Speaker 1Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the hosts and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey everyone, it is Friday 30th of October 2026 and welcome to this very late edition today. Unfortunately, I had a long meeting this morning. Apologies for getting out this podcast so late, but here we are. All right, so much going on and I really do have to do a quick market wrap before we get to the focus of today, which is very much next Tuesday's US midterm elections. Some color on where to focus, what the outcomes might be, what the uncertainties are, and something around the market reactions of which I have a few thoughts as well. All with a huge grain of salt, nothing is an investment recommendation. All right, super quick on rounding up yesterday's action. Of course, it was all about the big gap open lower as those alphabet earnings had shocked the market. And I think there's an added dose of something going on here that you get a big, you know, it spooks across a lot of other big names and causes all kinds of disruptive flows in ETFs. I'm sure Michael Green's new ETF outfit was having a field day with all of those flows. And what do I mean by that is because a company like Alphabet, a Mag7 company worth in the trillions, now about $500 billion less though. And think about the staggering size of portfolio losses on that one company yesterday, $500 billion. So all needed to rebalance their holdings based on this single very large component being marked down. End of the day, 12.6% lower. Other huge losers on the day, minus 27% for service now on their earnings report. From the prior evening after the close, Fortinet down 20%. I didn't even see what the problem was there. Marvel, the semiconductor outfit down 13.2%. Now, a horrible bloodbath, right? Well, if you own the median stock, you had a good day yesterday because the S&P 500 equal weight, get this, was up 1.2% on a day with this kind of, you know, bloodbath in tech. The NASDAQ 100, in fact, down minus 1.4% almost. The S&P 500, you know, being a bigger, mix of other stocks, minus 0.3%. The SOX semiconductor index down minus 1.42%. Now, you know, you could argue that actually some of the hardware stuff related to AI shouldn't necessarily be down that much because part of the problem with Google's earnings report was the perceived amount of spending, if you recall back, but as well, not having to do so much with that was the shortfall in their search results relative to expectations. And then we get refreshed news. Another MAG7 company, reporting overnight, plus an actual chip company reporting very ugly results. So just last night, of course, it was amazon.com. They were down. Last I looked, they're probably down more now, minus 7% or more. They closed right before this report, by the way, right at that 200-day moving average. So they're going to be opening up way below that. Another obviously massive company could be set up for a day similar to Alphabet's action the prior day. The concerns there, once again, on the spending front. So Amazon, spending $77 billion in one quarter on CapEx, an absolute staggering number. Their e-commerce business at the same time was declining, even if their cloud business was growing very nicely. So that's a big challenge for the market on the open today. And we're seeing a more broad-based sell-off. Intel, by the way, down minus 23% after the close. Caterpillar down minus 9.25%. They missed on revenue relative to expectations. Still growing nicely. Had a 17% growth, but that's a deceleration from the prior quarter's 24% growth. This is Caterpillar, by the way. On Intel, it was about a huge decline in PC demand. I know for myself, playing around with the idea of building a PC, I'm thinking, I'll just wait to see if this whole fuss over memory fades for a while before I do anything, because it's absolutely insane prices for memory chips. So Intel reporting a shortfall there, as well as some supply chain issues preventing them moving forward. So quite an ugly look for that company. And that has us down overall now, minus, what was it, 700-plus points on the downside of the Nasdaq futures here. And we're actually seeing, unlike yesterday when the Russell 2000, by the way, the small-cap index was up over a percent. We have even the small-cap futures down a little bit here. Ugly session out in Asia as well. Nikkei down a couple of percent. Kospi down over 3%. And Europe is even getting a little bit of negative vibe this morning. After a positive day yesterday, and that was really a remarkable day yesterday. Again, this contrast between some of these huge market cap names and the devastating declines for a single day. And you had 350 out of the S&P 500 stocks, obviously. 350 gainers to less than 150 losers. Looking around the shop at what was doing really well, well, there's good old Carvana, a company I've thrown some shade at on a number of occasions, and for good reason. You can, Google it, look into short-seller reports, et cetera. They were up 15.8%. There are massive short holdings in this company. There are a lot of short-seller outfits that think they're doing some dodgy stuff with their financing and with hiding maybe some of their losses in related companies that are owned by the management, who has been convicted, by the way, of I think it's felony offenses for market abuse, et cetera. Harley-Davidson, a company that has been a real dud of late in terms of its growth rates, negative, negative. Negative on the year-on-year results for the last few years. Down, rewind, I should say, at least the last few quarters. But they're doing terribly in terms of their revenue trajectory. But they're poking up to, I'm not sure if it's a 52-week high, but it's certainly the highest level in quite some time. And there is an enormous short out on that stock as well. What is it saying? It's saying that the median stock out there is doing well, and names that are especially hated are doing extremely well. That's not signs of market health. It's signs of long-short books that are needing to square because they're getting hurt very badly by this market environment. How long will it continue? I don't know, but it will be interesting when we get all of the fish eventually, which is what eventually happened in 2000, 2001. When we start to see these correlations shift once again, perhaps either in favor of a more steady market advance across the board, passive taking control and this active overlay not showing up, or just the whole bottom market. All declining and sort of in sync with one another. Let's