The COVID-19 pandemic-induced paradigm of zero interest rates and coordinated monetary and fiscal policy is the new macro-economic reality. Add to that the market conditions from the US election and the ongoing pandemic, and investors head into 2021 with continued uncertainty. With this backdrop, diversification and resilience is more important than ever, but how can investors achieve that in a low interest rate environment?

Speakers

Rebecca Patterson joined Bridgewater in January 2020 as director of the investment research group, where she is responsible for identifying and exploring areas of research across geographies and asset classes.
She has more than 20 years of investment management experience, and prior to joining Bridgewater served as chief investment officer of Bessemer Trust, overseeing $85 billion in client assets. During her time there, she was a member of the firm’s management committee, and helped launch their diversity and inclusion committee. Before joining Bessemer in 2012, she spent 15 years at J.P. Morgan where she worked as a researcher in the firm’s investment bank in Europe, Singapore and the US. She also served as a chief investment strategist in the asset management arm of the firm, and ran the private bank’s global currency and commodity trading desk.
Patterson is currently a member of the Council on Foreign Relations and the Economic Club of New York. She previously served on the New York Federal Reserve’s foreign exchange committee, and later the investor advisory committee for six years, and has served on the University of Florida’s Investment Corporation’s advisory board for seven years, including three years as chair. She holds an M.B.A. from New York University, an M.A. in International Relations from The Johns Hopkins University School of Advanced International Studies, and a B.S. in Journalism from the University of Florida. She has been included on American Banker’s list of Most Powerful Women in Finance for six consecutive years. She is married and has two teenage girls.

Moderator

Colin Tate has been an investment industry media publisher and conference producer since 1996. In his media career, Tate has launched and overseen dozens of print and electronic publications. He is the chief executive and major shareholder of Conexus Financial, which was formed in 2005, and is headquartered in Sydney, Australia. The company stages more than 20 conferences and events each year – in London, New York, San Francisco, Los Angeles, Amsterdam, Beijing, Sydney and Melbourne – and publishes five media brands, including the global website and strategy newsletter for global institutional investors conexust1f.flywheelstaging.com. One of the company’s signature events is the bi-annual Fiduciary Investors Symposium. Conexus Financial’s events aim to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. Tate served for seven years on the board of Australia’s most high profile homeless charity, The Wayside Chapel; and he has underwritten the welfare of 60,000 people in 28 villages throughout Uganda via The Hunger Project.

Key takeaways

  • The COVID shock accelerated the shift to a new paradigm characterized by near-zero rates and coordinated fiscal and monetary easing (MP3).
  • Beyond the US election and as the vaccine gets rolled out:
  1. Policy certainty and economic mobility are likely to improve
  2. Secular changes that drive the need for the new paradigm will remain
  • Policy maker willingness, ability and effectiveness at stimulating post-COVID will heavily determine asset returns.
  • This environment underscores the need for diversification in all forms: environmental, geographic and alpha/beta.
  • We will have close to zero rates for years to come. Fiscal and monetary policy will work hand in hand to get the economy going.
  • In the case of the election and the vaccine there is a clear positive and a question mark:
  1. For Biden’s Presidency, the positive for investment is a return to more certain policies, which will support hiring and M&A. The question for the Biden presidency is will there be another pandemic relief package and also on January 5th will Biden’s policies get greater support.
  2. For the vaccine, the clear positive is the obvious link between mobility and GDP. The question is to what extent there will be outflows from COVID-focused businesses and inflows back into traditional businesses heavily impacted by the virus, and what are the implications for portfolio allocation if investors are looking for bond-like returns from equity investments given the low rate environment.
  • Both debt and populism are globally high and rising. A vaccine won’t change this, therefore stimulus will be needed for years to come.
  • Real yields can continue to fall so there is a place for assets like gold.
  • The markets are not pricing in the possibility of higher inflation. Although there is uncertainty, the scope for inflation is greater than what we had in the past because we have not just monetary easing but also fiscal easing plus some of the forces pushing deflation (e.g. globalisation) are not as strong as they have been previously. Therefore some hedging against the risk of rising inflation may make portfolios more resilient.
  • It is reassuring to know that you can have a balanced portfolio without or with reduced nominal bonds and achieve the same returns and diversification you need as an investor.
  • Geographic diversification is more important than ever, which increases returns and reduces risk.
  • Even when placing BREXIT to one side, the UK is likely to have one of the most depressed activity levels amongst the developed world. In the very short term, there is no good economic outcome for BREXIT, but the better news is that since the BREXIT process has been so slow prices mostly already reflect this. We are fairly anxious about sterling in this environment.

