by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EST] Happy Monday and Happy Thanksgiving week!  We want to pass along a heads up that the Daily Comment will not be published this Friday, November 24.  Here’s what’s going on this morning:

Coalition talks collapse: Chancellor Merkel has been unable to pull together a coalition consisting of her CDU/CSU party, the Free Democrats (FDP) and the Greens, announcing this morning that talks have broken down after the FDP walked out of negotiations.  Apparently, the three sides (and, perhaps, four because the CDU and CSU have differences as well) could not agree on a number of issues, the primary one being immigration.  There are four possible outcomes: (1) Merkel can’t form a government and new elections are called.  This action would be unprecedented in German postwar history and the process is remarkably clumsy.  The Bundestag would need to elect a new Chancellor (most likely Merkel), who would then need to lose a no-confidence measure, leading President Steinmeier to call a new election.  Losing the no-confidence vote would further weaken Merkel and new elections would raise the chances that the populist AfD would get even more support.  Thus, we expect the German political establishment to work furiously to avoid this outcome.  (2) The Social Democrats (SDP) join Merkel in another “grand coalition.”  The SDP remains adamant against this outcome as its coalition with the CDU/CSU in the last government undermined the party.  And, if the SDP joined the government, the AfD would become the official opposition, furthering its political fortunes.  (3) Merkel goes with a minority government with either the Greens or FDP, also unprecedented and likely unstable.  (4) The FDP walkout was a bargain ploy and they return at the 11^th hour to form a government and get more power.  In rank order of most market-friendly to least, we would say #2, #4, #3, #1.  At this point, we think #4 is the most likely, although the FDP must move quickly if this is going to occur.

The EUR fell sharply on news of the failure of the talks but has recovered on hopes that the FDP is bluffing.  The chart below shows the overnight trade of the Eurozone currency.  Initially, the EUR fell sharply, then recovered and has since given up some of its gains.

Geopolitical updates: We begin a three-part WGR series on the recent purge/missile attack/ouster of Lebanon’s PM involving Saudi Arabia this week.  We note this morning that Reuters is reporting there have been backchannel discussions between Israel and the Kingdom of Saudi Arabia.  Although we have suspected as much for some time, the fact that it is being reported suggests both nations are sending signals to Iran that it faces a potentially broader front opposing the Mullah’s actions to control the region.[1]

The Straits Times is reporting that authorities in Malaysia revealed they discovered a makeshift laboratory where it is believed North Korean operatives made the VX that assassinated Kim Jong-un’s oldest brother, Kim Jong-nam.  It is widely believed that North Korea was behind the assassination, despite its denial, and this evidence bolsters that argument.[2]

Spain’s attorney general, José Manuel Maza, died suddenly on Saturday while attending a conference.[3]  He was the lead prosecutor on the case against Catalan separatist leaders.  It remains to be seen how his death will affect the prosecution.

Trade issues: Jonathan Swan of Axios[4] published what could be a blockbuster analysis of the Trump administration’s trade policy by detailing the influence of U.S. Trade Representative Robert Lighthizer.  Lighthizer has a long history in government, working as Chief of Staff for Sen. Robert Dole (R-KS) and as Deputy Trade Representative during the Reagan administration.  He has also practiced as a private attorney specializing in international trade law.  Swan reports that Lighthizer’s mercantilist positions are gaining currency within the administration.  He is recommending very aggressive trade positions against China and has been spearheading the NAFTA negotiations, which appear headed for a rupture.  According to Swan, his presentations on trade have been accepted by the free trade establishment figures in the White House (Mnuchin, Cohn), suggesting that trade conflicts may increase once the tax issue is put to rest.  This is an issue we watch very carefully because it affects markets on various fronts.  First, trade impediments that lead to a narrower trade deficit will have the same effect as a global contraction of the money supply given the dollar’s reserve currency role.  Although our position on the dollar is bearish due to valuation levels, widespread trade restrictions would lead us to reconsider that position.  Dollar scarcity would be bullish for the greenback.  Second, trade impediments, all else held equal, will reduce supply to the American economy and lead to higher inflation.  If it affects inflation expectations, it would be quite bearish for long-duration assets.  Third, higher inflation would lead to faster policy tightening, increasing the odds of a recession.  And fourth, if tax cuts are implemented along with trade restrictions, it would force up private saving and likely slow economic growth.  So far, trade actions have been more bark than bite but that may change next year if Swan’s assessment is correct.