see. It's certainly a bit more fearsome, this move. It's on a Friday as well. And we have oil prices spiking back to new cycle highs here. We hit 118 on December Brent crude oil. Lots of noise in the Middle East, news of attacks on ships from Iran. There was this one X post, and I really need to share this with you. So on the notion that Trump may or may not be planning something, against Iran ahead of or after the midterms. Now, this is from an avowedly anti-Trump Democrat, Chris Murphy, who is an actual senator, US senator from the state of Connecticut. He's been out saying, Trump is reportedly planning to restart war with Iran after the election. Some of us have been briefed on the war plan. And while I cannot disclose any details, I can say this, the plan is insane. It will not achieve objectives. It will not, I guess, limit its objectives. It will not achieve objectives and will set off a new cycle of escalation. So there you have it from somebody who apparently is at least has to be on the armed services committee, whatever it's called, and is privy to what is going on here. So obviously raises concerns. And we get a reaction across the space. I think feeding into a little bit of the edge and risk off here. People don't like these prices going up again. And you're seeing the vibe and the spill through into fixed income. One more of safe haven seeking. I think again, we got a little preview of this recently with some of the risk off seeing a lot of bond buying. We saw that in spades yesterday. Part of it, of course, is the obviously the FOMC and it's somewhat dovish between the lines performance or worse is dovish between the lines performance at the Fed press conference. But we had the US two-year yield, for example, down 10 basis points yesterday and even falling a bit this morning. And we got the 10-year down decently below 5% now at 4.93%. So still a lot of steepening going on there. The front end coming down more than the long end, but fresh spike in oil prices here. And we have even in Europe here, some of the short rates are trading a bit lower this morning. I wonder if there's more potential there in Europe, one and done on ECB and maybe somewhere out over the horizon, the market starts to price in rate cuts. I don't know. ECB not adding much to the situation at all was not a surprise what they had to say fully in the guidance. And while it may have looked like with Eurodeficiency, it may have looked like it's going to be a little bit of a dollar back at 112. This was really supportive for the Euro. If you look in some of the Euro crosses, they were hitting new lows this morning from Euro Sterling and Euro Noki and Euro versus the Swedish Krona as well. Bank of Japan here again, we see, you know, they did what they needed to do. They didn't hike rates. So that wasn't expected. They guide for more rate hikes. They raised the CPI guidance. You know, they do what they needed to do. And we have rates coming down. And yet, this Japanese yen refuses to rally. It's rallied a little bit, But I mean, come on, this is like as supportive as you can get for the yen if it can't put in a decent rally here. It really is going to be a walk in the desert for the yen bulls. And we need to get back to the drawing board on how that currency gets stronger without much more policy and stronger policy in the mix to engineer this currency higher, if that's what the Japanese authorities want to do. I suspect it is, but let's see. To me, I need to see a pretty powerful yen sell-off. It is month-end. There could be some factors there as well. But certainly in the next couple of days, if these global yields hold lower, if we remain a bit risk-off, if the yen is not higher, we just already sort of, yeah, I guess I'll say it again, go back to the drawing board on yen drivers and figure out next steps. With those higher oil prices, by the way, we have, and I think some of the attribution is justifiable there. There was that round in the prior run-up where a central bank like that in Turkey was actually liquidating some gold reserves. Some of these countries need to afford a fuel import bill, and that could be one of the drivers. Certainly there seems to be something that's driving gold or pressure on gold. We've seen it below 39.80. There's not much in the way of support below that. And if we break whatever that small price support is below where we are now, and it's within a couple of tens of dollars, we might be looking at $3,500. If oil prices are set for a major advance on some major escalation in Iran, that's a scenario, not a prediction. Silver, under even more pressure, has been down very heavily, trading in the low 50s, so under 51 bucks an ounce, and actually heading towards 50. And that's the last sort of psychological level ahead of, on the chart, there's a more important level lower down towards $45 an ounce. I think for people taking the long cycle view of things, these are a couple of examples. Obviously, a lower price means it's more valuable as an entry point than if it was at 100 bucks an ounce. And some would say one way to consider a strategic entry, given the high volatility in something like silver, is a cash secured put, meaning you sell a put at or below the market price, and then you buy at an even lower price if, of course, the underlying, so the silver price goes below the strike price. If it never does, you've earned some premium. That's one way to do it. But again, only selling an amount that is equal to whatever you can afford to buy if the silver is quote-unquote delivered to you, which is just not in the case of a spot transaction, but could be if it was something else, an ETF or whatever. So not a recommendation. I'm just putting in long-term perspectives and different methods for getting exposure if that is of interest, and if you understand the risks and understand what you are doing. Very important caveats there. Okay. That was pretty much the market wrap. Actually, no, wait. That was not the full wrap. We did see crypto under pressure. There was a hack of Binance that resulted in them losing, was it six, or maybe, I'm not sure what the exact numbers are. Somewhere in the billions, something about 6.3 billion being frozen. Super interesting story. And there was an ex-post, I'll put this out from Michael McNair, who links to a story about, actually from Binance itself, saying that the break or the breach in security was due to access of an employee laptop. And he's trying to connect dots here. This is not me, but his connecting of dots is that actually in this age of cybersecurity