Political Forecasting
Political forecasting is critical to the overall economic modeling. Our model is the only thing that correctly forecast both BREXIT and that Trump would win. Revolutions, coups, and political unrest disturb the trends in assets and currencies not to mention introduction political risk for capital investment. Attempting to introduce poll results into political forecasting models can cause tremendous problems for the samples can vary and are often slanted to provide a political advantage. 
Joseph Stalin’s famous quote about elections are only decided by those who count the votes is absolutely correct. So many elections have been altered based upon the counting. Then there was the Supreme Court ruling that handed the election of George Bush, Jr when the votes should have elected Al Gore.
Nevertheless, predicting the outcome of elections from simply poll data can be unreliable. There are a few ways to stay away from inaccurate election forecasts, but we find these to involve economic trends, not social arguments. If the economy turns down, as was the case during the Great Depression, what tends to happen is whoever is in power is simply thrown out. The philosophy need not even matter. During 1933, Franklin D. Roosevelt was elected as was Adolf Hitler in Germany an Mao Zedong began the Long-March in 1934. Consequently, the rise and fall of the economy has a far more direct impact upon the outcome of elections and revolutions.
As a result, those who have combined poll data into forecasting models have actually lowered their accuracy. Political forecasting models which have include averaged poll results, such as the RealClearPolitics poll average, have reduced the mistakes. Nonetheless, we find the strongest forecasting models are economic driven. In this manner, we have been able to achieve very accurate forecasts of an election outcome.
One of the elements in making correct and practical long-term economic forecasting, has been to take into account the political landscape for therein lies the political risk. Multinational corporations have tremendous risks in establishing businesses as investors likewise share those same political risks. Real money needs a lot more data than just market forecasting alone and conversely, you cannot forecast long-term market development by excluding the political modeling.
Our computer model does not merely forecast markets, we must incorporate political forecasting to achieve accurate long-term results. Each boom and bust cycle involves changes within the sector in focus and then there are shifts among the regions or nations from which capital moves. When advising multinational corporations, currency was of course essential, but so are the economic and political risks. However, foreign corporations even operating within their own domestic world still needed raw materials and they trade normally in dollars. Therefore, the risk profile with respect to currency changes on the domicile of the investor or multinational company, while the economic and political risk perspectives are the same for everyone.
Then there is shipping costs for multinationals, which was also important. For example, in China during 1997, they were tracking everything in the economy and didn’t quite understand at the time why the same tea (out of 249 different varieties) sold at different price levels in different provinces. Under Communism, everyone was equal so shipping costs were just absorbed.
Prices were critically relative to the origin of the tea production. The tea varied in price depending on the wealth of that area and the prices moved higher the further one traveled from the production center. This was the shipping cost.
The last variable, but certainly not the least, was always the political risk. In the real world the politicians do not want to talk about, but the cost of government is critical. Within the United States, Delaware has more major corporations chartered there because of the best laws. Where a corporation establishes itself even within the United States is a question of competition among the states. The same trend exists internationally.
Aside from the competitiveness among governments that attracts or deters business (i.e. jobs), the single greatest factor is political stability. Now you might assume this has to do with coups. But there is another layer – economic stability. Creating a business plan for opening a plant anywhere in the world included long-term projections for costs and product sales. But included within those costs, was the cost of government (taxation). Politicians want to think they have the ultimate power of dictatorship. They enact some legislation and people will just have to pay. The United States has done far more damage to itself than Europe or most other industrialized nations in the third world. This eternal battle with Marxism going on in the USA where tax rates are like a yo-yo has driven far more industry from America shores than politicians will dare even listen to.
For decades, the people may cheer a politician when he is running for office. But the polls have consistently shown the public just has never trusted them and have been demanding for decades that some ethical standards be enforced. Good luck! Since they and judges give themselves the title of Honorable without earning it, pretty much nothing will ever change. It is simply foolish to expect otherwise. Society has to be brought to the brink of extinction to get political reform.
The lack of political-economic stability is the single greatest threat to the future of everyone and the politicians will not even review what they have done. They blame the greed of corporations and charge the Justice Department to hunt down anyone who found a dime outside the country and did not report it, yet the SINGLE greatest factor driving jobs from American shores is political-economic instability. For the greatest difficulty presented by American politics is the ABSENCE of consistent tax policy for this nonsense of always attacking the rich to win office is pure Marxism.
Corporations and small business can construct a business plan as long as there is a consistent tax code. They cannot cope with a rate rate the swings wildly. The consumer pays the tax anyway since prices of the end product must account for the cost of government. Likewise, unions also look at just one side of the coin just as government looks only at how much they get out of the economy. Unions point to corporations as greedy and the rich and demand higher wages. But this also merely reflects that one-sided view for it is the consumer who ends up with the final vote. Unions complain about corporations moving offshore, but they fail to acknowledge that prices also decline, which benefits the consumer. Unions in New York City were so abusive, they made the port of New York extinct. Shipping moved from NYC to just about everywhere else up and down the coast so that no ships dock in NYC anymore.
