Iowa Thoughts and Implications

Finally after months of polling and debates, voters actually entered the process with Senator Ted Cruz delivering a bit of a surprise by defeating Donald Trump while Senator Marco Rubio came in a solid 3rd. As you can see from my tweet below, I both underestimated Rubio’s strength (he finished at 23%) and mixed up Trump and Cruz. With these results in hand, I’ve also adjusted my nomination probabilities with Rubio taking a slight lead over Trump and Cruz. Pre-Iowa, Trump sat at 45%, which reflected a 50/50 chance he would win the caucus, meaning his win probability was bound to move sizably one way or the other. Given his finish, his probability had to move lower while Cruz now has a clear path through the March 1 SEC Primary and Rubio is well positioned to consolidate “establishment” support. Below are some retrospective and prospective takeaways from Iowa.

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The retrospectives:

  1. Fundamentals matter: Trump tried to ignore the basic tenets of an Iowa campaign, forgoing a sizable ground game or paid media until the closing weeks whereas Cruz amassed a volunteer army and ultimately did a superior job of translating his support to votes. Trump is a unique candidate for sure but is not immune to political realities.
  2. Trump should’ve done the debate: Trump lost late-deciders 2 to 1 to Rubio, and his failure to attend the FOX debate is likely culpable for this deficit. Sure, he could’ve bombed at the debate and done equally poor with late deciders, but since he lost when skipping the debate, he had nothing to lose by showing up. A mistake.
  3. Bush and Christie wasted their time. Both men spent some time, which is a limited resource for all candidates, and money in Iowa but had nothing to show for it, finishing at 3% and 2%, no better than Kasich who eschewed Iowa to focus on New Hampshire. These two should have just focused on New Hampshire as well. Half-hearted campaigning in Iowa never works.
  4. Peak at the right moment. Marco Rubio soared the final week, which helped him exceed expectations and generate a positive media narrative. Had the caucus been last Monday, he would not have fared as well. Life and politics is all about timing.
  5. There are many anti-Trump voters. Turnout surged to 185k, which I would’ve guessed carried Trump to victory. While Trump brought many supporters into the process, he also seemed to bring detractors into it with Rubio and Cruz getting more votes than any previous Iowa winner. The intensity of opinions, both for and against Trump, means high turnout does not necessarily help Trump.
  6. Trump’s ego and big bet cost him. Iowa was never a good fit for Trump given its caucus structure and evangelical core. He could’ve credibly downplayed Iowa and focused on New Hampshire, perhaps only paying attention the final week to secure a stronger 2nd place finish and get a positive media story (a la Rubio). Instead, Trump’s winner take all attitude took hold and he went all-out to win an unfriendly state while publicly raising expectations, which backfired, leaving him more wounded than had he downplayed its importance. Now had he won Iowa, he would be the overwhelming favorite with a real chance of functionally running the table, so Trump decided to place a big bet on Iowa. That is understandable, but it didn’t work out, wounding the national frontrunner.

Prospective views:

  1. New Hampshire is make or break for Trump. Losing Iowa is not fatal for Trump given a 20% lead in New Hampshire (though it will likely shrink), and both Hillary Clinton and John McCain bounced back here after weak 2008 Iowa showings. With the establishment lane likely to stay somewhat divided next Tuesday, Trump should be able to prevail here even if his support dips below the current 30-35% level in the polls. NH is basically must win for Trump though. To lose this state given his current lead would seriously damage his narrative and could cause his voters in South Carolina to consider Cruz. While Trump could fight beyond NH should he lose, he would likely be a mortally wounded candidate with declining support. Conversely if he holds on, Trump will have a win on the board and some momentum headed into South Carolina and the South on March 1, which seem hospitable to him. Candidates inevitably face adversity, and this is Trump’s key test. His concession speech last night was gracious and suggests he is ready for the test. If he can pass it, Trump could exit New Hampshire in strong position. At this point, I think Trump is the clear favorite in New Hampshire.
  2. Rubio vs. the Governors. Bush, Kasich, and Christie will be going hard against Rubio who has a chance to consolidate the establishment lane in NH and get a strong second showing. The four are a combined 40-45% in most polls, so if Rubio could push their combined support down to 20%, he has a path to 25%, which should be good for a strong second place showing. The governors won’t go down without a fight and will likely focus on Rubio’s lack of experience, policy shifts, and lack of time in NH campaigning. Saturday’s debate will also be fierce. Christie is already fading, and Rubio is positioned to take many Bush supporters. Kasich supporters have a more independent bend and could prove stickier. Of the three governors, Kasich seems best positioned to fight Rubio for top of the establishment lane in NH. At this point, it seems likely Christie will drop out after NH, Kasich will barring a 2nd place or strong 3rd place finish, and Bush seems determined to stick it out through South Carolina despite his unviability. (NB: I have donated to the Kasich campaign)
  3. Rubio may want a Trump victory. Let’s say Trump implodes, leaving Rubio and Cruz as the two main remaining contenders. That would probably translate to a romp on March 1 when the South votes with a good chance Cruz could nearly sweep, especially with his large cash balance and strong organization. Cruz is simply a better fit for the South than Rubio and could rattle off numerous 60-40% victories that night. While the delegates are proportional keeping Rubio close, Cruz could have a head of steam that gives him momentum when less hospitable states start voting March 15 and later, propelling him to upset victories. While Rubio could fight it out for a while, Cruz’s momentum could leave a Rubio charge coming up short. However if Trump wins NH, he would be viable on March 1, likely splitting the vote with Cruz. This could lead to numerous victors and help Rubio carry some states in the SEC. Suddenly, Cruz would not have the same momentum, and when March 15 rolls around, Rubio would be positioned for a bigger night, and buoyed by Florida’s 99 delegates, on a cleaner path to the majority. It is hard to argue that winning NH is bad for Rubio, but he could still be very well/better positioned should he finish 2nd to Trump. The presence of both Santorum and Gingrich helped Romney; the same could be said of Trump and Cruz for Rubio (though Trump and Cruz are more formidable and Rubio has wider appeal than Romney).
  4. Rubio is the frontrunner. The establishment hates Cruz, and Trump’s favorability numbers are not great. Meanwhile, Rubio is well positioned to consolidate the establishment (not that the term means much) lane with a strong NH finish. Rubio has the momentum to force Christie out after NH, and while Jeb is not viable, he will likely stick it out until South Carolina. Kasich voters could prove tougher to cannibalize this week, and Kasich could play well in the Upper Midwest if he shows well in NH, the one thorn in Rubio’s side. Otherwise, Rubio appears the most acceptable candidate to the broadest swath of the party. While Cruz and Trump may be dividing and conquering, Rubio has a path to sneak by them by March 15, by consolidating the establishment lanes and holding close on March 1. If he can do that, the map becomes quite favorable. It is still early and very uncertain, but I would prefer to be in Rubio’s position than anyone else’s.

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