issues, and especially AI hacks, et cetera, that the weak point, given that employee laptop was the problem, could be employees themselves and blackmailing if AI or other approaches are able to hack into somebody's personal who knows what. Personal history online, let's call it. You can let your imagination take it to where it wants to go. And then blackmailing that, I'll spread it to your colleagues, your family, your employer, what you've been doing online, if you don't give me your login details. It's just an angle to consider. Maybe the hacks don't actually even have to be to some of these systems themselves, if there's an insider that is leveraged to gain their access details. So that'll be in the links in this podcast episode description as well. And of course, a link to today's slide deck, which I'll be going through. I'm not going to go through it slavishly, slide by slide, because I could easily spend an hour on this presentation. I don't want to do this. And I presented this slide deck at a VIP event yesterday in Copenhagen. I will skip, I think, the most basic parts of it and get to the bits that I think are a bit more interesting for a bit of added color and the stuff I didn't get a chance to discuss. But I will go through the basics here. And yeah, let's get going. So yeah, on slide one, we have a picture of the Democratic donkey and the Republican elephant. Some funny history behind why those two animals are the, I guess you can call them mascots for both of the parties. The donkey, in the case of the donkey, actually goes further back because the Democratic party goes further back. It traces back to, there was some kind of parody of Andrew Jackson. So if you think of Andrew Jackson, A is his first initial and Jackson is his last name. Obviously, he's on the $10 bill. He was in the president in the 1820s. And there was some response in 1828 when somebody put out a farcical fake ad or fake letter from Andrew Jackson criticizing his withdrawing money from these first attempts to put together a United States official bank. He was very much against that. In his politics and the letter, the fake letter was signed, A, like just the letter A period jackass. So jackass being obviously a male donkey. And instead of, you know, getting angry at it, Andrew Jackson took up that, that avatar or mascot with pride, because he felt that a donkey represented a hardworking, steadfast type of animal. So funny history there. And then the representing um the big solidity of the republican party at the time although the cartoonist felt that it was quick to scare so elephants really don't like obviously mice or other small moving creatures all right disclaimer very important on slide two i'm not recommending any course of action here so you can read that in detail if you wish these are just my you know general thoughts on things and on the markets and any facts i misstate apologies but and that's not going to do your own due diligence on facts and on pursuing any investment opportunities that you think you are driving from this it's not my intention to encourage any course of action it's only for information and educational purposes all right slide three i'm just putting up what are these midterms about of course it's the midterm elections mid-presidential term it happens two years after you know the two years after the actual presidential election between the that one and the next one all of the house needs to be voted into place because they only have two-year terms so that's all 435 on the senate because there are 100 senators two from each state you get approximately one-third of them being elected because of the six-year term of service a couple are special elections that's why it's 35 and not 33 or 34 special elections happen because for example some senator died and then there was a quick appointee uh to to fill the seat and then the president held a spot for six months or for a year until the next election could happen and then i kind of think it's important to point out but we also have a lot of state elections uh during midterms in this case 36 state elections for governor and the state legislatures and some of these can be quite important especially for one potential market impact post these elections and i'll get to that later i'll just tease it now to keep you keep you engaged out there um so that's actually more than during the presidential election cycle and some 13 this is according to the the you know the chatbots out there doing some news searches for me about 13 sounds about right these elections are competitive and maybe six or seven could flip to the democrats if we do see a strong democratic showing um you know why are the midterm elections important as you roll forward to slide four obviously it's important because the republicans have control of the presidency and both houses of congress now and have since trump was elected they did their one big beautiful bill act they've done a few more things a lot of appointees that were approved by a republican controlled senate and that is the senate's key power and that's that's really why the senate you know control the senate is very important in this election not just the house of course just the house uh getting in the control of the dems is important because they can block trump's agenda and they can block spending just as he can block their attempts to do new bills as well with his veto the senate is a bit special uh as it has this um has this role as a mover uh of uh trump's nominees and that includes of course the supreme court so we're one of the justices to to die or retire during the next two years and the democrats have controlled the senate they could potentially even block uh that and for the entirety of the rest of trump's term uh if they want to be that obstructive uh let's recall back at the end of biden's term when ruth bader ginsburg died they blocked the the republicans uh blocked the ability to to get a new uh nominee even considered before the 2024 election trump has been very lucky in terms of being able to have appointed three justices in his short time in office the first time around. All right. So why are they important? Because obviously if Dems get either of the houses, they can block the president's domestic agenda that is on spending and taxation, and he can block theirs with the veto that requires a two-thirds majority. Still, though, Trump would retain and the president retains control of trade policy, trade deals like stuff that was done with Greenland, tariffs to a degree at least if they can be connected