Election 2016: End of Gridlock03 November 2016

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Impacts of 1 Party Rule

Scenario: Election 2016

Election 2016: End of Gridlock

NEW

HiddenLevers

MARKET UPDATE

Market Update

sources: HiddenLevers, Marketwatch, FA Magazine, Financial Times,

British Pound Hits New Lows

DOL shout out to RIAs

Saudi $100b Tech Fund / Unicorn Contractions

HiddenLevers

ELECTION MODELS + FORECASTS

FORECAST: Gridlock is what we know

sources: HiddenLevers

Trump + GOP Congress

Trump + Dem Congress

Clinton + GOP Congress

Clinton + Split Congress

Clinton + Dem Congress

Trump + Split CongressStatus Quo

ObamaGOP 54/46GOP 247/188

execsenatehouse

no longerpipe dream

no longerpipe dream

Electoral Vote Breakdown

Trump voters unlikely to vote for Democrats for Senate in swing states

Result: GOP keeps House + Senate, gains Presidency, and gets Supreme Court back

Trump win implies that he won swing states Clinton win does not guarantee Senate or House wins for DemocratsA moderate Clinton win makes Senate control likely, but House is a steep climb

End of Gridlock: How does it Happen?

sources: HiddenLevers, 538.com

Democrats have to gain 30 seats to control house – possible if Clinton wins by 10+%

Trump Wins, GOP Sweep Clinton Landslide, Dem Sweep

Trump Wins, GOP Sweep Clinton Landslide, Dem Sweep

FORECAST: Election Models

sources: HiddenLevers , NYTimes, FiveThirtyEight, LadBrokes

Election tending 2/3 toward Clinton win.

Polling Forecasts

LadBrokes Betting Odds

Betting odds2/3 chance that Clinton wins

MXN

Pes

o

Trump W

in

Truman defeats Dewey / 1948

British vote to quit EU / 2016

FORECASTS: Historical Upsets

sources: HiddenLevers – Brexit Chart, Business Insider

Pound –25%

FTSE +13%

S&P –12%S&P –8%

HiddenLevers

IMPACTS OF ONE-PARTY RULE

1 PARTY: Historical Impacts

sources: HiddenLevers, Wikipedia

Major Accomplishments

Medicare

EPA, OSHA, China Open Door

Minimal

Minimal

Tax Reform

Minimal

Welfare Reform

Bush Tax Cuts

ACA (Obamacare)

Split Government does not guarantee gridlock

Major changes, especially social programs, occur during 1 Party rule

1 PARTY: Trump Win + GOP Congress holds on

sources: HiddenLevers, DonaldJTrump.com

Large-scale tax cuts, particularly for business and upper income

Stated Policies Potential Impacts

Reduce illegal and employment-based immigration (H1B etc)

Repeal ACA

Renegotiate NAFTA and other trade deals

Winner: Businesses, UHNWreal estate sector may get additional benefits

Loser: US Economy, GDP

Loser: Healthcare SectorUncertainty hurts health stocks

Loser: Multinationals, USDTrade barriers hurt US large caps, USD value tarnished

Winner: US labor force (mild GDP contraction assumed)

1 PARTY: Clinton Win + Dem Sweeps Congress

sources: HiddenLevers, HillaryClinton.com

Raise minimum wage + other pro-labor policies

Stated Policies Potential Impacts

Increase immigration via comprehensive reform

Add public option to ACA, stricter price controls

Raise taxes on high incomes and close business tax loopholes

Winner: Retail sales, low-end consumption boost likely

Loser: Insurers, PharmaInsurers will lose pricing power, and pharma may see price caps

Loser: High-income earners, businesses with foreign earnings

Loser: Domestic unskilled and semi-skilled labor force

Loser: Restaurants, other labor-intensive industries

Winner: US businesses, GDP

HiddenLevers

SCENARIO: ELECTION 2016NEW

NEW SECENARIO: Election 2016

source: HiddenLevers

Long Term Impact Short Term Impact

3 months

Neutral: Clinton Small Win

source: HiddenLevers

Markets expect the gridlock to continue

Slight bounce from FBI sell off

Short-lived rally on certainty

3rd Obama term (i.e. stalemate)

BAD: Clinton Landslide

source: HiddenLevers

Outsized Clinton win gives Dems House + Senate

Markets fear high taxes +

pro labor policies

Truman 1948 Dems swept

congress

ACA keeps going, pharma may be

reigned in

DOL fiduciary mandate sticks

BAD: Trump Victory

source: HiddenLevers

Republicans control govt + inherent uncertainty

Immediate uncertainty on immigration

Trump platform2/3 GOP

boilerplate

ACA gets repealed

Scenario: Election 2016

Neutral:Clinton

Small Win

Bad:Clinton

Landslide

Bad:Trump

Victory

USD

-5%S&P

-8%

USD

FLATS&P

-8%

USD

+2%S&P

+3%

Markets have been expecting this outcome, and it perpetuates gridlock, so that political risk of major changes is low over the next four years.

If Clinton wins with a larger-than-expected margin, Democrats could take Congress, leaving markets in fear of higher taxes and pro-labor policies.

If Trump wins the election, the GOP will likely control Congress as well. Markets’ fear of protectionism and populism contribute to short-term decline.

End of Gridlock – Take Aways

Electoral Upsets5-10% max draw down

Trump Victoryimmigration shutdown

+ protectionism

End of Gridlock is real market risk, not Clinton v Trump

Clinton Landslidehigher taxes, pro labor policies