Nathan Sheets, the former undersecretary of the U.S. Treasury for international affairs representing the U.S. government on international economic policy, and now chief economist at PGIM will outline the expected policy responses from a Biden government and what that means for global interest rates, currencies and sovereign debt and credit markets. The prospect of global inflation is a conversation around all investment committee meetings this year. This session will also look at what deep structural factors are driving inflation, or disinflation, and what that means for emerging and developed markets heading into 2021.

Speakers

Nathan Sheets, PhD, is chief economist and head of global macroeconomic research at PGIM Fixed Income. He is responsible for the oversight of the firm’s global macroeconomic research team, leading the formulation of the global macroeconomic outlook, supporting fundamental views on developed and emerging countries, and the analysis of global interest rate, currency, sovereign, and credit markets. He is a member of the senior investment team and provides thought leadership on global monetary and fiscal policy and macroeconomic trends. Sheets was most recently the undersecretary of the US Treasury for international affairs, representing the US government on international economic policy. Previously, he held positions with Citigroup, as global head of international economics, and with the Federal Reserve Board, most recently as director of the division of international finance and FOMC economist. He earned a Bachelor’s in Economics from Brigham Young University and a Ph.D. from the Massachusetts Institute of Technology.

Moderator

White is responsible for the content across all Conexus Financial’s institutional media and events. She is responsible for directing the bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. She is the editor of conexust1f.flywheelstaging.com, the online news and analysis site for the world’s largest institutional investors. White has been an investment journalist for more than 20 years and has edited industry journals including Investment & Technology, Investor Weekly and MasterFunds Quarterly. She was previously editorial director of InvestorInfo and has worked as a freelance journalist for the Australian Financial Review, CFO, Asset and Asia Asset Management. She has a Bachelor of Economics from Sydney University and a Master of Arts in Journalism from the University of Technology, Sydney. She was previously a columnist for the Canadian publication, Corporate Knights, which is distributed by the Globe and Mail and The Washington Post. White is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program consists of 22 fellows and seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.

Key takeaways

  • Biden’s team is experienced both as individuals and also as a collective team, so policy process is likely to be transparent to the public. Governance and policy by tweet will be a thing of the past.
  • Biden will see flaws in the economy and will take steps to rectify them, including in the areas of inequality, healthcare and climate change. Climate policy will be a critical part of what the Biden administration will focus on. Biden will quickly rejoin the Paris Agreement.
  • Job 1 for Janet Yellen will be to address the impact of the virus on the economy including the need to restore jobs and get people back to work as soon as possible. Nobody knows the US labour market more deeply than Janet Yellen.
  • The appointment of Brian Deese to lead the National Economic Council is a very important step.
  • US policy on China will stay strategically tough as they were under Trump but the methods Biden will apply will be much different, to bring in allies around the world to put constructive pressure on China to, for example, respect foreign technologies
  • The post-pandemic period will feel much like the pre-pandemic experience, with soft to moderate growth, low inflation and likely low rates.
  • It is possible as we get back to normal that we will see some temporary periods of high inflation but within a couple of years low inflation is expected to be the norm.
  • In a low inflation, low rate environment the reach for yield will continue which bodes well for risk assets including in the credit space. Equities for yield may also become attractive.
  • There is scope over the next few years for the US dollar to depreciate to a certain extent relative to RMB and emerging market currencies.

Poll results

Are you hedging your portfolio against inflation?

Democracy expert, Tom Carothers, takes us on a journey highlighting the disruption to democracy around the world over the past decade. Using the United States as a case study he looks at the cultural and economic drivers of democracy, and importantly its prospects for survival.

Moderator

Thomas Carothers is senior vice president for studies at the Carnegie Endowment for International Peace. In that capacity he oversees all of the research programs at Carnegie. He also directs the democracy, conflict, and governance program and carries out research and writing on democracy-related issues.

Carothers is a leading authority on international support for democracy, human rights, governance, the rule of law, and civil society. He has worked on democracy assistance projects for many organisations and carried out extensive field research on aid efforts around the world.

He is the author or editor of 10 critically acclaimed books and many articles in prominent journals and newspapers, including most recently, Democracies Divided: The Global Challenge of Political Polarization (Brookings Press, 2019, co-edited with Andrew O’Donohue). He has been a visiting faculty member at the Central European University in Budapest, Nuffield College, Oxford University, and Johns Hopkins SAIS.

