by Greg Valliere, AGF Management Ltd.
YESTERDAY’S SENATE PRIMARY IN ALABAMA was a repudiation of Jeff Sessions and a retribution for Donald Trump — but there’s a bigger angle: it keeps alive the GOP’s prospects of maintaining narrow control of the Senate next year. And an even bigger controversy looms — changing Senate filibuster rules.
THE THREE SENATE SCENARIOS: If Trump wins re-election, the Senate should stay Republican. If there’s a Biden landslide, the Democrats should easily capture the Senate. But if the election is close, the GOP would have a chance of keeping the Senate. (The House isn’t in play; Democrats will maintain control.)
WE THINK THE PRESIDENTIAL RACE WILL NARROW, as Trump mocks Biden’s mental acuity and targets the Democrats’ activist agenda of tax hikes and huge new government programs. If Biden’s lead fades, here’s how the GOP could still keep the Senate:
First, the Democrats’ Alabama seat is likely to fall to former Auburn coach Tommy Tuberville, who won easily last night. So the GOP Senate majority, now 53-47, will effectively increase to 54-46 (the Democrats have only one other vulnerable seat, in in Michigan, where they’re favored).
Second, the likely Alabama flip means the Democrats would need to pick up four GOP seats to gain a 50-50 tie, which would be broken by the party that controls the White House. So if Biden wins, where are the four pickups? Arizona (probable), Colorado (probable), Maine (possible) and North Carolina (tossuup).
Could the Democrats pick up all four of those seats? We think there’s a slightly better chance that they’ll win three of those seats rather than four — if there’s a reasonably close presidential race. If there’s a Biden blowout, the Democrats would win those four states and perhaps another two or three in Iowa, Georgia, Montana, etc.
IF THE ELECTION WERE HELD TODAY, Biden and the Democrats would win decisively, capturing the Senate. But the election is on Nov. 3, and by then the Democrats might be looking at a net pickup of only three seats. So while Republicans are underdogs, it’s too early to proclaim that they will lose the Senate.
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THE BIGGEST WILD CARD ON CAPITOL HILL is the possibility that if Democrats capture the Senate, they will attempt to alter filibuster rules, which would be a huge story for investors who follow taxes, Medicare for all, the Green New Deal, etc. Instead of needing 60 votes to cut off debate, many Democrats want a simple majority, which would be a dramatic development that would break legislative logjams.
BIDEN SURPRISED SOME HILL WATCHERS this week by stating that he’s willing to consider a filibuster change. A veteran of 35 years in the Senate, Biden had been considered a traditionalist, unwilling to make a radical change in the filibuster rules. But he now feels that if wily Mitch McConnell bottles up his agenda next year, the rules may have to be re-written.
THIS WOULD BE A DRAMATIC CHANGE in Senate rules; it sounds appealing to many Democrats now, but at some point in the future they would be on the losing end of a new equation, as they discovered when Harry Reid ended the 60-vote filibuster for judicial appointments, which McConnell has exploited masterfully.
THIS MAY SOUND LIKE AN ARCANE DEBATE, but a change in the filibuster rules would be enormously important, so the financial markets need to carefully monitor this issue. If Biden wins and the Democrats break all ties, they could move to scrap filibuster rules — allowing them to pass a potentially market-unfriendly agenda.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
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This post was first published at the AGF Perspectives Blog.
