There has been one clear loser thus far in the outcome of the 2020 presidential elections and it is not the candidates. The polling industry has gotten it wrong twice in a row. Can the industry survive that kind of mistake?

 

As votes across the nation continue to be counted, the pollsters and the media, which count on those polling results, are asking how Vice President Joe Biden's 10-point lead nationwide could have evaporated in the blink of an eye. 

 

Political polling is a type of public opinion polling, which in the past (when done right), is a fairly accurate social science with established rules about sample size, random selection and margin of error. The top political polling organizations employ mathematical models and computer analysis to collect a response from the best representative sample of the voting public. Over the past three years, the Marketing Research and Public Opinion Polling industry in the U.S. has averaged an annual growth rate of 2.3 percent to reach $20.6 billion in revenue. And yet, this multibillion-dollar industry would admit that there is still plenty of "art" in this science of political polling. 

 

Unfortunately for pollsters, it is the art side of interpretation that seems to have gone radically awry for the second time in eight years. In my opinion, it is sure to only heighten the suspicion and distrust many Americans already have towards polling after the 2016 performance.

 

During the last four years, there has been a lot of soul-searching among the polling community on what went wrong. Their answer: not much.  

 

The polling industry has argued that President Donald Trump's 2016 win fell within the normal statistical error implicit in all polls. Essentially, Trump beat the polls by just a few points in just a few states. So, from their point of view, the presidential polls were not that far off. However, at the state level, the polls were even less accurate, but the industry still maintained that they were within the normal range of accuracy.

 

Some pollsters, however, did adjust their methods of polling to improve their accuracy. One modification was to emphasize the importance of education. Polling organizations realized that they were missing some of the president's support in the last election by underrepresenting voters with little or no college education. Pollsters also placed more emphasis on where respondents lived. Did they live in a city, suburb or rural area, for example?

 

Another improvement was the decision to rely more on cell phones — instead of landlines — as a method of reaching respondents. This has had its own problems, however, since pollsters are finding that the response rate to phone calls is decreasing. At the same time, the costs to conduct high-quality polling are going up. Pollsters can still resort to online polls, but most firms believe online interviews are less accurate than live-caller polls result.

 

In preparation for this election, pollsters were worried that the pandemic could alter the accuracy of their polling in unpredictable ways. Some voters, for example, could tell a pollster they planned to vote, but a sudden spike in coronavirus cases in their area might force them to change their mind. They might avoid election day voting booths and opt to vote by mail or not at all. 

 

 The huge number of mail-in ballots alone might create uncertainty. Questions of accuracy, disqualifications, and court challenges might throw off the predictions in unpredicted ways.

 

Unfortunately, none of that matters in the minds of the public. The failure to hold the 8-9, even 10-point lead for Biden in this election was so far off the statistical margin of error that pollsters may not be able to dig their way out of the doghouse. But you can bet that they will try.

 

A definition of soft commodities refers to future contracts of substances that are grown, rather than extracted or mined. We know them best as food and fiber commodities, such as wheat or lumber. 

 

Shortages are occurring in everything from soybeans to wheat and it is not just in the United States. Readers might immediately think to blame the pandemic for this trend. You would be only partially correct. At the outset of the COVID-19 crisis, the hoarding of food in certain areas of the world did occur, but by April and May, despite the spread of the pandemic, food commodity prices stabilized and even toilet paper in this country was back on the shelves. 

 

However, the recent resurgence of the coronavirus in Europe and the United States might threaten the supply chains for certain foods once again. If lock-downs in the U.S. are re-instituted (as they are beginning to be in Europe right now), or the cases of COVID-19 begin to decimate the work force again, food prices could spike considerably. Readers might recall earlier in the year when some Midwest food processors were shut down. As a result, supplies of beef, chicken, and pork began to disappear from grocery shelves. Prices jumped and are still nowhere near their pre-pandemic levels. 

 

However, beyond the coronavirus threat, the real culprit sending prices skyrocketing is the weather. It is not my intention to debate global warning. Economics has a way of doing that for me. Consider this: the wheat farms of both the United States and Russia are dealing with serious drought, which is decimating harvests. The same is happening to the soybean fields in Brazil.

 

But while our hemisphere contends with drought, over in Southeast Asia, farmer's crops are drowning in too much rain. Flooding is occurring throughout the rice paddies and pam oil plantations in countries like Indonesia, Malaysia, and Vietnam. The result of all this devastating weather has been higher and higher prices of everything from sugar to lumber to cooking oil. This is occurring at the least opportune time for billions of workers struggling to make ends meet because of the impact of this worldwide pandemic.

 

Compounding the crop shortages, are the decisions by multiple governments to safeguard their food supplies. In the event of another supply-chain disruption this winter, no country wants to be presented with a food shortage at home. Soft commodity buyers representing China, the Middle East and other governments are competing (while bidding up prices) for existing harvests.

