KNOWNS & UNKNOWNS Hunting Black Swans in the Age of Disruption - Q1 2020 - Mehlman Castagnetti Rosen & Thomas
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Bruce Mehlman
January 20, 2020
bruce@mc-dc.com
follow @bpmehlman
Q1 2020
KNOWNS & UNKNOWNS
Hunting Black Swans in the Age of Disruption
CONTENTS
HUNTING BLACK SWANS*
Underappreciated Political Possibilities in 2020
KNOWN UNKNOWN
CONGRESS Impeachment Congress Productive Congress?
ELECTIONS Close Election Tied Election?
TURNOUT Turnout Tsunami Who Benefits?
TRADE China Trade War EU Trade War?
MARKETS Strong Economy Fragile Economy?
PARTY LEADERS GOP: Disruptor in Chief DEM: 70+ White Male?
SCOTUS Hot Button Issues Vacancy?
TECH Global Techlash Breakup/Antitrust Suits?
GEOPOLITICS Populism Rising Multilaterialism Falling?
NEW POWERS RISING States Leading CSR Showing Teeth?
PARTISANSHIP Partisan Divide Social Divides?
DISPUTED OUTCOMES Disinformation Election Who’ll Referee?
* Black Swan: /n/ an unpredictable or unforeseen event, typically with extreme consequences
2
KNOWN: AN IMPEACHMENT CONGRESS
Overwhelmingly Party Line Vote in House; Same Expected in the Senate
3
UNKNOWN: A PRODUCTIVE CONGRESS?
What If Infrastructure Week Really Is Infrastructure Week?
(Post-Impeachment Incentive to Get More Done)
MUST-DO LIKELY POSSIBLE
Foreign Intelligence Confirm Federal Judges & Huge Infrastructure bill
Surveillance Act Authorities Administration Nominees (Pres. Trump, Speaker Pelosi & swing
(expire 3/15) state unions all want to invest trillions
USMCA (new NAFTA) √ to fix U.S. infrastructure)
Health Extenders
(expire 5/22) Rx Drug Pricing bill
5G Wireless bills
Government FY21 Funding “Surprise” Medical Billing
(or shutdown 9/30) Election Security legislation
Nat’l Flood Insurance program Federal Privacy legislation
(expires 9/30)
Cannabis Banking bill
Surface Transportation
(expires 9/30) Autonomous Vehicle bill
National Defense New Liability for Internet
Authorization Act Platforms (amend §230)
(expires 12/31)
More Laws* Pass in 4th Years Sanctions on Turkey; Russia;
Water Resources
Development Act Year Clinton W.Bush Obama Trump Iran; China; Venezuela
(expires 12/31)
3rd 80 161 96 114 Anti-Money Laundering bill
4th 224 245 123 ?? New Tax bill
(extenders, technical fixes & cuts)
*Not including Bills “to designate” (i.e. ceremonial). Source: National Journal
Pipeline Safety Authorization
(expired 9/19) 4
KNOWN: A CLOSE ELECTION
HOW TRUMP WINS HOW A DEM WINS
1. MAKE IT A CHOICE: 1. MAKE IT A REFERENDUM:
If Biden: Agent of Change vs. Establishment Insider Avoid culture wars & class wars… make it all
about Trump, the only President to never reach
If Sanders/Warren: Capitalism vs. Socialism
50% job approval at any point (Gallup)
If Buttigieg/Bloomberg: Populists vs. Elitists
Underwater in MI -15, WI -10, PA -6, AZ -3, GA -2
2. HIGHLIGHT THE ECONOMY: 2. TAILOR MESSAGING:
52% economy job approval (end 3rd year) > HW Bush Win back swing voters via macro-message
(31%), Clinton (42%), W Bush (50%) & Obama (40%) (Restore Decency, Dignity & Stability)
80% say 2020 will be better for their families Turn out base via micro-messaging (Climate,
Guns, Civil Rights, Immigration, Inequality, Health
3. RALLY THE BASE: Care, etc.)
Hold 89% GOP approval via “promises kept” re taxes, 3. RALLY THE RESISTANCE:
NAFTA, China, judges, guns, dereg. & immigration
Trump net-disapproved by women (-24%), African
Run superior digital campaign via Americans (-70%), Latinos (-36%), White college
Dominate discussion, dictate narrative via grads (-20%) & youth (-28%) (WSJ/NBC)
4. RUN SMARTER: 4. RUN SMARTER:
Raise more $$; Spend early to define Dem nominee
Double Trump’s spending (Bloomberg’s billions)
Focus on Electoral College; 2016 non-voters
Resist the “condescension of the elite” (e.g.
