Wisdom can be found in many places. Whenever I encounter some momentous event with winners and losers, I try to discern broader lessons to apply elsewhere. The 2012 presidential election was no different, with lessons that can be applied to investing and business.
1 Process, not outcome, is what matters. When it came to forecasting the election, the winner was mathematics. Sharp data analysis beat squishy feelings every time. The accuracy of the new class of data junkies and statisticians was the single most important story line of the election for investors. Nate Silver showed data, logical reasoning and mathematics outperform “gut feel” and instinct. The bloviating punditry got it wrong, the stat geeks got it right. To quote the delightful nerd comic XKCD, “To the surprise of pundits, numbers continue to be the best system for determining which of two things is larger.”
2 Do your homework and practice. Yes, I refer to the first debate. “No Drama Obama” created a lot of drama by making an awful showing. He looked unprepared and surprised that his opponent wasn’t simply going to lie down. Perhaps he was cocky after enjoying a comfortable lead for most of 2012. Regardless, the lessons were obvious: You can never be too prepared. And practice is crucial, even if you are the president of the United States.
3 Think deeply before you speak. Grand pronouncements have a big appeal to our egos. They can make us look smart, and play to the policy wonks of the world. But they have limited upside and immense downside. In Mitt Romney’s case, his Nov. 18, 2008, New York Times opinion piece, “Let Detroit Go Bankrupt,” probably came back to haunt him in Ohio, where one in eight workers was employed by the auto industry.
4 Avoid clichés. The media completely misread this election. There were a series of narratives about razor-thin margins, another late night waiting for results, even the House of Representatives having to break a tie. In the end, the incumbent received 3 million more votes than the challenger. But that margin understates the electoral college blowout, with the incumbent winning 332 electoral votes to the challenger’s 206. The one cliché the mainstream overlooked: There are strong advantages to incumbency.
5 Don’t live in a bubble. Large swaths of the conservative movement seem to live in a world of their own creation. The balkanization of media outlets allow people to read only that which they agree with. This selective perception and confirmation bias creates a self-reinforcing alternative universe. Facts don’t matter; data and science are irrelevant. You only hear exactly what it is you want to hear.
Outlets like Fox News and pundits like George Will and Dick Morris were forecasting a Mitt Romney landslide. Don’t like the polling data? Create a site called “UnskewedPolls.com” to provide numbers you do like. As it turned out, UnskewedPolls was the least accurate polling aggregator this election cycle. If you spend most of your time rationalizing why the polls are inaccurate and the media are biased, you will probably be surprised at what happens next. As smart investors know, this sort of bias can be very expensive.
6 Have influential allies.At times, the GOP primary seemed to be a Federal Reserve bashing contest. There was a constant critique about Federal Open Marketing Committee interventions, quantitative easing and the zero interest rate policy. Rick Perry accused Fed chief Ben Bernanke of treason, and seemingly threatened to lynch the man (“I don’t know what y’all would do to him in Iowa, but we — we would treat him pretty ugly down in Texas.”) Ron Paul’s book “End the Fed” made his intentions clear. It was a far cry from George H.W. Bush’s complaint that then-Fed Chairman Alan Greenspan didn’t do enough to help the economy during his 1992 election campaign.
Have a look at Gallup’s Daily U.S. Economic Confidence Index. This survey combines responses to polls on current economic conditions and future economic outlook. The survey reported big spurts in August 2011, following the Fed’s Operation Twist. There was another spurt after September 2012’s announcement of QE3, the third round of quantitative easing. The Fed seemed to be driving economic confidence higher.
The lesson I learned? It is smart not to alienate powerful, well-placed people of influence and authority, especially those who might assist you.
7 Be true to yourself. Romney was a moderate, pro-choice governor who worked as bipartisan chief executive in Massachusetts to deal with a health-care budget crisis. He created a statewide health-care program that was the basis of Obamacare. But Romney ran from that record, tacking hard to the right to win over the base during the GOP primaries before shifting to the middle during the general election campaign.
