The Democrats and the Conservatives lost their respective elections, the other sides didn’t win – DEMAND dried up –
In a world where SUPPLY is so steady, so honed, so managed, it is change in DEMAND today, which makes the difference. Albeit with striking anomalies, such as Taiwan’s semiconductor dominance, SUPPLY of most things in our daily life is more assured and insured than ever.
Influencing DEMAND is today’s holy grail and it seems that neither the Democrats nor the Republicans, neither the Conservatives nor Labour, achieved that in 2024. The Democrats and Republicans had huge campaign budgets to keep up their SUPPLY of political messaging. Yes, the Democrats SUPPLIED a different candidate mid-race but that was due to a lack of DEMAND for the incumbent, a vector, which eventually caught up with Harris too.
THE USA
It looks like Trump stormed to a decisive 2024 victory but the numbers are more sanguine. In 2020, 74.2 million Americans went to the polls to vote for Trump. In 2024, that number was remarkably static at 74.6 million. That slight increase hides the fact that Trump’s percentage share of the total voting-eligible population even fell a little between 2020 and 2024. Trump is the most well-known political figure in the world and in economic terms, DEMAND remained constant. Voters had made up their minds about Trump by 2020 and precious little had changed by 2024.
Rather, the real story here is that the Democrats lost the 2024 election, DEMAND for them cratered; from Biden’s 81.2 million votes in 2020 to Kamala Harris’ 70.9 million votes in 2024. Was this cratering primarily a result of Harris-Walz not doing enough to get voters out to vote or because Trump-Vance made enough mud stick against them? I don’t have the data to determine that, I am not sure that anybody does. Perhaps the reason most pollsters saw the election as ‘knife-edged’ is that it is so hard to know if those Democrat leaning voters would have the motivation to turn up on the day. Their DEMAND didn’t prove nearly robust enough.
THE UK
In a sign of the times, the same numeric story unfolded in the UK in 2024. 9.7 million people went out to vote for Labour’s Sir Keir Starmer in 2024. He won by a landslide – only 6.8 million could find the motivation to go out and vote for the Tories; Maybe 14 years in power is so long that it left many, even stalwart Conservative voters, feeling bored and jaded. The numbers tell the story best. Starmer didn’t really win anything. His party’s vote actually fell from 10.2 million in the 2019 election to his 9.7 million votes. The big story is that the vote for the Conservatives fell from 13.9m. That’s right, their vote was more than chopped in half. The Tory voters just did not show up. DEMAND to vote Tory withered away. It wasn’t for a lack of SUPPLY of budget, think-tanking and political posturing; that stayed pretty constant. That mercurial elixir called DEMAND was elusive.
While Reform UK did take votes from Labour and particularly from the Conservatives, the most powerful force in 2024 UK politics was seemingly the office, ones couch or the park. Perhaps later in the day, it was the distracting force of a glass of wine with friends on a summers’ evening.
THE BROADER DEMOCRATIC PICTURE
INFLATION
It seems compelling to argue that the real narrative of 2024 is that DEMAND for incumbents has been crushed by inflation; ironic for the Tories, given their long-term austerity focus. Democracies grant the electorate the right to punish their Governments and they have done so.
LACK OF MOBILITY
Very few people crossed the aisle in 2024 in the US or the UK. Changing sides seems too much of a jump today. Instead, voters with less motivation just didn’t show up and that determined both elections.
There is a worrying fall in the mobility of ideas. When someone switches political convictions today, it is deemed worthy of a viral video and that very video goes on to entrench people in their positions – ‘surely if someone switched over to my side, I must be right’. DEMAND for change is low. SUPPLY of other options is available but not taken up. This lack of mobility of thought, seems to have been presaged by a fall in social mobility in the US and UK over the last couple of generations.
Time will tell, but surely this weakening of our ability to take up a different position, to ‘wear someone else’s shoes’ will lead to a decline in Western productivity, creativity and tolerance.