Provoke the Woke… politically-correct overreactions “deplorables”… don’t take Trump’s bait)
from media & left-wing Sources: WSJ/NBC (economic & net resistance approval); Suffolk (80%); Morning Consult (state approval) 5
UNKNOWN: A TIED ELECTION?
269-269 TIED ELECTORAL COLLEGE NEITHER PARTY HAS 26 DELEGATIONS
(64 Tie Combos, e.g. Dems flip PA, MI & ME-2 from 2016) IN NEW HOUSE (Net 1 change from 2020)
Currently…
SENATE TIED 50-50, CANNOT DECIDE SPEAKER OF THE HOUSE NEXT IN LINE…
(GOP defending 4 toss-ups, D’s 1 lean-R in 2020) President Pelosi??
6
KNOWN: A TURNOUT TSUNAMI
Highest “Extremely Enthusiastic” to Vote Ever Recorded by CNN
Extremely / Very Enthusiastic about voting next year Final Election Turnout
75 ????
61.6 60.1
58.6
54 55
51
2007 2011 2015 2019
Source: CNN polling (last in that year). 7
UNKNOWN: WHO BENEFITS FROM HIGHER TURNOUT?
Eligible Citizens Who Didn’t Vote in 2016
State/2016 Non-College White College White Non-White
MI 1,563,809 412,191 643,000
Trump Opportunities: Rust Belt
MN 786,284 210,716 259,000
NH 220,282 68,924 24,795
PA 2,289,875 603,125 695,000
WI 819,356 160,644 306,000
Democratic Opportunities: Sun Belt
AZ 683,831 228,169 904,000
FL 2,565,664 719,336 2,565,000
GA 1,171,614 327,386 1,303,000
NC 1,105,431 320,569 834,000
TX 2,665,119 812,881 4,274,000
8
KNOWN: US-CHINA TRADE WAR IS HERE
Despite U.S.-China Phase One Deal, Tensions Will Grow Driven By…
New U.S. Export Controls, Tougher CFIUS Made in China 2025 Campaign &
& ICT Supply Chain Regulations Competing National Champions
Many Frictions Remain Human Rights & Regional Risks
$370B in U.S. tariffs remain
$110B in Chinese tariffs remain
Extradition of Huawei CFO sought
Spheres of Influence (eg Belt & Road)
Persistent Cyber attacks
9
UNKNOWN: IS A US-EU TRADE WAR UNAVOIDABLE?
vs.
REGULATION TAX TRADE SUBSIDIES
U.S. Demands no Huawei Digital Services Taxes / U.S. tariffing EU U.S. retaliation vs. illegal
in EU 5G networks ~$2B U.S. Retaliation steel & aluminum EU subsidies
(France, Italy, Austria, Norway?)
EU Drive for “Technological EU Climate Change U.S. Auto Tariffs Fights Over Iran Sanctions,
Sovereignty” risks new Tariffs threatened threatened NATO Dues & WTO Rules
rules on AI, Cloud, etc.
10KNOWN: ECONOMIC GROWTH HAS BEEN STRONG
80% 3.9% 117
of families believe their Lowest Unemployment New All-Time Highs for
lives will improve in 2020 (avg rate) in first 35 months the DJIA in Trump’s first
for any President three years
Lowest “Misery Index”
since the 1950s
13 year-high predicted
Highest Homebuilder for new home sales in
Optimism since June 1999 2020
Highest Consumer Sentiment VC investment hit
in Year-Before-Reelect $136.5B
Since 1963 in 2019, second-most ever
Fastest Wage Growth (behind 2018's $140B)
for lowest-earning 25%
since Jan. 2008
Sources: Suffolk (80%); (Misery); NAHB; U. Mich.; Wash. Examiner (unemployment); 25%; Forbes; FRED (prime age employment); PwC (VC); NAR (homes) 11UNKNOWN: HOW FRAGILE IS THE ECONOMY?