He would have been much better off running on his credentials instead of morphing into a series of personas trying to please everyone. That is an important lesson to anyone running a business: Understand who you are and what you do best. Focus on providing that.
8 Choose your business partners well. The vice-presidential choice is a major decision any presidential candidate makes. Romney’s selection of Rep. Paul Ryan added nothing to his electoral chances. Ryan failed to deliver his home state, Wisconsin. He fumbled his debate to a grinning and goofy Joe Biden. And Ryan’s plan to “voucherize” Medicaid probably hurt Romney with Florida seniors.
9 It takes more than money. No one is happy about all of the money in politics, but the impact may be more muted than we believe.
Consider the outsize money interests in this election cycle. Sheldon Adelson poured $100 million into six races, and lost them all. Karl Rove’s super PAC put more than $300 million into myriad races; he found success in Indiana – but was shut out everywhere else. And the $91 million dollars Connecticut candidate Linda McMahon spent in two Senate campaigns yielded her exactly zero electoral success.
A threshold amount of money is necessary to be competitive in any business endeavor, but only to a point. Beyond the marginal utility of a minimum dollar amount, pouring more money onto a project is no substitute for substance, a clear value proposition and a product consumers want.
10 It helps to make your own luck. In the waning months of the election, two tragedies presented each campaign an opportunity to respond. The first was the tragedy in Benghazi, Libya, where four Americans, including the U.S. ambassador, were killed by terrorists. The second was Hurricane Sandy, which became a superstorm and devastated parts of New York and New Jersey.
The responses to these to circumstances were markedly different: Obama put partisanship aside, worked closely with New Jersey Gov. Chris Christie and focused on managing the response to the storm. Christie, the keynote speaker at the GOP convention and vocal Obama critic, was effusive in his praise of the president.
Romney’s response to Benghazi was not nearly as bipartisan. He came across as opportunistic, even craven in response to the tragedy. He was, in the light of American deaths, not especially presidential.
Emergencies are opportunities to demonstrate an understanding of priorities, a sense of what matters most. How you respond to circumstances is important. There are times to focus on your business, and times to put that aside and focus on your people.
Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture. On Twitter: @Ritholtz.
Senate 2016: The Republicans’ 2012 Homework
GOP’s map daunting, but Democrats recently thrived despite starting in similar spot
Kyle Kondik, Managing Editor, Sabato's Crystal BallDecember 11th, 2014
After playing offense in 2014 and netting nine Senate seats to set up a 54-46 majority in the 114th Congress, Republicans will mostly be playing defense in 2016. That probably means the GOP will end up losing seats, but recent history suggests that we should not be certain about that.
Heading into the 2016 Senate cycle, Republicans find themselves in a position similar to the Democrats going into 2012, with a Senate map dotted with vulnerabilities created by victories won six and 12 years prior.
In 2012, many observers, including us, thought the Republicans were primed to net at least a few Senate seats in large part because the Democrats were defending 23 Senate seats to just 10 for the Republicans. That Democratic exposure was created by the party’s solid wins in 2006, when they netted six Senate seats, and 2000, when they netted four seats. Two straight big elections on the same Senate map suggested the Democrats were in line for losses.
Republicans find themselves in almost the same position Democrats did four years ago, when the 2012 election cycle was taking shape. The GOP is defending 24 seats, while the Democrats only need to protect 10. The 2016 map is also the product of not just one previous big Republican victory, but two. In 2010, the last time this Senate class was contested, Republicans netted six seats. And six years before that, in 2004, Republicans netted four seats.
Map 1, the current occupants of the 34 Senate seats that make up 2016’s Senate Class Three, shows the obvious Republican challenge.
Map 1: 2016’s contested Senate seats
All 10 current Democratic seats are in states that President Obama won in 2012 by at least five points, and only two of those states — Colorado and Nevada — are swing states in a competitive presidential election.