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[1]https://af.reuters.com/article/worldNews/idAFKBN1DJ0R3?utm_source=Sailthru&utm_medium=email&utm_campaign=New%20Campaign&utm_term=%2ASituation%20Report

[2] https://www.nst.com.my/news/crime-courts/2017/11/301375/condo-unit-used-process-vx-nerve-agent-which-killed-north-korean?utm_source=Sailthru&utm_medium=email&utm_campaign=New%20Campaign&utm_term=%2ASituation%20Report

[3] https://www.nytimes.com/2017/11/19/world/europe/spain-attorney-general.html?emc=edit_mbe_20171120&nl=morning-briefing-europe&nlid=5677267&te=1

[4] https://www.axios.com/lighthizer-increasingly-influential-in-white-house-2510871315.html

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EST] Global equity markets are mostly steady to higher this morning.  The EuroStoxx 50 is flat from the last close.  In Asia, the MSCI Asia Apex 50 closed up 0.8% from the prior close.  Chinese markets were lower, with the Shanghai composite down 0.5% and the Shenzhen index down 2.8%.  U.S. equity index futures are signaling a mostly steady open.

It was a mixed overnight trade.  Here is what we are watching this morning:

The House passes a tax bill:  With 227 votes, the House passed its version of the tax bill.  Although this is one of the hurdles for getting a final bill done, it isn’t the most difficult.  The Senate will be far more difficult given the narrow GOP majority there.  The Senate bill did emerge from committee but only on a party line vote.  Our policy has been to avoid going into detailed analysis of the bills simply because what is eventually agreed upon won’t look anything like the current proposals.

PBOC injects cash…lots of it:  The PBOC, the central bank of China, injected $47 bn into its financial system, the biggest in nearly a year as the Chinese 10-year yield reached 4.015%, the highest level since 2014.  In the wake of the Party Congress, it appears the Xi government is applying some austerity to the Chinese economy in a bid to wrestle with China’s excessive debt.  The injection did lead the 10-year to dip just under 4%, but a move to austerity will likely pressure Chinese rates higher.  Given the isolated nature of China’s financial system, rising Chinese rates won’t have much of an effect on global financial markets, BUT if rising rates lead to significant economic weakness that would be noticed, with the most likely effect being weaker commodity prices and likely some declines in emerging equities.  China’s policy pattern has been “stop/go” for some time and the market does not expect Chairman Xi will allow a major economic slowdown to occur.  We tend to agree.

Mueller to subpoena Trump campaign for Russia documents:  Several media outlets reported that the special counsel was asking for all related documents that show contacts with Russians during the campaign.  The importance of this request is somewhat uncertain.  Some legal experts see this as routine, others argue it bodes for a wider investigation.  The market effect from this headline was worth noting.  Although U.S. equity futures did decline modestly, the biggest impact was dollar weakness.  That has been the pattern for a while; if the Mueller investigation does start to expand, the market that will likely bear the brunt of the adjustment is the greenback.

Venezuela triggers default swaps:  The International Swaps and Derivatives Association, or ISDA, declared Venezuela and the state oil company, PDVSA, in default.  That means that credit default swaps are now triggered.  The market reacted immediately.

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by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EST] After a few days of risk concerns, equity markets are “in the green” this morning.  The dollar and Treasury yields are higher.  Here is what we are watching this morning:

The tax bill: The House is expected to pass its version of the tax bill today.  Although we expect a close vote, it will almost certainly pass; if Speaker Ryan brings the bill to the floor without sufficient votes, he should be relieved of his duties.  The problem is the Senate.  Ron Johnson (R-WI) has come out against the bill in its present form and the clause to end the ACA insurance mandate has brought Susan Collins (R-ME) into the possible “no” column.  Jeff Flake (R-AZ) and Bob Corker (R-TN) have misgivings about the expected deficits from the bill…and both are virtually immune to pressure from lobbyists because they aren’t running for re-election.  The margin now in the Senate is razor thin and it isn’t obvious that the House could abide by the Senate version.  Getting tax changes done at all remains a long shot in our view and getting them done by year’s end looks increasingly unlikely.

