US Midterms are great news for Market, a win for Real Republicans and a massive defeat for Donald Trump

Blain’s Morning Porridge – Nov 9th: US Midterms are great news for Market, a win for Real Republicans and a massive defeat for Donald Trump

“Man, it’s cold. We could use some global warming…” 

This morning: “US Midterms were a mild win for Republicans, a loss for Democrats, a Big Win for Democracy and a Massive Defeat for Donald Trump. That’s all great news for markets and the global economy.”

There is nothing more certain to annoy certain ‘Mericans than an “ignorant, stupid, know nothing” British commentator trying to make sense of US politics. Americans can be quite blunt about their god-given rights as the only people allowed to comment on their country. Fair enough. Their country – their problem. But when news is news for markets and the global economy, I am going to comment. Damn the torpedoes and the trolls, full speed ahead!

This morning, I’ve swung positive on the US avoiding a political competency disaster. I’m interested in the potential upside for the global economy and Markets, and although the numbers are not yet all in, the Midterm results are shaping up for a Market win/win. If the US can avoid Hard Right isolationism, engage with global growth and climate tech growth, show support for NATO and Ukraine, and demonstrate it remains a global hegemon, that’s all positive.

The next few days, however, might look messy as allegations of electoral fraud start flying. It’s a shame when elections are decided in the courtrooms rather than the ballot.

As I write this morning the individual results of the US Midterm elections remain too close to call, but surprisingly, the Democrats look to have achieved the best performance of a sitting administration in decades by losing, but not losing too badly! They are still likely to lose one or both Houses of Congress. The Republican Big Wave lapped the shore, but proved far less overwhelming than expected. The critical state of Georgia looks likely to go to a run-off – meaning no result till Jan. They held Penn.

Far from this being a Republican win, or a Democrat loss, the Midterms are a clear defeat for Donald Trump – and a massive win for Democracy! And that’s good for America and the Global Economy. In most of the election races last night, good candidates won. In most contested races the election deniers, the Big Lie supporters and Trump candidates lost. Republicans against Trump generally won.

Despite raging inflation, rising interest rates, soaring mortgage rates and a declining housing market, and the Progressive Left’s wokery, what was expected to have been a Republican landslide will now, at best, a respectable win, with small GOP majorities in both houses – perhaps. A respectable win is not what the Republicans expected to achieve in the face of the current economic reality – but perversely its maybe the best result for them. It gives them a chance to excorcise Trump from their world before 2024!

What is clear is Trump backed candidates are doing far less well than mainstream traditional, real Republicans. The new Republican darling, Ron DeSantis, triumphed in Florida. The crowd were cheering for 2 more years – a clear signal he should run for President! It was a fascinating moment. He’s clearly disassociated himself from Trump. Other Trump opposing Republicans also did well. Election deniers and big lie supporters generally underperformed.

Would DeSantis take on Trump? The former President has made unsubtle threats to release embarrassing Kompromat on DeSantis if he runs – demonstrating how dirty he intended to play after he announced his own expected presidential bid on the 15^th November. That announcement looks to be under threat – the scale to which Trump, not the Republicans, were beaten may dissuade him. He hates to lose. Trump would have been expecting to bully the Party to rally round him on the basis it would avoid the “Fratricide Risk” of Trump vs AN Other. Trump knew he needed to look monolithic to stand any chance in 2024. Now that looks in doubt, will the Republican Party allow him the ticket?

Although favourites tend not to win party nominations, it’s all going to be about DeSantis in the short-term. The party big-wigs will be trying to judge if DeSantis can win over Trump’s supporters, in effect becoming an Electable Donald Trump mk 2 – less bluster, more substance. Or will more traditional, conservative, less QAnon leaning Republicans come forward – especially if Trump delivers on his promise to undo DeSantis by dishing whatever dirt he holds?

For the Democrats – they have some serious questions to address: who will they stand against the Republicans (or a vengeful Trump) in 2024? DeSantis looks electable. Biden is clearly not popular and putting him forward for another campaign would be a massive risk.

Why might all this be good for markets?

On the upside, a girdlocked, lame-duck Biden Democrat administration will be unable to fuel inflation with high-spending programmes. But more generally, markets were nervous of increasingly polarised US politics – the lower the Republican wave turns out to be, the less damaging 2 years of Trump driven debt ceiling tribulations, government shutdowns, show trials of hate-figures like Hunter Biden and Anthony Fauci, a tit-for-tat impeachment, whitewashing Jan 6^th, and defunding the CIA and FBI, will be. Moderate Republicans will be empowered to vote pragmatically and against the Trumpistas.

Moreover, the risk a gridlocked Congress abandons Ukraine is diminished – which should undo the recent damage in defence stocks.

Its folly to “anthropomorphise” election results – ascribing hopes onto election results… but I wonder if US Voters not pushing back as strongly as expected on the state of the economy, Biden’s faltering performance, and the antics of the progressives, is because mainstream America rejects the Right as much as it rejects the Left? Trump, or something, has repelled voters. The evidence is its Trump.

I’m told MOR (Middle of the Road) constructive Republicans want their party back and want it fighting for the centre ground of US politics, rather than the open embarrassment of MAGA Trump acolytes and QAnon conspiracists.  They will see the Midterm lacklustre performance as a chance to undo the damage the Trump capture of their party has done.

I suspect there are parallels between the Republican Party today and Labour under Jeremy Corbyn in the late 20Teens. I will be intrigued to see how Trump spins this on his big Nov 15^th announcement if, as now looks the case, Republican gains are capped at a win rather than a landslide. Based on yesterday’s vote, Trump supporting candidates in each district and state looks a recipe for electoral disaster.

It took a whole electoral cycle for Corbyn and the Hard-Left to be purged from the UK’s Labour party. If you look at what Sir Kier Starmer has done to labour in UK in the past few years – it’s really no different to what Trump has just done, and what Corbyn did… Starmer has effectively and efficiently purged Labour constituencies of Hard-Leftist candidates to insert Labour moderates to stand in the next General Election. Its critical he is seen to control the party to build a credible reputation with UK voters.

I don’t see any sign that necessary process had begun in the US – but now it may start to happen. The big problem will be getting rid of sitting Trump supporters, who may derail a future Republican President. The GOP faces potentially years of internal dissent. How do Republicans replace big lie believing Trump supporters to put competent Republicans back in the decision making seats? Time for republicans to take their party back, steer it back into the mainstream and away from the QAnon lunatic fringe – that really would be a victory…

Conclusion – The USA just dodged a potential political competency bullet to the forehead. That’s a great signal for the dollar and treasuries. And the expectation of strong normalised growth post the inflation spike and interest rate cycle.

Out of time, and back to the day job…

Bill Blain

Strategist – Shard Capital