You can no more demand excessive wages than you can impose excessive tax rates. Business cannot survive if the construct a plant based upon a 20% projected tax and labor cost and then have it hiked to 30% because of a political whim that changes with the elections. What person would you sign a mortgage that gives the bank the right to randomly change your interest rate any time it decides it needs more cash? Taxes reflect the cost of government and as such they need to remain as a steady expected percentage to provide economic stability. Hence, political risk is tied greatly to taxes.
Politicians fail to consider the economic implications of changes the tax code. If taxes are too erratic, that introduces political risk and business will move elsewhere just for security. Politicians ascribe to Karl Marx who empowered all governments with the idea that they possess the power to manipulate the economy and society by regulation. All economists have accepted that Marxist principle and as such they ascribe to the principle that government can intervene and manage the economy.
Former Chairman of the Federal Reserve Arthur Burns expressed it best that despite all the best efforts of government and economists, the business cycle always wins. Paul Volcker, also former chairman of the Federal Reserve agreed and called it the Rediscovery of the Business Cycle for it too have always won over interventionist theory.
Congress knew that Princeton Economics was the largest multinational corporate adviser in the world with real live clients. They knew we had intimate firsthand knowledge of what was driving decisions where to invest globally. Even the New York Post called us the most prestigious research firm in America. You could elect all fiscal conservatives in the Senate, the House, and the White House. They could have the power to push legislation through in a heartbeat. But because there was no political stability, whatever they enacted, could be dismantled when the cyclical political winds changed direction without an Amendment to the Constitution. Solving the problems of the future is just not practical without an economic crisis that forces the issue.
Former Prime Minister Margaret Thatcher even address our client at our Conferences. Long before there were polls confirming that Prime Minister John Major would lose the election to Tony Blair, Lady Thatcher said bluntly that John Major would lose simply because “It’s just time!”. Lady Thatcher had a practical view of politics which incorporated simply cycles. She understood that the whims of the people change direction and therein lies the political risk and swings. Political forecasting thus becomes critical to the economic forecast.
One thing nobody could come close to us was forecasting and understanding the long-term trends. By correlating everything, our computer made discoveries that blew your mind. Here is a simple chart showing the rise in taxation on the median American family. But there is something else hidden in this chart besides showing the rise in taxation for everyone. Notice the steady collapse in manufacture that peaked in 1981. What happened then besides the peak in the Economic Confidence Model 1981.35?
This was the peak in interest rates and then the dollar rose to record highs for 1985. This deadly combination meant it was cheaper to manufacture offshore due to currency that led to the Plaza Accord in 1985 and the birth of the G5 (now G20), but they raised interest rates so high, business could not afford to borrow in dollars for long-term projects. They killed inflation, but real international economic grow as well in the United States. They take an action with this primitive idea that there is but only a single cause and effect. It’s dynamic stupid! It was unstable taxes, interest rates, and the currency just to mention a few that conspired against American manufacture.
This entire Marxist affair of targeting the so called RICH and CORPORATIONS and making them pay all the taxes has always been a pipe-dream of socialists to live on other people’s money. This socialist dream, which violates the Ten Commandments coveting their neighbor’s goods, has only lowered the standard of living of society as a whole. In the 1960s, women worked because they wanted to. Families could exist on a single income. Today, most women do not have the luxury of staying home to raise the kids unless their husband earns more than the average. Taxation keeps rising lowering the general standard of living which does not to benefit the people, but the only the growing army of government workers which are PUBLIC SERVANTS who do not contribute to the creation of a nation’s wealth.
The definition of this hated class (THE RICH) is never publicly defined. Everyone assumes they are NOT among this fabled class. They simply assume it must be the guy next door who seems not to be struggling. The politicians always justify taxing the rich for the benefit of the lower classes, but somehow they only raise taxes that never benefit anyone but those in government. The bulk of the tax is always targeted at the average taxpayer so the definition of the rich always declines. $250,000 in household income is not what it once was in 1943. As the cost of government rises and unfunded pensions loom, it comes down to always raising taxes on the bulk of society. Taxes on airfare is often 100%. But it is illegal for an airline to reveal how much of the ticket price is taxes.
In Australia during an election and the politicians wanted to impose a LUXURY TAX upon the rich. The slogan was they would tax Ferraris, French Wines, and Fur Coats. Every one cheered – get the bastards! When the tax was imposed, it included ALL electrical products.
Political forecasting is thus essential to ALL other forecasting since it sets the tone of the economy. For example, once Iran nationalized foreign industry with the Islamic Revolution, who would dare go back for a second try to open a business there? If the politicians can’t be trusted – well that supersedes ALL other factors and the country in question becomes a GIANT SHORT! This is what we call COUNTRY RISK! Before Communism fell in China and Russia, capital was not keen on investing in such regions. As illustrated in these charts, politics is NOT linear. It has a cyclical beat to it like everything else around us.
While we can argue politics until the world ends, within a two party system, the eternal sea of politics will always churn back and forth. The data illustrates that only about 10% of the voters will remain independent and swing back and forth between the left and right during NORMAL times. It is this independent group that determines the election process. The bulk of Republicans will never vote for a Democrat and vice versa. The bulk of the people cannot be persuaded to change camps until there is a real full-blown economic implosion. This is true in all free political nations.