to, you know, depends on the foundation of those tariffs or what they're based on, and very importantly, of course, the further prosecution of military action, whether it's in Iran. He obviously declared the prior action as being done with because I think it's after 45 days. If a war is still ongoing, it requires approval of Congress. So if he skirts that by saying, oh, it was done and this is a new one, then he can continue to skirt it. So there's a tremendous power the president has in terms of prosecuting military action and semi-war, really. Shape of the U.S. relationship with the rest of the world, also very important. So foreign policy in general very much remains in the president's control. And then you could say, well, if you get a strong, really strong democratic results and the president is blocked at home, he might feel like he has even more to do abroad to create his legacy. That's certainly a valid argument for what the second half of the term may look like. Legacy building would have to be more on the shape that the U.S. relations took with the world than domestically. All right, let's get to the predictions. Slide five, funny quote, haha. Slide six, midterm election predictions. You can use prediction markets if you want. I think they happen to be directionally quite right this time around relative to polling. But I would just warn against using prediction markets for much, and they've invented it. I think they're going to be especially bad in some of the other recent elections out there. Israel in particular and Brazil even more so. There have been some signs of insiders wanting to skew these things to make the results look misleading. So big grain of salt there. I think the size of this market has maybe prevented as much of that manipulation, but I think it directionally looks right. The House is overwhelmingly likely to go to the Democrats. The question will be the size of control. And then on slide seven, you see the calci odds for the Senate. It does look like it's favored, but that's far from a certainty, sort of a two-thirds against a one-third outcome, where some kind of systematic error in polling could mean that the Democratic showing isn't as strong as many expect. But let's look at a few bits and pieces of evidence that would point to higher odds of the Democrats doing quite well in this election. Roll forward to slide eight. You can see presidential approval ratings. Of course, they're absolutely in the gutter. One of the worst approval ratings for a president going into a midterm election. And you see the full list there on the right of where the approval rating was going into the election. And interestingly, this is the second worst ever. By the way, Harry Truman's were so terrible because it was just after World War II. Price controls had been lifted, and there was an absolutely tremendous wave of inflation as prices had to adjust to the end of those to the end of that, the wartime controls. So the other interesting thing to know, besides the fact that this is the second worst ever, is that of the seven worst presidential ratings going into a midterm, four of those seven have been the last four midterms. There's something wrong in the U.S. political environment. And I think this has to do with the nature of populism and the nature of a very divided America. And you can see on slide nine, this sort of satisfaction with the direction of the country. This is from Gallup. You can see those huge waves of optimism and general satisfaction with the direction of America in the 80s under Reagan. A lot of that had to do with, of course, that being the end of the 70s, prices coming down, America really flexing its muscles and feeling like it was in a good place again in the world. Similarly, in the 90s, you had the post end of the Cold War. You had a big peace dividend because they could absolutely slash the military budget and that could go to other priorities and spending, et cetera. So that was the last major wave of optimism ending around 2000. And then the tech and telecom crush really started a downward spiral and really bottomed in the financial crisis. And I think the response to that crisis, the bailouts ignited or helped to ignite a new populist mood and other factors that have created a very divided America. So why is it never everybody on a slightly more positive note is because there's always around half or a little bit under half of the one of the other side that is extremely upset that the other side is in power and thinks that everything is terrible because that other side is in power and vice versa when the other side wins instead of the one that they're on. So America really needs to get to the other side of this partisan battle. I'm not sure I have an answer to how they do that, but maybe we start to get an answer after the 2028 election cycle. I have some thoughts on that. And that may be later if I have time, which I probably won't. All right. Next slide. Slide 10. Super interesting. All of the midterm swings in the votes in the House and in the Senate for each of the midterm elections since 1962. And you can see that the very largest one was under Barack Obama in 2010. More on that in a second. But you can see another very large one was Donald Trump's first term. And obviously with that chart on the right of diesel prices being at record highs and U.S. oil, sorry, petrol prices also being very high. This is one of the key issues that has people looking for a swing towards the Democrats because they attribute this Iran war to, you know, justifiably so to the higher prices and hold Trump with his considerable power to have launched or not launched that Iran war in the first place as responsible for this spike. So that's a pretty obvious sort of attribution for why there was at least some sort of swing of some magnitude towards the Democrats and away from Trump. On slide 11, by the way, just really briefly on that 2010 cycle, why was it so profoundly bad for Obama? The absolutely largest swing ever. First of all, you had to have a decent Republican majority to, sorry, a decent Democratic majority to swing back the other way. And that did happen. Right now we have a very evenly divided house. So it's mathematically impossible to get this magnitude of swing this time when you have a start with an evenly divided house rather than one that's positioned the other way. But he lost 63 house seats for a couple of reasons, at least a couple reasons that are readily identifiable. The one was the bailouts, the way that the system sort of corrected itself after the