Prior to joining the endowment, Carothers practiced international and financial law at Arnold & Porter and served as an attorney adviser in the office of the legal adviser of the US Department of State.

Moderator

Professor Kotkin received his PhD from the University of California, Berkeley in 1988, and has been a professor at Princeton since 1989. He is also a senior fellow at the Hoover Institution at Stanford University.
At Princeton Professor Kotkin teaches courses in geopolitics, modern authoritarianism, global history, and Soviet Eurasia, and has won all of the university’s teaching awards. He has served as the vice dean of Princeton’s Woodrow Wilson School of Public and International Affairs, and chaired the editorial committee of Princeton University Press. Outside Princeton, he writes essays and reviews for Foreign Affairs, the Wall Street Journal, and the Times Literary Supplement, among other publications, and was the regular book reviewer for the New York Times Sunday Business section for many years. He serves as an invited consultant to defence ministries and intelligence agencies in multiple countries. His latest book is Stalin: Waiting for Hitler, 1929-1941 (Penguin, 2017). His previous book was a finalist for the Pulitzer Prize.

Key takeaways

Thomas Carothers

  • There is a lot of bad news about democracy but in our increasing gloom over the state of democracy we are making the mistake of overfeeling and underthinking
  • Three big things have been happening with democracy in the last 15 years that contribute towards something approaching a global crisis of democracy:

1) Traditional democracies are experiencing a surprising amount of democratic unrest
2) Key big non-Western democracies that were expected to drive democracy have faltered
3) China and Russia have continued on a path of their own

  • In the last ten years there have been more mass protests against governments than any ten years in history, driven by 1) economic marginalisation 2) corruption and 3) politicians stretching their reach or tenure too far.
  • Citizens are striving for more and governments are striving (but often failing) to deliver more.
  • There is no intangible crisis of democracy, rather democracy is driven by clear tangible measures – 1) is there a fair system of electing leaders? 2) are leaders representative of the people? 3) are leaders accountable with constraints on their power? and 4) do leaders show basic competence?
  • In the US the people vs the elite is a reality. There is also huge left vs right divide. But these extreme polarisations prevent the required steps to alleviate systemic issues of imbalance.
  • Deep democratic problems need to be managed, not solved. We should not take a big bang approach, we should tackle five to ten small- to medium-sized issues one at a time.
  • The US needs to shift its mindset to present its issues and work together with other countries to collaborate on a solution, rather than presenting an area of strength to push to other regions. This more neutral, more humble approach targeting modest reform in a quiet way will help the US regain global credibility.

The past four years has seen a bifurcation in society in the US which has impacted stability and trust. What are the pertinent issues for investors in navigating a fundamentally changed US, what does it mean for international trade, the future of globalisation and the growth of the economy? What is the fallout of the US election, the impact on markets and the long-term effects of geopolitical risk?

Speakers

Professor Kotkin received his PhD from the University of California, Berkeley in 1988, and has been a professor at Princeton since 1989. He is also a senior fellow at the Hoover Institution at Stanford University.
At Princeton Professor Kotkin teaches courses in geopolitics, modern authoritarianism, global history, and Soviet Eurasia, and has won all of the university’s teaching awards. He has served as the vice dean of Princeton’s Woodrow Wilson School of Public and International Affairs, and chaired the editorial committee of Princeton University Press. Outside Princeton, he writes essays and reviews for Foreign Affairs, the Wall Street Journal, and the Times Literary Supplement, among other publications, and was the regular book reviewer for the New York Times Sunday Business section for many years. He serves as an invited consultant to defence ministries and intelligence agencies in multiple countries. His latest book is Stalin: Waiting for Hitler, 1929-1941 (Penguin, 2017). His previous book was a finalist for the Pulitzer Prize.

Moderator

White is responsible for the content across all Conexus Financial’s institutional media and events. She is responsible for directing the bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. She is the editor of conexust1f.flywheelstaging.com, the online news and analysis site for the world’s largest institutional investors. White has been an investment journalist for more than 20 years and has edited industry journals including Investment & Technology, Investor Weekly and MasterFunds Quarterly. She was previously editorial director of InvestorInfo and has worked as a freelance journalist for the Australian Financial Review, CFO, Asset and Asia Asset Management. She has a Bachelor of Economics from Sydney University and a Master of Arts in Journalism from the University of Technology, Sydney. She was previously a columnist for the Canadian publication, Corporate Knights, which is distributed by the Globe and Mail and The Washington Post. White is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program consists of 22 fellows and seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.