Don’t forget the continuing resolution: The debt ceiling is a gift to the political opposition in the U.S. political system.  In reality, the debt ceiling should be nothing more than a reminder to Congress about its spending.  However, not raising it means the government isn’t going to pay for things it has already spent money on.  There is a legitimate debate on spending and the deficit; shutting down the government over the debt ceiling is not a legitimate way of resolving it.  In September, when the debt ceiling issue last loomed, the series of hurricanes made cutting spending to avoid more debt politically impossible for both parties.  In addition, President Trump was making overtures to “Chuck and Nancy,” which made it easy for the Democrats to agree to an extension.  However, Washington is knee-deep in tax proposals that the Democrats really dislike (e.g., ending the state and local tax deduction, or SALT, which disproportionately harms “blue” states), and the debt ceiling will give Chuck and Nancy leverage.  History shows that equity markets don’t become overly concerned over these issues as long as there aren’t real worries about default.

Debt ceiling events are shown in gray.  The only one that was significant was in 2011, when fears arose that the U.S. may actually default and was downgraded to AA by Standard & Poor’s.  Although we don’t expect anything like 2011, we are worried that the GOP congressional leadership is so focused on the tax bills that it lacks the available “bandwidth” to deal with this issue.  Thus, a week or two of brinkmanship could weigh on sentiment.

A note about earnings: At the end of this report we include our weekly P/E chart.  This week, we add the actual Q3 S&P earnings data from Standard & Poor’s (actually, from Haver Analytics, which estimates the final number when over 90% of firms report).  As has been the case for much of this recovery, the estimates of S&P operating earnings from Thomson-Reuters are higher than those from Standard & Poor’s.  We view the latter as the official data but the former owns I/B/E/S, the premier source for future earnings estimates, and thus it is the preferred number in the media.  We use the Standard & Poor’s number for most of the index’s earnings history because it allows us to show a chart dating back to the 1870s (see the end of this report).  In our P/E calculations, we usually use two actual earnings numbers from Standard & Poor’s and two estimates from Thomson-Reuters; however, when we have sufficient reporting we then shift to three actual Standard & Poor’s numbers and one Thomson-Reuters.  When this happens, there are discrete jumps in the current reporting quarter (see footnote in the P/E section for more clarification).  After New Year’s, when we return to two actual, two estimates, there will be a discrete rise in the P/E as well.

This chart shows a history of the two series on a four-quarter rolling basis.  During the two recessions/bear markets, the ratio tended to widen significantly as the Standard & Poor’s number fell much faster than Thomson-Reuters.  But, until this bull market, the two series tended to closely match each other.  We note the divergence widened when oil prices fell in 2014 and narrowed as oil prices recovered.  Which is the better number?  We are agnostic on this issue because we can address the divergence with various statistical tools, but we wanted to offer more detail on why the P/E rose this week.

Energy recap: U.S. crude oil inventories rose 1.9 mb compared to market expectations of a 3.2 mb draw.

This chart shows current crude oil inventories, both over the long term and the last decade.  We have added the estimated level of lease stocks to maintain the consistency of the data.  The DOE has revised its data (an exercise it does periodically) and inventories are falling faster than earlier estimated.  As the chart shows, inventories remain historically high but have declined significantly this year.  We also note the SPR fell by 0.7 mb, meaning the net build was 1.2 mb.

As the seasonal chart below shows, inventories rose modestly this week.  It appears that we are “skipping” the usual autumn inventory rebuild period.  Usually, inventories would peak next week.  After that, stockpiles would decline into year’s end and then start their largest build from early January into early April.

Refinery operations continued to rise last week, in line with seasonal norms.  We expect them to peak very soon.

Based on inventories alone, oil prices are undervalued with the fair value price of $55.00.  Meanwhile, the EUR/WTI model generates a fair value of $60.68.  Together (which is a more sound methodology), fair value is $58.37, meaning that current prices have fallen under fair value.  OPEC meets at the end of the month and there are worries that Russia won’t extend the current output restrictions as much as the Saudis would prefer.  At the same time, recent events in the Middle East increase the odds of supply concerns.  Overall, oil prices are within normal ranges of current fundamentals but we are generally bullish toward crude oil at this time.