U.S. financial system crisis is where it started from. Right. So that's a pretty obvious point of view. You know, people got thrown out of their houses if they couldn't afford them and they could only afford those houses in the first place because they were given ridiculous liar loans on no terms because of the way the mortgage industry was set up to just find anybody that could draw breath really and give them financing for a house because they were reaping the fees and passing on the risk to in these package securities onto the German savers and all over the place, all over the world. So that, of course, is a pretty obvious point of view. Of course, dirty dealing and criminal behavior was not punished in any meaningful way. The bankers were back in really good business. The banks got the bailouts. Others got the bailouts or reaping record bonuses within a year or two of the financial crisis. And then you had fiscal austerity and people were feeling there was a very slow comeback on the labor market. There was a very, very ugly economy on the ground in terms of the average person out there really did. I think we remember we saw Occupy Wall Street. It really did ignite. We saw a general disgruntled populism across America that sort of found expression in different ways. On the left, it found expression in Bernie Sanders and democratic socialism, which never got to critical mass, but it did get to critical mass on the right with the rise of Trump. Getting ahead of myself, I think that's a really important historical roots thing on where this all came from. It has deeper roots still, yes, but that was one of the key accelerants of this populist. Move. And then the other one was Obamacare, an absolute fiasco. He had a very narrow mandate because he barely had control of the Senate, if memory serves, after the 2008 election. Spent all of his bullets on a healthcare legislation that wasn't particularly popular. It required all kinds of compromises that kind of made it the worst of all worlds, even if the intention was to provide people with more affordable care. And then the insurance companies. And I remember this because I lived in the States. At the time, they viciously jacked up the premiums just ahead of the election. So here we are going to election Obama. He's all about this healthcare stuff. Oops, my healthcare bill. If you didn't get it through your company, if you're financing it yourself, self-employed, etc. Suddenly just went up 40% from one month to the next. Your attribution is to Obama. So hope and change became no, thank you very much. And then he dealt with a huge Republican majority in in Congress that he was never able to get his agenda across in terms of lawmaking and taxes. You know, could Trump be facing a similar scale of wave this time around? I think the wild card here that makes me uncertain how big this could be and that it could be quite large is on the next slide, slide 12, all of the angles that some would see as being corruption, whether it's the, and I think he really looked bad at the end of the day on the whole treatment of the Epstein files and just his personal contact with Epstein and the dirty birthday messages, all that stuff. I think it played very poorly. I think probably his base manages to look through this kind of stuff, but the independent voter who is the key in the swing vote here doesn't seem to have liked this. There was some polling on this indicating it felt like it was very poorly managed unless you were a hardcore MAGA. But even those identifying as MAGA have started to crumble. In terms of their commitment to that, you see some defections in Tucker Carlson, Marjorie Taylor Greene, even within the sort of traditional MAGA camp. Moving along, we had the whole crypto thing where he was three days before his inauguration launching his crypto scheme that looked really dodgy and corrupt to many, you know, sort of a, hey, you know, you want my attention, you know, buy $50 million of my Trump coin and then let's talk, a kind of accusation, right? And then I think the whole Elon Musk involvement. Played poorly in the popular mind, the Department of Government Efficiency and all that. And then his, of course, the involvement in wars. Although I wouldn't say that's necessarily a corruption more than just a policy move. Although some would try to connect that with the U.S. alliance with Israel because they would say that this is really Israel's war and why did the U.S. have to step in? I think there are other reasons for the Iran war. We can get to that, et cetera. Go to the next slide. And that's why I mentioned. Corruption is because there have been a couple of polls out there and I show one here on the left from Carried Out by Heart Research for CNBC showing that government corruption is actually the number one concern that was mentioned. Now, of course, that could be from Democratic voters who are almost universally mentioning that as well as number three on that list, protecting democracy. They're really concerned about this election being stolen, stolen or accused of being unfair and a non-certification of the. So, you know, we need to watch for that, especially in Alaska. There's a situation there I'll talk about in a moment, but the risk and there's a Department of Justice that's trying to move against a certain number of states saying that X tens of thousands of votes, voter registries are are not legal because they are alien citizens. They're not actually American citizens that are registered to vote this kind of stuff. Well, there'll be an angle that doesn't even allow this election result to proceed. I have no idea. I think Trump would love to, no matter what, overturn this election, because I don't think he respects American institutions or democracy. But will those institutions fail in his direction as head of the executive branch or will they hold? My instinct is to believe that they hold. But of course, there is some kind of delta on this situation and, you know, something we need to watch out for. I think there will be hell to pay and some kind of civil unrest if if there is a move against certifying these elections. Besides that, government corruption and protecting democracy items on the list, you also see cost of living. And this is another reason to believe, as with the crude oil and diesel price chart, to believe that Americans will swing strongly for the Democrats, blaming the president's side of the aisle for for those price rises. And interestingly, the jobs and unemployment rating at the bottom, still a top concern for many, but at the