Meanwhile, of the 24 states the Republicans are defending,Obama won seven in 2012: Florida, Illinois, Iowa, New Hampshire, Ohio, Pennsylvania, and Wisconsin. Additionally, Republicans are defending North Carolina, which Obama won in 2008 and only lost by two points in 2012.
This somewhat mirrors 2012, too. Going into that election, Democrats were defending five seats in states that Mitt Romney would eventually win, convincingly, in that year’s presidential election: Missouri, Montana, Nebraska, North Dakota, and West Virginia, and they also had to protect incumbents in swing states like Florida, Ohio, and Pennsylvania, as well as what became open seats in New Mexico, Virginia, and Wisconsin. Republicans, meanwhile, were defending just three seats in Obama states, Maine, Massachusetts, and Nevada.
That election ended up working out for the Democrats. Despite their overextended defenses, Democrats eventually ended up netting two seats to win 25 of the 33 seats on the map in 2012. A combination of Obama’s reelection victory, strong Democratic performances, weak challengers, bad primary results, retirements, and other factors conspired to sink Republicans that year.
Might something similar happen in 2016, to the Democrats’ detriment? Sure. But at this early point in the campaign, there’s not much evidence to suggest it will — which of course is the same thing we would have said at the start of the 2012 cycle.
With that, take a look at Map 2, the initial Crystal Ball Senate ratings for 2016.
Map 2: 2016 Crystal Ball Senate ratings
Let’s start with the Democratic seats, because there’s far less to say about them. None of these seats start as Toss-ups, although there’s a big caveat in one.
The most vulnerable Democratic senator going into 2016 is the party’s leader in the Senate, Sen. Harry Reid of Nevada. The unpopular Reid had a very difficult campaign in 2010, but he survived thanks to his hapless, foot-in-mouth opponent, Sharron Angle (R), and a tremendous ground operation. Assuming Reid runs again — indications are that he will but he could change his mind — we’re going to give him the benefit of the doubt and start the race as Leans Democratic. However, that will shift if Gov. Brian Sandoval (R-NV) decides to run. Sandoval is so formidable and popular that his entry into the race would make Reid an underdog. We would move the rating to Leans Republican.
As it stands now, Sandoval seems somewhat unlikely to run, according to Nevada political expert Jon Ralston. The state’s two current GOP House members, Reps. Joe Heck and Mark Amodei, have said they are not running. Nevada now has a newly stocked Republican bench thanks to a statewide sweep this November, but there’s not an obviously great alternative behind Sandoval.
The other vulnerable Democrat is Sen. Michael Bennet of Colorado, and his race starts as Leans Democratic. Sen.-elect Cory Gardner (R) just won an impressive victory in the state’s other Senate seat versus outgoing Sen. Mark Udall (D), but despite running what was probably the best Senate campaign in the country, Gardner got less than 50% and won by just two points. There’s not a candidate as widely regarded as Gardner waiting in the wings to challenge Bennet. A GOP presidential win in the Centennial State is probably a prerequisite for a Senate win, and even then that might not be enough.
That could be it as far as plausible Republican Senate targets. There are eight other Democratic Senate seats on this map: California, Connecticut, Hawaii, Maryland, New York, Oregon, Vermont, and Washington. Obama won all these states by at least 12 points in 2012, and so long as the next presidential race is close, they should all remain Democratic strongholds. With the right candidates, or retirements, maybe Oregon, Washington, or one of these other states becomes competitive. But for now all eight of these seats are Safe Democratic.
The most obvious Democratic Senate targets are three first-term Republicans elected from states that have all voted Democratic in at least the past six presidential elections: Sens. Mark Kirk of Illinois, Pat Toomey of Pennsylvania, and Ron Johnson of Wisconsin. These races start as Toss-ups.