 

And as grains of all kinds increase in price, so does the cost of livestock feed. When the cost of soybeans rises by 81 percent and corn by 56 percent, as it has in Brazil, you can just imagine what that does to the cost of pork, beef, and chicken production. It is a never-ending, upward spiral. The situation has already convinced many governments to remove import tariffs that simply add further costs to the equation. 

 

To be sure, the world still does have an ample inventory of crops, such as wheat, for this year with bumper crops expected in Australia, for example. But if the world's wild weather persists, in combination with another global surge in the pandemic, we could be facing even higher prices ahead for soft commodities. 

 

 

By almost any economic measure, China has not only managed to avoid a recession this year, but will actually see its GDP grow by 1.6 percent in 2020. To put that growth in perspective, the world's economy is expected to decline by 4.4 percent this year.

 

The startling Chinese recovery in the face of ongoing pandemic problems throughout the rest of the world, can be credited with the government's tough lockdown procedures, population tracking abilities, as well as a rapid testing program among billions of citizens. At the same time, governmental fiscal and monetary policy went into action immediately. Major infrastructure projects were launched. In the consumer sector, cash in exchange for more spending programs encouraged consumers to spend more in a variety of areas from tourism to dining out.

 

In September, the manufacturing sector hit a six-month high. Small businesses, which are struggling to stay alive in most other countries, have expanded as well. The service sector is growing in tandem with other areas of the economy, according to the Caixin Insight survey, a media group that follows and forecasts the Chinese economy.

 

Most Americans had expected that, during the last four years, our trade balance with China would improve, and it did, thanks to tariffs and other restrictions. The problem is the U.S.  simply imported more from other countries instead (like Vietnam), and as a result, our overall trade deficit remained the same. China's trade imbalance with the U.S. is once again widening. The U.S. trade deficit with China surged in July to $63.6 billion. That is the highest level in 12 years, as imports jumped by a record amount. Politicians won't admit it, and you may not want to hear it, but we need what they make, and they make it better, faster, and are far more reliable than most.

 

By the end of this year, China will account for 17.5 percent of global GDP, a rise of 1.1 percent, which values the entire economy at about $14.6 trillion. The difference in nominal GDP is expected to lessen between China and the U.S. over the next three years, by how much may depend on our future response to the pandemic. This performance has not been lost on investors.

 

China's stock market has climbed to a record high of $10 trillion. That level blew past the country's previous market peak, which occurred during the stock market bubble of five years ago in China.

 

During that time, the stock market hit $10.05 trillion in June of 2015, just before governmental authorities decided to crack down on leveraged trading. The Chinese market subsequently halved in value.

 

This time around, however, stock investors are simply looking for growth, and worldwide that has been hard to come by. While equities are up about 17 percent (versus 9 percent for the S&P 500 Index), the buying has taken on a more measured approach. Valuations, while rich, are not reflecting unrealistic values like they did in 2015.Valuations for the CSI 300 trades at less than 19 times trailing, 12-month earnings, compared to 40 times the Index's 2015 peak. Institutional investors now own more than 70 percent of the free float of all Chinese stocks, while foreign investors hold about 5 percent, according to China Renaissance, a financial investment bank.

 

Recently, the country's currency has also been strengthening and foreign direct investment continues to grow. U.S. investment, for example, has risen by 6 percent in the first half of the year, according to China's Ministry of Commerce, despite all the anti-China rhetoric coming out of Washington.

 

There are risks investing in China, which is still considered an emerging market economy, despite its size. The authoritarian political system and centralized economy present downside risks in investing, as 2015 aptly illustrated. Still, investors might want to eye some equity exposure to this country, especially if the markets were to experience a pullback in the weeks ahead.

 

Rare-earth minerals, with names like cerium, dysprosium and gadolinium have become "must have" materials in the global race to win the technology battles of the future. The problem is that throughout the last 30 years China has built a near monopoly in these strategic metals.

 

Rare-earth elements (REEs), consisting of 17 different minerals, are used to make components in many high-technology devices, including smart phones, digital cameras, computer hard discs, fluorescent and light-emitting-diode (LED) lights, flatscreen televisions, computer monitors, and electronic displays. China commands 35 percent of the world's reserves of these minerals and produces more than 70 percent of all rare earth tonnage worldwide.

 

In our present trade wars with China, the possibility that China might respond to U.S. tariffs by embargoing our REE imports is a real threat, since last year China accounted for 80 percent of our total rare-earth compounds and metal imports.

 

After years of delay before recognizing this danger, President Trump signed an executive order aimed at expanding domestic production of REEs last week. He ordered the Interior Department to explore using the Defense Production Act to speed up the development of such mines. Trump used the same law to accelerate the production of medical supplies to help combat the coronavirus pandemic this year.

 

The hope is that the energy secretary can identify projects here in the U.S. that could help the country increase our own production and holdings of these minerals. Sadly, we have a long, long way to go before we catch up to China. Today, the U.S. has only one rare-earth mine, which is located at Mountain Pass, Calif. It is owned by a private company, MP Materials, which is 10 percent owned by a Chinese company, Shenghe Resources Holding Co. All of MP's materials are exported back to China.