Economy Propped-Up by Ongoing & Extraordinary Stimulus:
• 3 Fed Rate Cuts in 2019
• $1.02 Trillion in deficit spending in 2019
• $300B in Fed asset purchases (QE4) since Sept. 2019
• Highest farm subsidies in 14 years ($22.4B)
ISM Manufacturing Index at 10-Year Low Over $1T in Leveraged Loans Outstanding
(Readings below 50 = Recession) (Search for higher yield spreads higher risks)
Sources: Market Watch (ISM index); WSJ (deficit); NPR (Farms); Balance (Fed cuts); The Telegraph (Leveraged Loans)
12KNOWN: GOP LED BY THE DISRUPTOR IN CHIEF
1200 Breaking News via Twitter High Cabinet Turnover
14
1000
12 Presidential Cabinet Turnover by Year, 1st Term
Year 1 Year 2 Year 3 Year 4
800 @RealDonaldTrump tweets per month 10
8
600
6
400
4
200
2
0 0
Reagan Bush-41 Clinton Bush-43 Obama Trump
1/2017
2/2017
3/2017
4/2017
5/2017
6/2017
7/2017
8/2017
9/2017
1/2018
2/2018
3/2018
4/2018
5/2018
6/2018
7/2018
8/2018
9/2018
1/2019
2/2019
3/2019
4/2019
5/2019
6/2019
7/2019
8/2019
9/2019
10/2017
11/2017
12/2017
10/2018
11/2018
12/2018
10/2019
11/2019
12/2019
Unshakable GOP Support Intentional Political Incorrectness
100
90
80
70
Job Approval: Republicans
60
50
40
30
20
10
0
Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19
Sources: Twitter; Brookings; Gallup 13UNKNOWN: WHO WILL LEAD THE DEMOCRATS?
What the Betting Markets Say About the Likely Democratic Nominee
Odds Dem Nominee is:
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
IS WHITE 95%
IS A MILLIONAIRE+ 92%
IS MALE 85%
IS 70+ YEARS OLD 84%
SUPPORTS CARBON PRICING 70%
FAVORS WEALTH TAX 50%
WOULD RE-JOIN TPP TRADE DEAL 48%
WOULD OUTLAW PRIVATE HEALTH INS. 41%
IS A BILLIONAIRE 13%
Sources: RealClearPolitics Betting Markets as of 1/17/20 9am (excluding non-candidates;
based to 100%); WaPo 1/14/20 re Issue Positions; Forbes (Wealth) 14KNOWN: SUPREME COURT FACING HOT BUTTON ISSUES 2019-2020
Culture War’s “Greatest Hits” are on the 2020 Docket
Possibly…
15UNKNOWN: A SUPREME COURT VACANCY?
Current Justices Older Than Voters Are Highly Motivated by the Supreme Court
/ Near Recent Average
2016
Departure Age (80.4) Not an
The Most
Issue
Important
14%
Age of Justices Upon Retirement 21% Issue
or Death Since 1990 A 2016 Exit Poll asked:
Stevens 90 Minor In your vote, were Supreme
Issue 14% Court appointments…
Ginsburg 86
Blackmun 85
Brennan 84 An
48%
Marshall 83 Important
Issue
Kennedy 82
Rehnquist* 81
Modern Avg. Breyer 81 Not at all
important
2018
80.4
Scalia* 79
White 76 Not Very 9% Very
Important
Important
O'Connor 75
Thomas 71 2018 Exit Poll asked: 15%
Importance of the debate over
48%
Souter 69
Kavanaugh’s confirmation to
Alito 69 your vote…
27%
Somewhat
* Died while in office
Important
16KNOWN: GLOBAL TECHLASH ACCELERATING
Growing Global Policy Challenges:
MARKET CONSUMER PLATFORM SECURITY & SOCIAL
POWER PROTECTION LIABILITY NATIONALISM COMPACT
Antitrust Privacy Hate Speech Trade Taxation
“Efficient” IP Digital Censorship & Supply Chain Automation &
Infringement Addictions Bias Integrity Inequality
Data Portability Data Security Contraband Encryption Gig Workers
17UNKNOWN: ARE ANTITRUST SUITS COMING?
Platforms accused of abusing dominance, competing unfairly
U.S. vs. U.S. vs. U.S. vs.