Key takeaways

  • This year has been a year full of surprises, and there are a lot more to come.
  • Biden can do little about three key structural or contextual factors: 1) technology 2) demography 3) measurement challenges.
  • We are in a new technological era already. The technological manipulation of biology we are seeing with the vaccine is the third technological revolution of the last century and will transform everything in our daily life, extending to agriculture and energy.
  • Two global demographic trends are occurring simultaneously – the growth of the middle class across Asia and Africa and the growing ageing population over 60. This simultaneous growth is also happening crucially in China, which will soon be both the biggest grey and middle class market in the world.
  • Measurement is currently broken across many metrics inc. GDP, MMT and racial categories. All these ways we measure who we are, what we do and how we should invest are flawed, but the suggested solutions have not been scaled.
  • Biden could do something about another megatrend, geopolitics. The Middle East is not stable but there is a future vision for it that transcends the current limitations that would depend on Iran having an economy that is not primarily hydrocarbon driven but instead technology and jobs driven.
  • BREXIT naturally continues to be problematic because the impossible dream of independence was a lie given the real desire to continue to take advantage of the benefits of interdependence. The EU has limited tools to combat the erosion of democratic norms, but is being much more proactive recently in using them. There is much written about Biden coming back together with Europe but there are issues here – the EU’s regulatory power is not easy to overcome and the Transatlantic Alliance brings both benefits and costs.
  • There are many issues with China and the Biden Presidency has a big role to play. We will see whether he is up to the challenge. China is creating a growing ‘Anti-China Alliance’ like no other country could. For many people, China is now the solution to all global problems, but a China policy should not simply be a list of issues China could help with. There is little win-win in the US-China relationship. China has divided the internet and divided global connectivity. There must be both deterrents and diplomacy in the relationship with China.
  • The timing of Biden’s Presidency is seemingly tailor-made for success, given for example the potential for a vaccine and economic recovery, however there are several headwinds that could undermine his success e.g. we have a new nativism on the right and on the left a critique of America’s power in the world. Will Biden really heal to normality as he promised? Biden’s Presidency will not be as difficult as Obama’s, if he seizes the opportunity.
  • Investors need to be wary of the potential manipulation around tackling the challenge of Climate Change, in the US and globally.
  • There will be a lot of identity politics i.e. appointments in the White House which are for show only. Biden suggests his Cabinet will look like America but there will be no-one in his cabinet on the national average of US 70k per year. Diversity is not about how many female CEOs there are, it is about how many single mothers can afford to feed their children. We need to move from identity politics towards genuine equality and opportunity for people on the street and children in the schools.
  • We do not have populism. What we have is anti-system because people feel the system is failing. Our systems are less responsive than they need to be.
  • The Trump phenomenon will not be as enduring as it may seem or be portrayed in the media. Biden will 100% be inaugurated in Jan 2021, the only question is whether Trump is man enough to show up at the inevitable inauguration in the new-year.

Poll results

Where do you think US economic policy should be focused?

This session will look at the development of a vaccine for COVID-19 and what cooperation is needed to fight the virus. More broadly it will examine the way in which bio-medical engineering and the healthcare sector is meeting the needs of changing demographics and creating a better future for the world’s citizens.

Speakers

Dr Ian Norton, founder and managing director of Respond Global, is a specialist emergency physician and an expert in coordinating emergency health responses to disease outbreaks and disasters.

Norton was head of the WHO’s Emergency Medical Team (EMT) Initiative in Geneva from 2014-20. During this time, he led responses to Ebola, Diphtheria and Measles outbreaks as well as to earthquakes, cyclones, and war zones.

Previous to the WHO, he led the creation of disaster response teams in Australia and was the director of Disaster Preparedness and Response at the National Critical Care & Trauma Response Centre (NCCTRC) in Darwin. Norton established the Australian Medical Assistance Teams (AUSMAT) framework and designed the field hospitals that are today used for international disaster and infectious disease responses.

He established Respond Global in early 2020 with the aim of empowering others to be able to plan, prepare and respond to health emergencies in their own countries. He and his team are currently assisting numerous organisations during the COVID pandemic, providing strategic and practical operational support about how to be COVID-Safe now and into the future.