bottom relative to other cost of living issues. All right, proceeding on to slide 14, as I mentioned, a very evenly balanced house, 214 to 219. So 214 being the Democrats, a couple are missing because of people that have died in office and these elections will replace them. And this just happens. Somebody resigns, there's a death. You don't have to have all seats occupied at all times. Base case, very super conservative base case, sort of almost like a minimal for what this election should bring for the Democrats if the polls are remotely right. And even if we say that they're over underestimating the Democrats, would be a result looking like 225 Democrats to 210 Republicans. So a 15 seat majority, not large, but not but not small, just sort of a majority. So as long as you vote along party lines, you would expect nearly everything to go the Democrats way and then suffer the president's veto, of course, the sort of wild blue wave scenario, I would say, is something more along the lines of two 40 to 195. So a 45 vote majority, it gives President President Trump the same power either way, in theory, because you still can't get a two thirds majority to overturn any of his vetoes. But it's an even more severe loss of his popular mandate. It really sends the opposition. So the Republicans scrambling to distance themselves from the really to distance themselves from the president as they're cooking up a new story for sort of the beyond Trump. And so, you know, I think, you know, it's a very, very complex era as we go into the 2028 election, it'll be much more of a scramble. Okay, who replaces Trump, what's the future, we got to ditch Trump, and you got a very severe lame duck, a president in that case, relative to a more finely balanced result, where Trump can still make all kinds of it was a rigged election result, accusations, etc. And somewhat interestingly, as I write there in parentheses, on slide 14, Kalshi is putting, you know, the middle of the odds around 238 votes for the Democrats. So that's still a pretty solid blue wave scenario that is the base case on Kalshi. Slide 15, I would love to talk more about this, because it's super interesting, but I'm just going to go on too long if I do. But very briefly, you have this issue of gerrymandering. And there's there's two sides to gerrymandering we have to consider. In a first past the post election system, meaning if you get 50.001% of the votes, you get all the power in your region. In that kind of system, you have to have gerrymandering. If you don't, then if you sort of randomly divide the state, if it was possible to do so, by into, you know, X number of districts, then if there's a decent majority by one or the other party, that party will have entire control of everything in the state, and it would be no voices that could be heard from the other side. How does that work? Well, it looks like the number two scenario there. So if you somehow divided the state into districts that reflect a sort of three fifths majority, it'd be very easy to make sure that the state was always democratic, for example, if that was a somewhat democratic leaning state. So you have to have some gerrymandering. Otherwise, people in the cities wouldn't be represented and the people in the countryside wouldn't be represented, or one or the other, or the opposite. But then you can go to extremes to do too much gerrymandering if you happen to be in power to exquisitely divide the districts to unfairly balance them. Your way, and that's kind of what happened in some cases, and has happened a lot over American history. There were further attempts at this extreme gerrymandering, it got headlines, you can see that on slide 16, which states sort of managed to get some new gerrymandering through to create more Republican districts and a lot of states, so Texas, Louisiana, Florida, some other ones, and then California, especially responding with moves of its own to gerrymander in favor of Democrats, this is not going to really tilt the election much, but it does provide a little bit of a Republican tilt relative to what would have happened if these districts had not been redrawn. So that's an important thing to consider, but it's not decisive. As well, one or two or more of the Texas districts that were redrawn to favor the Republicans have now shifted strongly away from the Republicans, because there are a lot of Hispanic voters in these Texas districts that didn't like the Trump methods on anti-immigration policies. This was ICE, if you want to call them officers. Some of them seemed almost thuggish in their behavior, what some would say is invading these communities and causing a lot of civil disturbances, I think to put it politely, some would say a couple of murders, very aggressive behavior in any case, and that has actually then backfired in the case of the Republicans. So safe to say, as we roll forward to the Senate perspectives, that the U.S. House does seem like it will go and go fairly strongly, but how strongly, to the Democrats. The Senate, far more uncertain picture, it really is down to a handful of seats. So if there is some systematic overestimation in the polls of the Democrats' chances, then this House could, House of Congress, the Senate, could remain in Republican hands. Now, the current picture before the elections is 53 Republicans to 47 Democrats, and the base case and the reason the odds are tilting for the Democrats are that the Democrats can. Flip four seats and get 51 seats in all to the Republicans, 49, and they need to get four seats, three seats is not enough because in a 50-50 situation, the vice president can cast the deciding vote. On slide 18, you can see why there's such good opportunities, good hunting grounds for the Democrats, because so many Republican seats, by total coincidence, happen to be up for election this time around. Slide 19 shows you which elections are the ones that are most likely to flip. To flip two Democrat from Republican, North Carolina looks like a sure thing, for example. Alaska is pretty tight. And the rest are actually pretty tight as well, but many of them seem tilting Democratic. All right. And then there's a special focus on Michigan, which I will get to in a moment. And it's really crazy. The reason I put a box around Iowa and Kansas with an exclamation point is that these have come very late into play as potential Democratic flips only because – or not only because, but very likely because of the crazy spike in, for example, diesel prices, very important in agriculture. Obviously, you fill up your combine, your