With the possible exception of Will Ferrell’s George Bush impression, most memories of the 2000 election aren’t exactly positive ones.
I consider myself a pretty level-headed person, and even all these years later, the name “Chad” still induces a little cringe.
Though admittedly it was a pretty solid Halloween costume.
At any rate, there are a few things we learned as that Florida recount dragged on that will likely come in handy as we endure this iteration of “Who’s It Gonna Be?”
First, we know that it’s not going to go on forever. There are two dates in particular – December 14th and January 6th – that are set in stone. The former is the date on which U.S. Electoral College electors formally cast their votes. And the latter is when Congress meets to officially count those votes.
Any recount or litigation must be completed before that window of time begins.
Secondly, we know what the previous timeline was. Former Vice President Al Gore called for a manual recount two days after the election, on November 9th, and a subsequent appeal by former President Bush was dismissed by a Federal judge.
The recount was completed 17 days later on November 26th, when Bush was declared the winner by 537 votes, but the “hanging chad” debacle had caused several ballots to be rejected by scanning machines.
Gore then, of course, contested the result and ordered a manual recount of those roughly 45,000 rejected ballots – a process which was eventually halted by the U.S. Supreme Court on December 8th, almost exactly one month later.
And finally, we know that the 2000 election also coincided with another major macroeconomic event, which was the bursting of the dot-com bubble.
Similarities and Differences
Although there were notable examples of fraud and grift during the massive speculative mania associated with the birth of internet companies, the one that always stuck out to me as a then-25-year old was Pets.com.
Largely, that was because it went out of business a couple of days after the election, roughly nine months after their IPO. And even now, I’m chuckling to myself as I’m reading their 1999 earnings report, which shows them earning $619,000 in revenue while spending $11.8 million on advertising.
So much so, in fact, that Triumph’s creator, Robert Smigel, sent the company cease-and-desist letters, and Pets.com responded by suing him for defamation and trade libel to the tune of $20 million.
You can’t make this stuff up.
But speculative manias always seem to give rise to absurdity. This time around, WeWork is probably the most ridiculous example over the past couple of years, though Tesla’s stock outperformance is starting to give it a run for its money.
Because of that, it probably won’t be much in the way of a surprise when I say that the 2000 and the 2020 market look awfully similar.
Source: Seawolf Research
Both hit peaks around September 1st, both went through significant dips, and both rallied into Election Day.
But, the recount process in 2000 proved to be a drag on the broader market, and ultimately the S&P 500 declined 12% by Christmas.
And when we look at each market’s CBOE Volatility Index, it’s clear that we should expect volatility to…well, be volatile as the process goes back and forth.
Source: Seawolf Research
Biden and Trump’s legal battle is going to be way more complicated than Bush and Gore’s. For starters, it involves several states instead of just one. But to achieve the optimal result, each candidate will also need to argue for continued vote counting in some states… and to stop counts altogether in others.
That portends for some serious back-and-forth swings in the market, and given that the VIX has pulled way lower today, it makes sense to pick up another ¼ position in iPath Series B S&P 500 VIX Short-Term Futures ETN (BATS: VXX).
If the market decides to melt up as it did at the end of 2019, we’ll add a little more. And if we do, in fact, get any sort of a capitulation in markets, we’ll take it right off.
But this fight sure seems like it’s going to get ugly, and I want some insurance.
Stay safe, everyone… it’s going to be a long month.
All the best,