy, A Hotbed of Corruption, And Now Another One Got Ensnared

And here is the next nightmare for California’s cities and counties struggling to keep their chin above water. Read….. California Bondholders Watch Out: State Controller Pounds Municipalities, by hard-hitting Chriss Street.

The Complete 'Ranked' World Calendar Of Events To The End Of The Year

The market over the summer has been quieter than we had expected – thanks to Draghi’s threats placating-words and Bernanke’s promises. Equities rallied, Bunds and Treasuries sold off, and government spreads in Europe declined. All these markets look more constructive. However, the event calendar in the near future is very heavy, notably the political one. This article from UBS’ global strategy group does three things. First, they provide a list of events until the end of the year. Second, the relative importance of the various events are ranked; and finally, they provide, where needed, a comment on what to expect.

We still believe three topics will drive markets: (1) the ongoing European sovereign crisis, where we see some progress (albeit slow) as Draghi has pushed forward his agenda and found some support from politicians; (2) the political issues in the US, although the main change is the more dovish Fed; and (3) world growth, which has been disappointing and is a major risk to monitor. 

Issue #1: European Sovereign Crisis
After the positive performance of markets, we are more nervous. The political calendar (see below) is very heavy and will provide plenty of opportunities to disappoint markets, or  at least provide uncertainties on which attention may be focused. The issue is not only about a potential adverse outcome, but also and maybe mainly about political action being too slow for markets. For instance, the ECB suggested it would wait until Germany’s Constitutional Court ruling (due September 11th) before unveiling its plan to purchase government bonds. We are thus about a month away from clarity on that topic.

Issue #2: US political moves
There are many dimensions to look for in the US. This includes the upcoming US elections but also, obviously, the fiscal cliff and the debt ceiling.

Issue #3: Global growth
Although much attention is being paid to the above-mentioned political developments, the key risk might actually be growth. Recent data points have confirmed that growth is weak in most parts of the world. We believe this is the main reason why a number of central banks have already reacted (BoE) or are planning to (Fed, ECB). Weaker growth would make the fiscal consolidation in the developed world much more difficult and lead to renewed market stress.



Source: UBS

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