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by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EST] Here’s what we are watching today:

Another weak day: Risk markets continue to slide this morning, although the levels of decline are not all that large.  It’s been such a long time since we have seen weakness in equity prices that even modest retreats appear significant.  However, we don’t see anything beyond a modest correction because it appears that ample liquidity is available.

This chart shows retail money market holdings relative to the S&P 500.  We have highlighted periods since the expansion began when retail money market funds fell below $920 bn.  When money market fund levels fall below this level, equities have tended to stall or at least get “choppy.”  Currently, we are sitting on ample liquidity, which suggests to us that any pullbacks will likely be met with new buying.  This isn’t a perfect relationship.  As the crash period shows, during periods of fear, the “dash for cash” overwhelms other asset prices and equity prices will tend to decline until the panic stops.  If the tax bill falters or we have a global geopolitical event, fear could trigger a sharper pullback.  But, for now, there are no signals of recession and we are likely seeing a normal pause.

Vice Chair El-Erian?  Yesterday, there were reports that Mohamed El-Erian was being considered for the vice chair position at the Fed.  This would be an inspired pick; the chair-nominee, Jerome Powell, isn’t an economist, so surrounding him with a well-respected one as vice chair would give him a counterpart with a learned viewpoint.  And, he has another helpful characteristic—he has been the second around another strong personality.  He was at PIMCO when Bill Gross was the CIO and had to work in a position where he was designed to be overshadowed.  He proved able to manage the situation.  This would perhaps make him a better pick than Larry Summers or John Taylor, who tend to be more outspoken.  His recent comments have leaned hawkish but he has also supported easing regulations.  We suspect the financial markets would welcome Mohamed to the FOMC as it would show no specific ideological bent (a problem with Taylor) and he is a preeminent economist (an improvement over Warsh).

Mugabe out?  It appears that Zimbabwe’s long-standing president, Robert Mugabe, has been ousted in a coup, despite comments from the military that his placement into house arrest isn’t really a coup.  We are not going to spend too much time on this issue because it won’t affect most financial markets; however, Zimbabwe has been an inadvertent laboratory for really bad economic policy.  The country has suffered through ruinous hyperinflation due to poor policies, which has led to laughable currency denominations.^[1]  His removal might improve the situation in the country, although given the degree of damage that has been inflicted, it may take a very long time to fix the economy.

Moore under pressure: As more reports come out about Roy Moore’s questionable proclivities, we are starting to see the betting signals crack.  As we noted earlier, we view the betting information as more credible than polls, which are subject to sampling and structural problems.  The news is getting bad for Judge Moore:

Moore had a commanding lead until the scandal broke but still managed to hold a majority until the last couple of days.  He now has less than a 40% chance of winning.  We note the WSJ editorial page has concluded the GOP would be better off losing the seat than for Moore to win.^[2]  We would expect this sentiment to rise.

Fed policy: With the release of the CPI data we can upgrade the Mankiw models.  The Mankiw rule models attempt to determine the neutral rate for fed funds, which is a rate that is neither accommodative nor stimulative.  Mankiw’s model is a variation of the Taylor Rule.  The latter measures the neutral rate by core CPI and the difference between GDP and potential GDP, which is an estimate of slack in the economy.  Potential GDP cannot be directly observed, only estimated.  To overcome this problem, Mankiw used the unemployment rate as a proxy for economic slack.  We have created four versions of the rule, one that follows the original construction by using the unemployment rate as a measure of slack, a second that uses the employment/population ratio, a third using involuntary part-time workers as a percentage of the total labor force and a fourth using yearly wage growth for non-supervisory workers.

Using the unemployment rate, the neutral rate is now 3.20%.  Using the employment/population ratio, the neutral rate is 0.97%.  Using involuntary part-time employment, the neutral rate is 2.71%.  Using wage growth for non-supervisory workers, the neutral rate is 0.94%.  The modest uptick in core CPI has lifted the various neutral estimates higher, but as we have seen lately, two of the measures of slack suggest the FOMC has achieved rate neutrality, while two suggest the FOMC is well behind the curve.  We expect the FOMC to mostly split the difference and end up around 2.25% for the target at the end of next year.  However, if the two variations signaling lower rates turn out to be the accurate measures of slack, this degree of tightening will lead to increased risk of recession.  The fed funds futures put the odds of a December rate hike at 92.3%.