 

Rare-earth isn't the only strategic metal that the U.S. needs, however. Lithium is another metal in great demand and is used to manufacture electric car batteries. Global lithium production is about 400,000 tons annually. That is enough to power 2-3 million electric vehicles (EVs), but only about one third of that production actually goes into EVs. The rest, like REEs, is used in computers, cellphones and rechargeable devices. If companies such as Tesla plan to increase production of EVs in the future, then the supply of lithium must increase dramatically. Once again, it is China that controls about 40 percent of world lithium production. The rest is divided among Australia and Chile. The "Big Three" producers — Albemarle, Sociedad Quimica y Minera de Chile, and FMC — hold practically an oligopoly in the lithium market.

 

In another U.S. initiative, our Department of Commerce has taken steps to protect America's uranium industry from foreign dumping. Both Russia and the U.S. have initialed a draft amendment to reduce U.S. reliance on uranium from Russia over the next 20 years. Russia has been dumping cheap uranium into U.S. markets for years, driving American miners and processors out of business. This practice leaves our country exposed to the same dangers we now face with other strategic metals. 

 

While all of the above actions are necessary, in my opinion, it will be years before the U.S. can gain a competitive advantage in any of these resource areas. Doing so is just as important as domestic recognition back in the 1972 that we needed energy independence in order to remain the nation we are. 

 

As October begins, mountains of candy have become a fixture in every store and supermarket. Halloween is the first in a series of fall into winter holidays. The candy companies are hoping it's going to be business as usual this year, but that depends on who comes to your door. 

 

Whether it is trick-or-treating or costume parties, no one wants a visit from this year's most fearsome of monsters—the coronavirus. Worried parents wonder if this unwanted guest will be hiding among those candy wrappers, or in the noses, hands and mouths of excited children (or the parents and guardians accompanying them). Will one cough undo months of masks and safe spacing?

 

The Centers for Disease Control has already issued medical guidelines that label all the traditional Halloween behavior patterns as "high risk" activities.     

 

That means no door-to-door activities, indoor parties, hayrides, visits to haunted houses, or rural fall festivals. The CDC gives alternative suggestions, which center on an immediate family night with a Halloween theme, such as carving pumpkins, or virtual costume parties with your children and their friends. 

 

"But it just won't be the same," lamented one mother to me.

 

While that may be true, it doesn't seem to have deterred consumers from stocking up on candy. U.S. sales of Halloween candy are up 13 percent from this time last year, according to the National Confectioners Association. Chocolate candy is up 25 percent. Usually, we would expect to see a single-digit increase at best.

 

That is a hopeful development for candy companies that depend on the 10-week period surrounding Halloween for as much as 14 percent of yearly revenues. Halloween is the biggest holiday of the year in this $36 billion industry, followed by Christmas and Easter, with Valentine's Day trailing in fourth place. Overall, however, the National Retail Federation expects consumer Halloween spending to decrease about 8 percent, even if those who do decide to celebrate are expected to spend 6 percent more on average. 

 

Is this increased candy consumption in September a sign that consumers are planning to disregard the CDC's warnings? And, if so, would that potentially create a nationwide, coronavirus superspreader event? Not necessarily.

 

Brach's, the maker of Candy Corn, thinks it could be because the candy-selling season started three months earlier this year. Consumers, with many activities curtailed and with more money in their pockets as a result, may be splurging on candy, which is far cheaper than going out to a restaurant, and simply using Halloween as an excuse to indulge. The real test will be in the last two weeks of October when companies such as Mars Wrigley's usually chalk up as much as 55 percent of their total Halloween candy sales.

 

A market research company, Numerator, which surveyed 2,000 consumers at the beginning of August, found that more than the respondents planned to buy less candy this year than normal. The uncertainty of the turnout for trick-or-treating due to COVID-19 evidently had some consumers planning for less of a celebration. 

 

In response to the uncertainty, candy companies have both reduced, as well as re-sized, their candy bags. Smaller bags that can be used for everyday consumption, but can still be sold after the holiday, is another way some companies are hedging their bets. Candy companies are also getting creative while working with the CDC guidelines to come up with interesting and unique ways that families can celebrate the holiday and still stay safe. Just peruse their websites for some alternative ideas, some of which are pretty imaginative. 

 

Communities across the nation are also coming up with good ideas. In my own town, Downtown Pittsfield Inc is holding a trick-or-trunk event, which involves the community coming together in a parking lot on Oct. 15, so that the children can safely trick-or-treat out of the decorated trunks of their cars. The candy is then quarantined for two weeks and available by Halloween.

 

In the end, it comes down to the kids, doesn't it? As we all know, children are having a tough time of it during this health crisis. They are out of school and away from their friends. Most of the day, they are glued to their computers, sometimes for hours at a time. There are no after-school activities, no sports, and even going outside has become a controlled activity. Most of this year has been a big downer. Are we also going to disappoint them on Halloween, or will we be able to find new and joyful ways of celebrating, despite the crisis we are suffering? I'm betting we will.

 

Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.