tractor with diesel, which – where prices are just – have skyrocketed in the U.S. to record levels. Slide 20, just pointing out the very weak candidate the Republicans appointed or sort of nominated – not nominated, but sort of Trump-blessed in Texas. He's a really poor quality candidate, a key battleground state for the Democrats to show they really can take a state that is so traditionally Republican that they can take it. He's a really poor quality candidate, a key battleground state for the Democrats to show they really can take a state that is so traditionally Republican that they can take a state that is so traditionally Republican. Slide 21, the general predictions then, Republican sweep, totally impossible. In my view, there has to be some massive and systematic error in the polls that is just profound, even more profound than anything like 2016 or 20. Essentially, statistically, it's not going to happen in my view. Democrats only taking the House, decent odds, and that depends on there being some tilt wrong in the polls, but not enough to – it would require such a profound move for them not to take the House. Whereas the Senate, again, who knows? It could go the other way, although we still favor it to end up in the Democrats' hands. So 60% to 65% that we see a blue wave scenario of some scale of some strength and a 95% probability. And all of the – Gridlock scenario where the Democrats can block the president's domestic agenda and the president can block Congress's, democratically controlled Congress, whether it's one or both houses, their agenda as well. All right, let's roll forward to the next slide, 22. So the interesting issue for the markets post-midterms here, I think very much AI data centers, although I think this is more – could be more linked to local elections. If I'm able to – If I'm able to find it, I'll find, again, this Wall Street Journal article – I'm quite sure I linked to it in a prior podcast not that long ago – that actually points out some of the key districts where AI data centers are very prominent on the local agenda. And the tendency will be for the market to believe, and somewhat fairly so, although this is more of a community phenomenon and not necessarily that partisan, that people don't like data centers. And they don't like them especially if they're going to be built in their backyard, and Democrats are a little bit more likely to take a heavier hand. In terms of limiting, permitting on these things on average than a Republican will be. So a massive blue wave might mean a more skeptical take on the ability of AI data centers to get licensing and to be plugged in, which is a speed limiter on the AI build-out. No matter how much capex you want to do, if you can't get the data centers built, then the chips can't be put into a data center and taken live, at least not in the U.S. to the degree one thought before. So it is a really key issue. Again, it tends to be local, state level, et cetera, sometimes even city level, on whether these things get built and where. So consider that angle. There's also the cyber accidents and the response to these. We're seeing lots of noise on cyber accidents. Even the Spanish train thing, this is totally me not having any information, but this is the third time it's happened this year. Is this just sloppy infrastructure? Is there something going on? There was a key system that was down. Why was it down? I don't know. My own phone provider here in Denmark sends me a letter. It's like, yeah, your information got hacked. There's no danger to you, and we'll let you know if there's any problem. It's just kind of unsettling, these things. It's not just unsettling, but at some point, if there is a hack and it is shown that it is caused by an AI agent, who made that AI agent and who is liable, if anybody, could be a risk to some of the rollout, the revenue models of some of the key companies. So just consider the cyber accident risk and this whole issue of liability. Not to mention that it could theoretically cause some kind of systemic damage if it's some really nasty hack. It's not even considering that angle. For example, I don't know. Let's say some significant bank suffers a hack and all the accounts get hacked into and everything gets erased and they have to roll back to some days before with all the backup data and everyone's mad and something seizes up for a few days. Something like that could be a scenario where it's actually just proper disruptive for everybody, not just about liability of a single company, whatever. So just want to put it out there. There is that issue. There are the Elon Musk companies, which I think suffer more under heavier blue wave scenarios and suffer especially, as Elon Musk himself is saying, he recognizes maybe this as he's become very invested and being ideological and swinging the one way. I think the rest of the hyper billionaires are very agnostic. They're just going to make sure that. They're not making either side too upset at any given time. And if the other side starts to win a lot more, they'll start giving a lot more to it would be my suspicion. But Elon Musk companies could be at risk because of that ideological tilt. Maybe not necessarily so much from these midterms, but people will look at a huge blue wave scenario as pointing to much higher risk of a 2028 Democratic strong, strong election for the Democrats. All right. Then there's the deficit itself, which. Shouldn't be aggravated too much by a gridlock scenario because neither side is going to be able to launch any kind of massive new initiative and the funding that would be required for it. I don't think the Treasury market can really take any new massive initiative, but there could be more implications if there is a particularly ugly slowdown and there's some kind of need for deficit expansion related to a slowdown or military action. Who knows what cost of living? Going up and therefore the cost of living adjustments for Social Security, et cetera. I don't think this is a major issue, but how the deficit is dealt with is really critical. It has less to do with the midterms than with how the Fed and the Treasury handle things. But the Fed as an institution will be less under attack in the mix all through this if there is a blue wave because the Senate can be more protective of the Fed and Trump's any Trump attempts to be more disruptive with that institution. But the Fed as an institution will be less under attack in the mix all through this if there is a blue wave because the Senate can be more disruptive with that institution. And