Kari Stoever is a global development and health policy expert with more than 20 years of experience in health start-ups. Currently she is the chief external relations officer at On Demand Pharmaceuticals, an innovative pharmaceutical manufacturing company transforming how medicines are made so they can be produced on demand whenever and wherever medicines are needed.
Previously, she served as the chief external relations at the Lieber Institute for Brain Development, a nonprofit biotech developing next generation cures for brain disorders. While working at the Nike Foundation she led a $210 million partnership between the President’s Emergency Plan for AIDS Relief (PEPFAR) and the Gates Foundation to reduce new HIV infections in adolescent girls and young women. She was also part of a President Obama’s task force who designed SPARK, a common symbol and platform for connecting diverse programs working to promote entrepreneurship around the world. The programs selected to the President's Spark Initiative represent the best work being done by the U.S. Government to advance entrepreneurship around the world.

While at Aeras, a global nonprofit biotech developing next generation tuberculosis vaccine, she led an initiative with the European Commission and European Investment Bank to design the world’s first blended capital fund to support infectious disease R&D. Prior to Aeras she was the President and Founder of Meliora Global, LLC, firm focused on growth strategies for nonprofits and social ventures, helping clients build multi-sector collaborative partnerships to achieve their local, regional or global goals.
Meliora Global clients included Pegasus Capital Advisors, Ashoka, the United Nations Special Envoy’s office for Malaria, Grameen (Nobel Peace Prize winner, Professor Mohammad Yunus) on the development of social businesses, and the African Program for Onchocerciasis Control.
While at the Sabin Institute, she helped establish and was the managing director of the Global Network for Neglected Tropical Diseases (NTD). She was the Principal Investigator on a $34 million grant by the Bill & Melinda Gates Foundation to establish regional financing mechanisms and to increase international investments for the scale-up of NTD control and elimination strategies globally. Under her leadership, the Global Network secured more than US $100 million in grants and financial commitments and led the development of a U.S. government $1 billion, 5-year strategy for NTDs.
Prior to her work at Sabin, she spent several years managing clinical research studies in cancer and infectious diseases. She spent a year working for the Department of Defense at the United States Army Medical Research Institute for infectious diseases (USAMRIID) managing anthrax and other biodefense studies.
She is the author of a book chapter ‘Governance Models for Eradication Initiatives’ and a co-author on ‘Elements of Good Governance in Disease Eradication Initiatives’ in: Disease Eradication in the 21st Century: Implications for Global Health; Cochi, Stephen L., and Walter R. Dowdle, editors. 2011. Strüngmann Forum Report, vol. 7. Cambridge, MA: MIT Press.
In 2010 she received the distinguished Stevie Award for Women in Business - Best Executive – Service Businesses – up to 2,500 employees. She has served on the board of the Women’s Leadership Initiative at Georgetown University’s McDonough School of Business, and was the Chairperson to Invisible Children, an organization dedicated to raising awareness and mobilizing support to end the Lord Resistance Army’s atrocities in Central Africa.
She holds a B.Sc. from George Washington University, a degree in nursing, and an Executive Masters in Leadership from the McDonough School of Business, Georgetown University.

Moderator

Colin Tate has been an investment industry media publisher and conference producer since 1996. In his media career, Tate has launched and overseen dozens of print and electronic publications. He is the chief executive and major shareholder of Conexus Financial, which was formed in 2005, and is headquartered in Sydney, Australia. The company stages more than 20 conferences and events each year – in London, New York, San Francisco, Los Angeles, Amsterdam, Beijing, Sydney and Melbourne – and publishes five media brands, including the global website and strategy newsletter for global institutional investors conexust1f.flywheelstaging.com. One of the company’s signature events is the bi-annual Fiduciary Investors Symposium. Conexus Financial’s events aim to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. Tate served for seven years on the board of Australia’s most high profile homeless charity, The Wayside Chapel; and he has underwritten the welfare of 60,000 people in 28 villages throughout Uganda via The Hunger Project.