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[1] https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe#/media/File:Zimbabwe_$100_trillion_2009_Obverse.jpg

[2] https://www.wsj.com/articles/the-roy-moore-mess-1510703218

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EST] It was a very quiet overnight session.  Better Eurozone growth has lifted the EUR, while global equity markets continue to struggle in what looks to us like profit taking.  PPI (see below) did come in higher than forecast; shorter duration Treasury yields rose.  Here is what we are watching this morning:

May will allow Parliament to have a say on Brexit: Initially, PM May was not going to allow MPs to add amendments to the Brexit bill.  However, in her politically weakened position she has bowed to pressure, primarily from pro-EU MPs, to have a full vote and allow amendments to be voted on as well.  It isn’t clear how this will play out.  Although the May government insists the vote can’t halt Brexit, it does seem possible that Parliament could scuttle Brexit.  May’s plan is to offer two separate bills, one that is an actual vote on Brexit and another that votes on the specifics of the process, with the hopes that party discipline will ensure Brexit occurs and then allow “meaningful but essentially meaningless” votes on the second bill.  If May had a strong majority government and Tories feared her, this would probably work.  However, this isn’t the case.  If Parliament votes to defeat the Brexit bill, it isn’t obvious what would happen.  The EU is committed to the U.K.’s exit from the organization and Parliament’s inability to pass a bill shouldn’t prevent the EU from expelling Britain.  The exit was officially triggered last year.  Brexit without a plan leads to a chaotic situation.  On the other hand, we would not be shocked if Parliament blocks Brexit and the EU (read: Merkel) allows the U.K. to stay in the EU fold.  In any case, this is turning into a mess; at the same time, the GBP would likely soar if the U.K. ends up staying in the EU.

Venezuela in default: S&P has confirmed that Venezuela missed two interest payments within the 30-day grace period on its sovereign debt, on issues maturing in 2019 and 2024.  This rating agency is the first to declare the nation in default.  The rating on these two particular bonds is now “D,” down from “CC,” and the long-term foreign currency sovereign credit rating is now “SD,” or selective default, down from “CC.”  Although Venezuela’s default was really just a matter of time, there isn’t an obvious path of restructuring.  We will be closely watching how Caracas handles its debt to China; we suspect it will default on that debt last, but eventually it will likely default on that debt, too.  Complicating matters for bondholders is that Venezuela does have assets outside the country that could be seized by creditors (CITGO, for example).  We do note that the International Swaps and Derivatives Association has delayed a decision on default; if this group agrees with S&P, it would likely trigger the payment of credit default swaps.

Another governor?  There are reports the president is considering nominating Michelle Bowman, a state bank commissioner from Kansas.  She was formerly a banker with Farmers and Drovers[1] Bank in Council Grove, KS, with about seven years of banking and bank regulatory experience.  She has a BA from Kansas University[2] and a JD from Washburn University in Topeka, KS.  She does have rather extensive experience in Washington.  She worked with Sen. Dole and was counsel to the House Committee on Transportation and Infrastructure and the Committee on Government Reform and Oversight.  She was also attached to FEMA and was deputy assistant to Homeland Security Secretary Tom Ridge.  One of the governor slots is reserved for a community banker; it has been difficult to fill this position because state regulators are usually not well liked by bankers and most community bankers don’t want to leave their posts for a government job.  Although her banking experience is a bit light, her Washington experience will probably allow her to be easily confirmed.  Historically, this position tends to vote with the chair and its primary contribution is to offer “ground level” information from the small banking sector to the FOMC.

IEA bullish on shale: In its most recent report, the IEA projects strong shale growth in the U.S., leading to total liquids production of 13 mbpd by 2025.  The Paris-based group projects that the U.S. will account for 80% of the increase in global oil and liquids supply over that time frame.   Interestingly enough, recent reports from the maturing oil shale fields in Texas paint a much less favorable supply story.  The EIA (the U.S. data arm of the DOE) says that December U.S. shale production will rise to 6.1 mbpd, a new high.  However, the EIA also reports that the legacy decline rate has reached 83.3%, meaning that 83.3% of gross new production is offsetting declines in older wells.  In May, this number was 70.5, indicating that production growth is slowing.  Industry reports suggest that increasing proppants and longer well laterals in the Permian basin aren’t boosting output.  The bottom line is that macro energy analysis appears to be holding that growth will continue at almost a linear pace, whereas the micro reports suggest that if such growth is going to occur it will likely require higher prices.