88% 47% 64%
Share of E- Share of Social
Share of Search Commerce Media
Antitrust investigations by: GOOG AMZN FB
76% State attorneys general
US Dept. of Justice
√
√ √
√
√
Share of Smart
Phone OS Federal Trade Commission √ √ √
House Judiciary Committee √ √ √
European Union √ √ √
18KNOWN: POPULISM IS RISING
19UNKNOWN: IS MULTILATERALISM FAILING?
20KNOWN: STATES ARE NOT WAITING FOR WASHINGTON
120
Unprecedented # of Multi-State Lawsuits vs Trump Administration 104
100
80
60
40 36
22 20 24 24
17
20
8 8 10
0
Reagan Reagan Bush41 Clinton Clinton Bush43 Bush43 Obama Obama Trump
1st 2nd 1st 1st 2nd 1st 2nd 1st 2nd 1st
Nearly 20 states considering NY, NJ, IL considering laws
new data privacy laws, while …And California Shall Lead Them like CA’s AB-5 to limit gig
CA’s law takes effect economy work (so far)
Source: Prof. Paul Nolette (AG lawsuits initiated thru 9/1/20); Privacy; WaPo (Gig) 21UNKNOWN: IS “WOKE CAPITALISM” RISING?
Growing Denial of Business Services for Ideological Reasons
De-Platforming De-Banking De-Investing De-Fleece-ing
(kicking off the Internet) (restricting partners) (no $$$ for coal co’s) (no branded vests for WS)
De-Sponsoring De-Discounting De-Scriminating De-DOD-ing
(cutting ads for TV hosts) (no affinity deals) (refusing services) (not working with USG)
22KNOWN: INTENSE PARTISANSHIP PERSISTS
“The Democratic Party Has Been “The Republican Party Has Been
Taken Over by Socialists” Taken Over by Racists”
82% Republicans 5%
46% Independents 48%
44% All Americans 48%
15% Democrats 80%
Source: PRRI, Oct. 2019 23UNKNOWN: ARE OUR PARTIES REALIGNING?
EDUCATION GENDER
60
Voters With College Degrees: Party ID Women: Congressional Control Preference
55 56 56
51 51
50 50
47
45 41
40
39
37
40 35
34
35
2010 2012 2014 2016 2018 2019
1992
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
GEOGRAPHY
Democrats’ Share of Rural vs Urban/Suburban Counties
80%
70% Dem share of vote in counties with Whole Foods 54
48
60% 44
41
50% 32
25
20
40%
30%
Dem share of vote in counties with Cracker Barrels
20%
1992 1996 2000 2004 2008 2012 2016
24KNOWN: EXPECT ANOTHER DISINFORMATION ELECTION
We’re Preparing for the We’re Facing New Combatants, New
Last War Weapons & New Tactics
Phishing attacks on campaigns
Foreign IP addresses behind
“U.S.” voices
Social media ads paid for via
foreign currency
Fake news travels faster,
further than truth
25UNKNOWN: WHO’LL REFEREE A CONTESTED 2020?
Few Institutions Trusted by All Sides
“A Great Deal” of Trust in:
0 5 10 15 20 25 30
FBI Republicans: 21%, Democrats 31% 25
CIA Republicans: 20%, Democrats 30% 24
TRUMP Republicans: 51%, Democrats 4% 24
SCOTUS Republicans: 30%, Democrats 17% 22
NEWS MEDIA R: 6%, D: 26% 16
CONGRESS R: 8%, D: 11% 9
262020 Recommendations
For Leaders & Investors
Navigating the Age of Disruption
272020 RECOMMENDATIONS FOR LEADERS
1. Disruption Is Accelerating
Understand what new innovations are coming and the challenges & opportunities
they present for you, your stakeholders & competitors.
2. Political Risk Is Growing
Conduct scenario planning to identify and mitigate risks in a deglobalizing world;
include experts in politics and policy in business considerations.
3. Traditional Gatekeepers Are Losing Power
Expand stakeholder outreach to those who can validate your brand locally and
partner on your priorities because you supported theirs.
4. A Reform Era Is Coming
Identify and support policy reforms that meaningfully expand opportunity… global
populism will continue rising until more citizens feel “dealt-in”.
5. Expect to See More Black Swans
Prepare for a greater number of high-impact, formerly-low-probability events to
protect your license to operate and anticipate opportunities.
28To be added to future slide distribution: bruce@mc-dc.com
http://www.mehlmancastagnetti.com/
is one of the nation’s most innovative government
relations firms, offering strategic solutions to
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