Nevertheless, hidden within this data series lays a secret kernel that is of incredible importance. It is clear that if you take the economy and trash it, you will get political change. Because f rising discontent among the population regarding taxation, history is also filled with examples of reform. The emperor Hadrian came to power which was rather questionable. To fend off any rival and to calm the people, he declared a tax-amnesty.
Political Forecasting is essential to market and economic forecasting. Many a revolution was fought over abusive taxation. Political Forecasting is the giant wave that swamps everything. In politics, it becomes the Revolution Wave that tears everything from limb to limb. At some point in time, that small segment of about 10% of the voters who remain independent swinging back and forth between left and right, swell in number. Once this number exceeds 42% of the total population, major political change takes place that sweeps the national scene.
Illustrated here is a rarely observed factor – the third party element. There is a very dominant 51.6 year Economic Confidence Model frequency within politics as well as currency. The major turning points were 1860, 1912, 1964, and still ahead, 2016. The first target produced the Civil War. The second marked the peak in Britain as the financial capital of the world followed by the start of World War I shortly thereafter. The year 1964 had been the last year silver appeared in coinage just after the assassination of JFK. This was the beginning of the end of the Bretton Woods fixed exchange rate gold standard. These peaks in Third Party votes reached well above 20% of the population stretching to 30%. What is incredible about this data is that generally only 10% of the swing vote determines the victor. This illustrated in a prelude to revolution, this will spike to the 30% area during political disturbances. The target year 2016 has not looked good for a long time. It appears to be the fifth such event that is unlikely to mean revolution, but it will signal significant change.
The previous dates, 1809 and 1758 also marked important changes in the political wind whereas the late was the revolutionary sixth wave. In 1808, America banned the importation of slaves following the British ban on slave trade in 1807. Previously, 1758 began the rising sentiments of independence in the American colonies. In February 1761, James Otis, Jr. (1725–1783) argued brilliantly against the Writs of Assistance that were authorized in 1660, but became an instrument of tyranny in 1758 in the American colonies as a means to raise taxes. For nearly five hours, Otis made a brilliant oration in court against the writs, but he lost the case for what judge will ever rule against his master. John Adams later wrote that “the child independence was then and there born, [for] every man of an immense crowded audience appeared to me to go away as I did, ready to take arms against writs of assistance.“ This spirit of resistance appears to rise roughly 51.6 years, albeit at different intensity.
Third Party votes have impacted the Senate more so than the House. Nevertheless, in the Senate we have Ron Paul who everyone knows and speaks a lot of common sense. We can see that there is a rise in Third Party activity and by 2016, we should see a sharp return to the same levels of political instability that we saw going into both the Great Depression and the Civil War. As politicians cut all the promises they made for so long, a lot of people are going to get really upset. This will be reflected in a rise of Third Party activity that once captured 30% of the total vote!
The raw numbers show interesting trends. The Democrats on an Electoral College basis reached 523 votes in 1936. The Republicans reached 520 with Nixon in 1971 and 525 in 1984. The Democrats fell for 12 election cycles (48 years) before making a rally with Clinton reaching 370 in 1992 and 379 in 1996. Obama reached only 365 so he did not restore a bullish trend, but simply made a bear market rally. Therefore, even with Obama being black, the Democrats were unable to beat that achieved by Bill Clinton. The numbers show that the days of Marxism are numbered. But the days of the right wing religious followers do not look so good either. What is percolating behind the scenes appears to be a political change toward greater independence. The Revolution Cycle is likely to hit in 2068.
The Democrats have promised the moon, but funded nothing. Their constant attack on the class structure and corporations has done far more harm than good. They have chased jobs from America and no matter what you show them, they will not change their ways. The Republicans have also lost their way and desire to be the world policeman of imperialism forcing American doctrine upon the rest of the world, but we ran out of the bankroll to support that agenda. The Republicans are behaving like Marxists and demand to control what people think and do. They have destroyed the LIBERTY that was supposed to be the number one objective of the constitution and transformed the USA into the biggest prison camp the world has ever seen. The US imprisons more people than Europe, Russia, and China combined. We prosecute everything and aggressively seek tax prosecution cases. They forgot what made Reagan popular – FISCAL CONSERVATISM, not religious fanaticism. As his son said at his funeral, his father never imposed his religion upon anyone else.
We actually track the political cycles around the globe. Our forecasts have been successful in all markets from forecasting that the LDP would lose for the first time after World War II to the German and British Elections. Our models were on target for forecasting the fall of communism, which was a perfect 72 year cycle (1917-1989).
We have also been able to accurately forecast the political changes that erupt from the economy, such as the Russian Debt Crisis in 1998 that led to the rise of Putin in 1999. Our model is the most comprehensive in the world for it connects absolutely everything possible.
The future appears one of rising political discontent. A return to fiscal conservatism and the right wing has become as nuts as the left. Americans will rise once again to a Third Party. To the shock of most, this will exceed the old highs of 30% and 2016 looks like the YEAR FROM HELL!
Three out of four models forecast Trump should win. Only one model project Hillary could win by the skin of her teeth.