Key takeaways

Kari

  • The vaccine progress to date has been nothing short of heroic, but the equitable manufacture and distribution of the vaccine is now the hardest part and must be needs based.
  • The most important thing in the first instance is to get the vaccine to the most vulnerable.
  • The risk of accelerated vaccine production and distribution is a risk worth taking. The existing vaccines are potent.
  • We need to work both bottom up and top down but in the USA we have seen a failure at both levels.
  • You cannot mandate human behaviour so we need a lot more education on why health rules are in place.
  • A lot of the claims made regarding COVID safety are worrying.
  • It is dangerous for leaders to suggest that individual rights are more important than public health.
  • COVID has forced us to supercharge technological innovation and that positive trajectory is likely to continue.
  • COVID will force domestic vaccine manufacturing capabilities to be strengthened.
  • Coldchain logistics will be an interesting area for the future. Perhaps going forward vaccines will not need to be stored at negative 80. Storage at negative 80 is unlikely to be achieved at scale in Africa.
  • We need a social safety net in place so that people are not choosing between staying at home not working or working whilst placing themselves and others at risk.
  • This is not the last pandemic we will see.

Dr Ian

  • Our leaders cannot simply lead by command, they must walk with the people.
  • Different to Ebola, COVID has led to an infodemic – an outbreak of alternate views, which are truly hard to manage in a health sense.
  • The vaccine is all about supply chain, logistics and sheer scale. Proactive testing for example demands an enormous amount of supply.
  • Make no mistake, vaccination will be a slow process – A sign of success for Africa would be 20% of the continent to be vaccinated by the end of 2021. We have never seen a pandemic end in less than 2-3 years. There will be several waves to come.
  • We need an agency like the WHO but unless we invest in it sufficiently and give it flexibility to use funds as it deems fit then we will not have the agency we need. If we didn’t have a WHO we would have to invent one. In the next 3 years, more criticism of the WHO will follow. The future of global health management could involve blocks of countries coming together to drive impact at scale.
  • We have all learned that a healthy workforce is a productive workforce.
  • We are likely to see a rebound of funding back into neglected health issues such as cancer and trauma care.
  • Ethically minded businesses will grow massively going forward.
  • There are clear implications for the management of investment portfolios. The world may only return to a resemblance of ‘normal’ earliest 2023 mostly due to the challenges presented by Africa and Central / South East Asia. Central and South America may only recover by around 2022.

Joe Biden will win the US election according to a technique used in finance to predict factor returns and the correlation of stock and bond returns.

The past as a prologue: how to forecast presidential elections, a MIT working paper, co-authored by MIT’s Mark Kritzman and Dave Turkington and Megan Czsasonis from State Street, uses a model that correctly predicted the outcomes of the past five presidential elections. It is now predicting a strong Democratic victory for 2020, with a Democratic loss within a confidence band of one standard deviation. Interestingly, the technique correctly predicted the 2016 election, which the polls failed to do.

The authors apply a novel forecasting technique called Partial Sample Regression which measures the statistical relevance of past elections, and then employs an “obscure mathematical equivalence” – that the prediction from a linear regression equation equals a relevance-weighted average of the values for the dependent variable. It uses this to forecast election outcomes from a subsample of prior relevant elections.

The technique predicts the elections in a mathematically formal way and uses no poll data.

“The essence of our methodology is to measure the relevance of historical elections in a statistically rigorous way. We then rely on an obscure mathematical equivalence to form predictions from the more relevant elections,” the authors say.

“When political scientists or pundits forecast presidential elections, they often analyse past elections for clues about upcoming elections. But they don’t treat all past elections alike. They judge some to be more relevant than others. This behaviour is true in general when we try to predict an outcome based on prior experiences. We look for those events that bear some resemblance to current conditions. We apply this concept to predict the outcomes of presidential elections, but we do so in a mathematically formal way.”

The authors then add to this the less obvious component of “relevance”.

“We consider the unusualness of the past experiences. The intuition is that unusual occurrences are more informative than common occurrences, which simply might be a manifestation of noise in the data. Once we identify a subsample of relevant historical elections, we invoke an obscure mathematical equivalence. The prediction from a linear regression equation equals a weighted average of the past values of the dependent variable in which the weights are the relevance of the values for the independent variables. We apply this equivalence to our relevant subsample of political, geopolitical, and economic data to form our predictions.”

The methodology used to predict election results is similar to that used by Kritzman and Turkington and their co-authors Ding Li and Grace Qiu from GIC in the paper, Portfolio Choice with Path Dependent Preferences, which is forthcoming in the Financial Analysts Journal. That study, which revolutionises scenario analysis by reorienting it towards a path rather than a single period outcome,  finds that a U-shaped recovery is the most likely economic outcome in the US for the next two years, but stagflation has a higher than anticipated chance of occurring.