Geopolitical Update: Republicans with last minute momentum tonight at Mid Terms

Later this evening and tonight America is electing a new House of Representatives and re-shaping the US Senate. Key states are also electing a new governor. It all looks like a very tight race, but some dynamics are building that could lead to an early “shocker” for Republicans. 

US Politics Matters

In 2022 too many investors suffered heavy losses due to one big mistake: to have underestimated US domestic politics. As we have been saying since mid December 2021 the Mid Term Elections in November 2022 would dominate and drive US Foreign Policy, Monetary Policy and Treasury Policy in order to avert a Republican sweep of Congress. Many investors still believe the FED is just all about inflation this year. In Washington .. it is all about politics. 

For the Democratic Party these elections in November 2022 have been deemed as historic. Liberal-progressive leaders feel US democracy is at risk by Trump forces. This assessment led us to believe since last December that the FED would fight inflation harshly in 2022, while it only watched passively at rising inflation during 2021 – timing in politics. The FED might be independent on paper, but in Washington everything is politics and money business.

A very assertive White House and a tough FED led in 2022 to energy sanctions against Russia, a strong USD, rapidly rising interest rates and a shortage of US liquidity around the world. Many nations, friends and foes, were pushed to a breaking point over the past six months.

For many years European thought leaders were wishful thinking and saying that America is down and out. Something I always warned them about. But in 2022 America has reasserted its Superpower status and shown especially to Europe, that it is at America’s mercy. America may be deeply divided and even possibly drifting towards a civil war, but America is still powerful and it can quickly weaponise its assets & policies to cripple the rest of the world.

Russia, China and especially the EU have been caught off guard by an assertive Washington.

The very assertive policy mix by Washington at home and abroad has worked over the past 11 months: America may be in trouble, but Europe, China and Russia are all in distress. Europe is worst-hit and on the brink of economic disaster.

At the beginning of 2022 the Democrats were looking at a disaster at the Mid Terms. The war and the leak at the Supreme Court (which forced Supreme Judges to air their opposition to federal abortion law) helped President Biden and as of last month the Mid Terms were a very contested affair. The goal was within reach.

The problem I see with Biden’s assertive policy mix in 2022 is that he weaponised the USD. This may have helped him limit the damage at the Mid Terms, but it comes at a very high strategic cost to America in years to come. Friends and foes are suffering in 2022 under US assertiveness and wishing now more than ever for an alternative to the Petrodollar and the US-European financial system.

Democrats fear losing Congress 

But what has happened in recent weeks?

What was seen as a highly contested – even – election has given way to anxiety in the inner circles of the Democrat Party in Washington over the past ten days. Simultaneously, Republican strategists now see the possibility of seizing both the House and the Senate. Both parties may be dramatising though.

What went wrong for the Democrats? Hispanics are breaking away from the Democratic Party and embracing conservative candidates. For a long time the DNC has taken Hispanics and African Americans for granted. Liberal strategists believed that Republicans only have strong support amongst Cubans and Venezuelans, but Mexicans and South Americans are theirs. This has proven to be a big mistake. Some Hispanic and African Americans with conservative values are taking whole districts by storm.

A steady momentum amongst South Americans in favour of more conservative policies started in Florida and it has advanced to Arizona and other battleground states. Liberal circles have responded by effectively mobilising Asian Americans, but elections are a numbers’ game. Hispanics have bigger numbers than Asians in America – if both groups get mobilised. With 2-3 more weeks time, I believe the Democrats could regain control of the narrative and fight back. Just like at the 2020 Elections, US elections are a lot about timing. You need to get it right and the DNC doesn’t have that time.

The blame game started two days ago with liberal leaders passing the blame on the DNC Mid Terms strategists: they focused too much on January 6th and Abortion and forgot to highlight the great Biden achievements on the economy. That is typical “we are doing great, we have simply failed on our messaging”. Truth be said, if Democrats lose the Congress today it will be mostly because of the worsening economy – millions of Americans are seeing the biggest decline in real wages in decades. The cost of living is up! The 10 million Biden jobs are to some extent a Covid base effect.

Taming expectations 

Many are eyeing now a Republican controlled Senate and a Republican controlled House of Representatives. Some strategists even speak of a Red Tidal Wave or Trump Wave. I’d be cautious about it. It could well be that just a mere 250’000 voters will tip the balance for the Republicans or the Democrats this evening, thus deciding the outcome of the Mid Terms. Yes, America is so deeply divided that a tiny portion of the electorate is tipping the balance of power in recent years.

The problem for Democrats and Republicans is that no matter who wins tonight, no party is likely to have a strong mandate from voters. Key elections are expected to be won by 51% to 49% margins. This has been the case for years and it reflects a deeply divided country.

Razor-thin results could still paralyse Washington or fuel a stock market rally

If the late momentum for Republicans holds on tonight, a Republican-controlled House or Senate could block President Biden’s government agenda.

1. It could put pressure on the FED
2. It could force Biden to support US oil/gas production again
3. It could force Washington to reduce the arms support for Ukraine
4. It could force the US government into shutdown (default)

Trump-leaning Republicans in Congress would also raise the hopes of investors and potentially lead to a stock market rally. Investors remember the Trump years as a time of relative peace, low fuel prices and rising stock markets. That is what they would begin to hope for with a Republican-controlled Congress.

Former President Trump has the facto taken over the control of the Republican Party. Not everybody in the GOP agrees with Mr. Trump, but no one wants to openly challenge him either.

On this track, the Republicans are likely to make some inroads in Congress and Mr. Trump is likely to announce he is running for President on November 15th.

Still, this is America, it is an open race. So, let’s wait for the votes to be counted. It is going to be a long night. If I would have to tip on a surprise – an early lead for the Republican Senate candidate in New Hampshire could be a foreshadow of a wider victory for the GOP tonight. All polls and experts have been pointing to a very close race. What if it is isn’t that close? And what if Democrats are worrying too much (the effect of their early voting as things were looking brighter three weeks ago)?

I will review my first impressions of all the projections tomorrow morning around 8 AM Swiss Time. 

This is going to be a long night for me .. of course.

By Christian Takushi, Macro Economist & Geopolitical Strategist – Switzerland 8 Nov 2022 (public release with adjustments)

Disclaimer: None of our comments should be interpreted or construed as an investment recommendation

 

Russian nuclear attack submarine Prince Vladimir before it went “silent “

A distinct broad approach to geopolitical research

(a) All nations & groups advance their geostrategic interests with all the means at their disposal

(b) A balance between Western linear-logical and Oriental circular-historical-religious thinking is crucial given the rise of Oriental powers

(c) As a geopolitical analyst with an economic mindset Takushi does research with little regard for political ideology and conspiracy theories

(d) Independent time series data aggregation & propriety risk analysis models

(e) Takushi only releases a report when his analysis deviates from Consensus 

Midway – the most resounding history-changing Air-Naval battle reminds us how quickly the trajectory of conflict can be turned around! Let’s remember those brave men – especially on those first waves.