Larry Berman

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Despite some recent successes in Democratic primaries, few believe the path to the White House is open for Bernie Sanders. Especially the market. This could change dramatically Tuesday and in the weeks to come. If Sanders resumes his habit of picking off moderate candidates, especially in crucial swing states, expect the market to price in a lot more risk of wealth-destroying policies.

Sanders is, in many ways, the same candidate as U.S. President Donald Trump. Trump went after the disenfranchised worker (call it the bottom half) and talks about not getting a fair ride. He blames immigrants and China for stealing jobs and lower wages. Sanders blames corporate greed and the one per cent. Make no mistake, they are the same populist candidate fighting for the disenfranchised swing vote. The only way Trump was going to be stay president was to win the swing states of Michigan, Wisconsin and Pennsylvania, where are lot of these voters are up for grabs. For me, a stats guy, it’s about the numbers. I don’t particularly care for either candidate, and I suggested Trump would win on the same basis of the Electoral College in 2016.

While a few smaller states have already been decided, Super Tuesday, on March 3, is the real primary kick-off for Democratic leadership candidates. It’s when about one-third of delegates are decided. With Pete Buttigieg, Tom Steyer, and Amy Klobuchar dropping out over the last few days, many speculate that it’s the candidates co-ordinating with the Democratic party to help Joe Biden take down Sanders. Trump tweeted that the conspiring Democrats are “taking Bernie out of play” and we clearly know he would prefer to face the left-wing candidate in November.

But Sanders is far from out of the play -- he may even still have a strong lead by Wednesday morning – and Trump should be careful what he wishes for. On Tuesday, the participating states include Alabama, Arkansas, Colorado (with caucuses), Georgia, Massachusetts, Minnesota (with caucuses), Oklahoma, Tennessee, Texas, Vermont, and Virginia. A key swing state is Virginia where Sanders holds a lead 25 per cent to 20 per cent lead over Biden not factoring in recent dropouts and subsequent Biden endorsements.

In Michigan, Wisconsin, Arizona and Pennsylvania, Bernie holds a commanding lead in the primaries, a good indication he has a shot at defeating Trump there in the general election. Florida will be a key state in the general election, and Biden has the lead there, but it increasingly looks like Trump will win that state as he did in 2016.

But in Michigan, Wisconsin and Pennsylvania in 2016, Trump won by under 78,000 (<one per cent) votes. Today, due to demographic shifts, there are more youth (typically Bernie supporters) and less older white males (more likely Trump supporters) in 2020. There are also no new coal and steel jobs, and trade wars have hurt far more than helped.

In order for Bernie to make it over the top, he likely needs a strong running mate and he has several good choices from Michigan, Wisconsin and other swing states. He is also said to be looking at female candidates, which could really move the needle in a battle between two septuagenarian while men.  Actuarial tables suggest that Trump has an 85-per-cent chance of living through 2024, and the number is slightly lower for the slightly older Democratic candidate, so the VP choice will be more important in this election than in others to be sure.  

The coronavirus could be another tailwind for a Democratic candidate. The viral outbreak makes the economic outlook work against Trump and is a clear positive for the Democratic challenger. There is a path to the White House for the furthest left presidential candidate we’ve ever seen and over the next month of primaries, the markets will debate the odds of that path in real time, which will certainly add to more market uncertainty.

In these days of growing uncertainty, alternative approaches to investing will likely be an increasingly important part of portfolios moving forward. The goal of alternatives is to get market-based returns that are not the same as generic low-cost market beta. Beta is the market return and the market risk. As a base case, many look at the S&P 500 as “the market” or a beta of one. Meaning, if you simply bought any of the low-cost ETFs that track the S&P 500, you would have a beta of  one in your portfolio. You get all the upside and all the downside.

The idea in adding alternatives is to keep the same return as the market and lower your beta risk to something less than one, or keep the beta at one and increase your return relative to the market. Either is a key goal in improving your sleep-at-night factor.

Our upcoming Spring BNN Bloomberg Roadshow will focus on how to include more active based ETFs into your portfolios. From ESG (“Environmental, Social and Governance”), defined outcome, to alternative (long\short) each more active style has their place. Millennials might like to tilt portfolios towards a more environmentally friendly portfolio, where more risk adverse investors may like defined outcomes, while more adventurous may seek to make money in adverse conditions and might seek out alternatives.

Come out to see how these new and growing areas of ETFs can be included in your portfolios. As always, we ask for a voluntary donation in support of Dementia and Alzheimer’s research at the Baycrest Hospital to attend. We have raised more than $500,000 in the past decade thanks in part to BNN Bloomberg viewers and my matching donation.

In the event that COVID-19 social impact gets worse, we plan to push back the events on a week to week basis. If by the end of April there is no clarity, we will replace the live events with Webinar versions. So no need to worry, we will get you the tools you need to navigate the current market environment.
 

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