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[1] A drover is a person who moves animals over long distances.

[2] Go Jayhawks!

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EST] Happy Monday!  Here are the news items we are watching this morning:

The president’s trip to Asia comes to a close: The president stayed mostly on script for the early part of his trip but began to stray toward the end.  We suspect historians will look at his APEC speech as one of the clearest signals that the U.S. is ending its superpower role.  Although there is much being made over the 11 remaining TPP nations putting together the treaty, in reality, there isn’t much to make the group work without the U.S. and China.  Among the remaining nations there isn’t an obvious importer of last resort, a key element of multilateral trade deals.  Essentially, multilateral trade deals are geopolitical entities, not trade agreements.  If the U.S. would have passed TPP and TTIP, the U.S. would have been the effective “center of the trading world,” straddling both the Asia-Pacific and the Atlantic.  Instead, the U.S. is promising a series of bilateral agreements.  It is interesting to note that Chairman Xi’s speech promoted globalization and got a standing ovation from the delegates.  Trump’s speech didn’t.  Perhaps the quote of the weekend came during the president’s visit to Vietnam.

“Xi Jinping’s ambitions are dangerous for the whole world,” General Cuong said. “China uses its money to buy off many leaders, but none of the countries that are its close allies, like North Korea, Pakistan or Cambodia, have done well. Countries that are close to America have done much better. We must ask: Why is this?”[1]

-Maj. Gen. Le Van Cuong

Another, perhaps more unsettling, quote:

“Everybody thinks that the U.S.-Japan alliance will last forever,” said former defense minister Shigeru Ishiba, a member of Abe’s Liberal Democratic Party and supporter of rewriting the constitution, said in an interview last month. “I don’t think so.”[2]

Was the trip a success?  If the goal of the trip was to clearly state Trump’s Jacksonian foreign policy, then yes it was.  Is that outcome good for financial markets?  As with every major event, it’s mixed and will take a long time to sort out.  But, in the end, we are in the steady process of seeing the U.S. abdicate its hegemonic role which will most likely lead to rising global insecurity.

Taxes: The House tax bill may get a vote before Thanksgiving and we expect it to narrowly pass.  However, the Senate is facing much tougher sledding.  Perhaps the biggest problem will be reconciliation.  The two bills are not close in construction.  At best, we will likely see a modest package of tax cuts without significant restructuring.  At worst, this effort will fail.  The odds of failure are rather elevated.

May’s troubles: Forty Tory MPs are apparently prepared to sign a letter of no-confidence on PM May.  The important number is 48, which would trigger a no-confidence vote within the Conservative Party and bring a leadership contest.  The strong Brexit supporters, mainly Michael Gove and Boris Johnson, are pressing for a “hard Brexit” which will limit May’s negotiating position and put the London financial industry at risk.  In addition, a hard Brexit would almost certainly lead to a hard border in Northern Ireland and put the Good Friday Agreement at risk.  The GBP slipped on the news.

Bitcoin slips: As the popularity of bitcoin has increased, the ability of the “plumbing” to handle transactions has been adversely affected.  The founders have tried to come up with a compromise that would maintain the cryptocurrency’s structure but allow for larger transactions to occur.  That compromise has failed and there is concern that traders will gravitate to other competing instruments.

Note the recent decline in bitcoin.  Although the correlation between bitcoin and gold isn’t all that close, both instruments play a similar role—a safe, anonymous store of value.  We note that gold is doing better today as bitcoin prices fall.

The Alabama Senate race: Although the polls are tightening, we note the betting sites are still putting their money on Roy Moore.

In general, we have more confidence in betting sites than polls.  The latter face problems of sampling and participant lying.  On the other hand, one can hold an opinion in a betting pool but stand to lose money if they are wrong.  Perhaps the most interesting part of this election is that the GOP establishment would probably prefer Jones, the Democrat; although he would be a member of the opposition, a Democrat in Alabama is probably conservative and may be a more reliable voter than Moore.  We will likely see more of this in the coming years as the party coalitions reform.  In other words, membership of class (establishment v. populist) will matter more than party affiliation.

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[1] https://www.nytimes.com/2017/11/11/world/asia/vietnam-china-us.html

[2] Washington Post, Worldview.