AUTHORITARIAN REGIMES ARE DIFFERENT
After close to one year of fighting to loosen Hamas’ grip of Gaza, perceptions in Gaza began to meaningfully shift. Only by September 2024 did the majority of PRS poll respondents in Gaza begin to look unfavourably on the October 7, 2023 massacre. DEMAND for Islamist terror does seem to eventually fall when it looks like it isn’t working. Gazans have been held in trance and straightjacketed for 15 years by an ever more powerful Hamas. Terror seemed to be undeniably working. That fall in DEMAND for terror needs to be followed by a framework to support the people of Gaza in removing Hamas from power in an enduring way. The beauty of democracy is also the thing that leads to low voter turnout; change happens incrementally as the system ambles along benignly. When an authoritarian regime falls, things can change dramatically.
IT'S A DEMAND’S WORLD
DEMAND and support for terror is falling, there is an opportunity for change. Perhaps it sounds ridiculous to extrapolate anything from two stable democracies onto Gaza but the pattern of DEMAND being the critical factor today, seems to be repeating itself across many other spheres too.
Take oil for example; the 1973 OPEC oil embargo during the Yom-Kippur war was of course, a SUPPLY shock. Oil prices spiked 4X from $3 to $12. Fast forward to 2020 and the element that caused a shock was a DEMAND black hole! On 20 April 2020, the BBC reported that ‘The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell as low as minus $37.63 a barrel.’ At the time, that was frightening! Economic principles were cast adrift, somewhere out in space and who knew how long that would last. There were a couple of days when people would literally pay you handsomely to take their oil. Sand in the Sahara and ice in the Arctic was worth more. In the words of CFRA Research Analyst Stewart Glickman, "This is off-the-charts wacky,". Well, perhaps it wasn’t so wacky as it seemed. We were all fighting the ‘last battle’ of a SUPPLY shock. Who thought DEMAND would have such a big and sharp impact in its place? If the DEMAND floor were to temporarily drop out again next year, we wouldn’t be calling it wacky, we would just be calling it ‘a pattern’.
THE NEXT MARKET CRASH
Market SUPPLY of stocks stays relatively constant. It is that relatively stable SUPPLY, that ‘knowability’ of a key factor, which stops market sell-offs and even technical crashes, becoming genuine destabilizing disasters beyond the market tickers. If a company has good fundamental prospects, many stock and bondholders can hold on and ride out volatility. In contrast, Bitcoin and its little crpyto siblings are much more fertile ground for an almighty and enduring market dislocation. Perhaps it will take a recession or just a change in momentum at the right time, but sellers will one day fall out of love with the philosophical hot air surrounding Bitcoin’s inherent use and value. Then, they will SUPPLY the market with an avalanche of that decentralized powder and puff.
So, what drives sharp change in the direction of traditional bonds and stocks? Generalizing a little too much; when a market crashes say 30%, it is typically due to DEMAND drying up. Just as people stayed out of the ring and didn’t get out to vote for Kamala or Rishi, so too, a time invariably comes when buyers just stay on the sidelines of a jittery market to see what happens next. Perhaps the nervousness will be a result of ongoing weak DEMAND from China! When SUPPLY accelerates, even in a gentle and orderly fashion into an arid DEMAND landscape, then the stage is set for large drawdowns. Hedge Funds will cut first as their momentum indicators flash red, then smart-beta ETFs, then forced super-passive technical sellers such as the regular large ETFs. Retail sellers will be left holding the emotional investor bag, not being able to leave the stocks they have fallen head over heals for.
Yet, for now, the US large-cap equity market seems to march inexorably on. Everyone is jumping on board, even the small-cap Russell 2000, with some beautiful but also some markedly questionable companies, is joining in. On 7 November 2024, it rose an astounding 5.84%!
True, market SUPPLY will have dried up a little last week; who wants to sell into a one-directional Trump bounce euphoria melt-up but as-ever in this era, DEMAND going ‘all-in’ was the leading actor.
When US markets finally take a long pause or go into reverse for a while, the new social contract will have been broken and DEMAND for the unfortunate political incumbent may just fade away.
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