Frank Kelly’s U.S. Election Update | July 21, 2024

I wanted to offer some initial thoughts on President Biden’s decision to drop out of the race for re-election this afternoon and his subsequent endorsement of Vice President Harris for the presidency.  To be clear, we have entered into a giant new universe of massive unknowns – no one knows what is going to happen. And this is by no means definitive -  But, hopefully, this will help narrow down what might or might not happen and the impact on the markets in the weeks and months to come.

• The historical implications of what has just happened is going to take some time for Washington – especially Democrats – to digest, all while they race to figure out who will replace President Biden. If this had happened six months or a year ago, it would have given Democrats times to discuss, debate, and come to a unifying vision of what they could broadly do next. Now, they have less than one month to figure out who they want as their candidate (the Democratic Convention begins on August 19 in Chicago) and literally no time to “talk it all out.” 

• Will this be an open convention? Or will the Party just unify around Vice President Harris for President?  A lot of Democrats we have spoken to do believe she cannot beat former President Trump and want another candidate.

• Our view is once they decide on who the candidate will be – which, Biden’s endorsement of Harris none withstanding, will not be easy – the party must create new messaging, advertising and, in effect, branding for whomever they choose. And they must convince the American people in a little over two months’ time (September and October) why that candidate that no one really considered for president before should be president. 

• And what does President Biden’s current campaign staff do? It is not assured they automatically transfer over to the new Harris for President campaign and there are likely to be senior defections to other outside candidates.

• One big battle line within the Democratic Party is likely to be what happens to the $260 million in the Biden/Harris campaign accounts? Does Harris get all of it immediately?  Or do others in the Party – including major donors – say they want it back to support another candidate?  We think Harris gets it which gives her a massive advantage over any challenger.  But complaints that this is unfair, that the campaign has now changed – it is no longer the Biden/Harris ticket - it will become the Harris/whomever she picks for VP fund.  There may be significant legal technicalities and challenges ahead.

• The Good News for Democrats: Biden’s withdrawal may mean that down ballot Democratic candidates – those running for House and Senate seats and even gubernatorial and state legislative seats – get breathing room to get back to regular campaigning as opposed to be asked by voters the tough questions of “do you support President Biden staying in or getting out?” But…

• As has already occurred this afternoon in a tweet by Vice Presidential candidate J.D. Vance, Republicans are going to start demanding that President Biden resign as President, not just step back from running for re-election. The argument is simple and will likely demand answers: If President Biden is stepping back from running for re-election because of serious cognitive and physical deterioration, how can he serve as President for the next seven months?  

• From a market perspective, we will be watching the various federal regulatory bodies and what they do now. If you are chairing a federal regulatory body as a Biden nominee, the sudden end of your tenure and agenda is now instantly in front of you.  There is enormous risk that your tenure is over in seven months if President Trump wins.  So, what to do?  Many will rush as fast as you can to get as much of their outstanding agenda out before the music ends.  Yes, there will significant and almost assuredly much higher legal risk that whatever you are pushing for gets battened down in federal courts (especially after the Chevron decision last month).  But, for many regulators, it is better to try and let it play out in the courts than not take the shot all.  Something along these lines occurred when President Nixon stepped down and Vice President Gerald Ford was sworn into office – regulators kept moving on their agendas and even quickened the pace.

We also think there is likelihood of some fairly quick breakdowns of the domestic policymaking process and coordination coming out of the White House.  Biden White House/Administration staff must be thinking about where their next job will be.  Distraction from what is happening and perhaps even the quick melting away of key staff to the private sector, various ad hoc Democratic presidential campaigns, positions on Capitol Hill, etc.   Think about it:  If Trump wins, they are out.  If Harris or another Democrat wins, there is no guarantee they keep their jobs.  On a personal note, I saw this first-hand when President George H.W. Bush took over from President Reagan.  Only three Reagan White House staffers were asked to stay on (I was, somehow and still mysteriously to me, one of them).  The rest were released on January 20th (I recall the Washington DC, Maryland, and Virginia unemployment services setting up desks in the Eisenhower Room in the Old Executive Office Building in early January as the Bush team made it clear they were making wholesale personnel changes and thus to assist staffers at all levels apply for unemployment).