Johnson might start as the most vulnerable, especially if former Sen. Russ Feingold (D), whom Johnson beat in 2010, decides on a rematch. The incumbent has done little to moderate his image in the Badger State, which despite Gov. Scott Walker’s (R-WI) three victories in the past four years (two generals and one recall) is still at least a slightly Democratic-leaning state in presidential years. Johnson also has not raised much money, but he is wealthy and has the ability to self-fund.
Kirk’s profile is a better fit for Illinois, but the state is still clearly the most Democratic-leaning in the Midwest. In an age of polarized, straight-ticket voting, Kirk might be this cycle’s Mark Begich, the recently ousted Alaska Democrat who ran a strong race focused on local issues but was unable to overcome his state’s inherent partisanship. There is a long line of potential Democratic contenders for Kirk’s seat, including Attorney General Lisa Madigan and some members of the state’s congressional delegation.
Toomey, a former president of the conservative Club for Growth and a one-time primary challenger to the late moderate Republican-turned-Democratic Sen. Arlen Specter, is an odd fit for the Democratic-leaning Keystone State. However, Toomey has tried to stick to the center on some issues, such as gun control, realizing that he would be a one-termer if he is perceived as a very conservative senator. Like Wisconsin, Pennsylvania could also feature another rematch, as former Rep. Joe Sestak (D) appears intent on running. The state’s Democratic establishment, perhaps still smarting from Sestak’s successful primary challenge against the party-switching Specter in 2010, appears to prefer a candidate named “someone else,” but it’s not clear that they have a better alternative.
None of these three Republicans is a certain loser, but all are highly vulnerable to start.
The next best Democratic targets are four Republicans who reside in states that are likely to be key pieces of the Electoral College map in 2016: Sens. Marco Rubio of Florida, Kelly Ayotte of New Hampshire, Richard Burr of North Carolina, and Rob Portman of Ohio.
Rubio is a possible presidential candidate, so perhaps he will not run for reelection. It’s also not impossible to imagine him passing on both a presidential run and a reelection bid. If Rubio runs again for the Senate, he might merit a better rating than just Leans Republican, and if the seat is open, Republicans have a very deep statewide bench. Democrats, on the other hand, don’t have a long list of potential challengers, although Rep. Patrick Murphy (D, FL-18) has won rave reviews for his performance on the campaign trail, though he’s just 31 and will only be starting his second term.
Burr is not particularly well known even as he approaches the end of his second term, and he is not sitting on a giant war chest (he has less than $1 million cash on hand, generally much less than other vulnerable senators who have upcoming races). Burr says he is running again, and he has always put together competent campaigns and outperformed the early polls on Election Day. His top potential challenger might be outgoing Sen. Kay Hagan (D-NC), who just narrowly lost to Sen.-elect Thom Tillis (R) in November.
The victory by Sen. Jeanne Shaheen (D-NH) in the Granite State last month in a rotten environment might be an indication that this state, so famous for its political gyrations, might slowly be becoming more like the rest of the Northeast, which is very Democratic. So perhaps Ayotte, who has had a relatively high profile in her first term, might still be in more trouble than one would otherwise think, particularly if Gov. Maggie Hassan (D-NH) decides to challenge her. New Hampshire elects its governor every two years, so Hassan might figure that if she’s going to have to run anyway in 2016, she might as well try to move to Washington. Hassan appears to have the right of first refusal, but if she passes, there are many other Democrats who might be interested in a challenge to Ayotte.
In Ohio, the ultimate presidential swing state, the Democrats just suffered a statewide wipeout for the fifth time in six elections: In 1994, 1998, 2002, 2010, and again last month, the Republicans won all five state elected executive offices (governor, attorney general, auditor, secretary of state, and treasurer). A generation of losing has left Democrats with a very thin bench from which to field a credible candidate against Portman, who recently announced he was running for reelection instead of mounting a long-shot presidential bid. The top Democratic possibility appears to be former Gov. Ted Strickland (D), who was elected in the lone Democratic state election in the last two decades (2006). However, Portman would have a lot of ammo against Strickland given that he was governor during the 2008 national economic collapse, and the incumbent could simply repackage the attack ads focusing on job losses Gov. John Kasich (R) ran against Strickland in 2010. That’s one key reason why Strickland ultimately decided against a rematch with Kasich in 2014 even though the opportunity was his if he wanted it. Another Democratic possibility is outgoing Columbus Mayor Michael Coleman, who is well-liked in the state’s biggest city but unknown beyond it. Rep. Tim Ryan (D) is often mentioned as a statewide contender, but we’ll believe he’s running when he actually announces, and not a second before. Portman, meanwhile, is popular amongst the state’s elites and in Washington Republican circles, but he is not a universally-known political force like the two prior occupants of this seat, former Sens. George Voinovich (R) and John Glenn (D). If the Democratic presidential nominee carries Ohio, it’s not impossible to imagine that coattails could carry even a mediocre Democratic challenger over the finish line in an upset, but Portman starts as the clear favorite in both the primary (where he may face a more conservative opponent because of his support for gay marriage) and the general election.
Four other seats, all rated as Likely Republican, merit quick mentions.
If he’s on the November ballot, Sen. John McCain (R-AZ) will cruise, but maybe he retires or loses a primary. Missouri is often competitive even though it is trending away from being a presidential swing state, but Sen. Roy Blunt (R-MO) looks well-positioned in both a primary and a general election. After winning as write-in following her 2010 primary defeat, Sen. Lisa Murkowski (R-AK) needs to decide whether she will run in the GOP primary this time or just give it another go as an independent. Finally, Sen. Dan Coats (R-IN) probably can have another term if he wants it, assuming he doesn’t face trouble from a GOP primary electorate that threw out long-time Sen. Richard Lugar (R) in 2012, a decision that allowed Sen. Joe Donnelly (D-IN) to grab the seat.
The common thread: If all four of these senators are on the November ballot, it’s hard to see any of them losing reelection.
One more Likely Republican seat is Louisiana, which may become open if Sen. David Vitter (R-LA) is elected governor next fall. If that happened, Vitter would appoint his own replacement, who would then have to run for a full term in 2016. There’s a lot of uncertainty but presumably the Republicans would be well-positioned to win in a presidential year no matter who the nominee is.
Sens. Johnny Isakson (R-GA) and Chuck Grassley (R-IA) both start as safe assuming they don’t change their minds about their announced intentions to run for another term. So does the Senate seat in Kentucky, no matter what happens with Sen. Rand Paul (R-KY) and his likely attempt to run for both reelection to the Senate and president despite the apparent inability to do so under state law.
The remaining Republican seats up this year also start as safe: Alabama, Arkansas, Idaho, Kansas, North Dakota, Oklahoma, South Carolina, South Dakota, and Utah. We’ll save a look at potential primaries in these or other seats for another time.
Republicans really helped themselves by running up the score last month in the Senate.
The importance of netting nine seats in 2014 as opposed to, say, seven or eight, is clear when one looks at the 2016 contests. If the Republicans were at only a 52-48 edge — a net gain of seven — then Democrats could get to a 51-49 majority in 2016 just by holding all of their own seats and winning the three Toss-ups, Illinois, Pennsylvania, and Wisconsin. The chances of that combination happening wouldn’t be 50-50, but they would be fairly close to even, and control of the Senate would be very much up in the air to start.
But because the Democrats need to net four or five seats to take control, depending on the party of the next vice president,the Democrats’ opening odds to win the majority are significantly less than 50-50. In order to capture the Senate, Democrats will have to put some currently leaning or likely Republican seats in play, along with winning their own seats and the three GOP-held Toss-ups. That’s certainly possible, but the GOP starts with a clear edge as the cycle begins. However, our opening assessment is that Democrats are well-positioned to end the cycle with more seats than they will hold starting in January (46, including the two independents who caucus with the Democrats).
Of course, history — very recent history — raises questions about even that modest opening evaluation.