then I think this is really important if there's especially strong blue wave scenario, and that is corruption investigations of Trump and his family and the sort of the potential for Trump to put up a fight, as you would imagine he would, if these investigations are particularly aggressive. And that becomes worse under a very strong blue wave scenario, which could then lead to the last one, which is the aggravated political. Divisions, you know, oh, this is just a wish hunt with the one side will say and the other side will say, look, the guy committed crimes. And you could see confrontations, as we've seen so many times on the debt ceiling, the risk of government shutdowns, et cetera, that can become really acutely dysfunctional for markets if they pursue those, those things too aggressively. I'm not going to fund you until you do X. And while we're not going to fund either, because you're saying why this kind of thing is a distinct risk in a highly divided political environment. And then I think super interesting is the next section, and that is just the politics of all of this. What is the future of both the Republican Democratic parties in the wake of this election? If Trump really gets a thumping here, we, you know, we kind of all realize that the Republican Party has become a cult of personality. It is the Trump Party. When Trump is no longer there, what is the party? And there are certainly lots of strains of ideology that we know that aren't just about Trump, the persona. But still, who's the new leader? Is there anybody that can collect this group of people as Trump has? Or does this transform? I don't know. I think it's a huge question hanging over that party with an especially bad result here. The same token, I'm not necessarily sure, even with a quite strong blue wave scenario for the Democrats, and even if the blue wave scenario is exceptionally strong, the Democratic Party has massive splits of its own. It's uncomfortable with this. And I think that's a big part of the problem with this coalition that it has, as many as three divisions, and I'll get to this in a moment. And ironically, it could have supersized or super strength Democratic Party, then indulge in a lot of infighting because it feels like, aha, we're in control now. Now it's about establishing who's in control of the in control party as we head towards 2028. And the biggest division is that between the so-called Democratic Socialists, the more progressive wing of the party and a part of the party that has all the money, which is the sort of traditional establishment. So I'll talk more about that in a second. And I'm realizing this is going to go well over an hour. I hope you're hanging in there. All right. And then, of course, not just the direction of the parties, but the presidential election kicks off essentially the day after this election is over and really starts to pick up speed as soon as we're rolling into 2027, let's remember that Trump became the front runner, essentially the moment he declared his candidacy. I think, wasn't it on that escalator at Trump Tower? I believe that was in August of 2015. So we're talking about a full 14 months ahead of the election. It could come even earlier this time around if the eventual winner tries to make an appearance. earlier date. And then we have to remember the things that don't change. And that is that there is an underlying American shift, policy shift going on, geostrategic shift, the stuff that I've been talking about day after day on the podcast. Michael Every is the one that has best been talking to that for a long time. I constantly refer back to him because he's almost like the spokesperson for that model of what's going on in the world. And that is that the U.S. is undergoing a massive process of the wake-up call where it realizes that China has effectively control over the global economy in terms of supply chains. The U.S. needs to build its own supply chains so it does not or cannot be leveraged or that China cannot leverage its control supply chains against the U.S. economy. Essentially, China can shut down the U.S. economy at any time it wants to. Of course, that would also shut down its own economy. But you could say the only way the U.S. could shut down the U.S. economy is by the U.S. economy. And that's the only way the U.S. economy could shut down. The Chinese economy would be to stop consuming anything and to encourage a lot of the rest of the world to stop consuming anything. And that's not going to happen. You can't get people to stop doing stuff. So reshoring and friendshoring supply chains, ensuring that there's a less commitment to global order because of what that has cost in the past. And that included in that is a reduced commitment to its security alliance with Europe. I really do think that's a lot of the whole. I'm just trying to pull the plug on. On the commitment to Ukraine is about sort of in real policy and practical economic terms that war is not benefiting the U.S. except in its traditional moral terms, which are very. Let's be honest. These are very powerful things, but there's no sort of practical reason. And certainly on the financial side and national security side, this draining of U.S. arsenals in that proxy war is potentially dangerous for the U.S. force or power projection or whatever. And this, again, this has nothing to do with sympathy for Ukraine or Russia or anybody else. It's purely a practical observation. So these considerations, I think, remain with or without Trump. And without Trump, you would see, of course, a much different diplomatic style, a much different soft power style, I strongly believe. But I think that the general drift would be the same. Saw it under Biden as well with the CHIPS Act and all these very powerful industrial. policy moves, which were followed up by the Trump tariffs and further commitments to industrial policy and participating in vertical supply chains for rare earths, investing directly in companies, all this kind of stuff. That will continue with or without Trump, with or without the Democrats, blue wave, blah, blah. Slide 23, it kind of speaks for itself if you want to read through it. I think it's about positioning what this Iran war is all about. And I think that actually, one of the most important things already identified at the top of the podcast was the midterms are an important event risk in the political cycle. The Iran war is not popular, ergo Trump wants to wait for these midterms to get out of the way if he is going to do something, and we could see war resume very quickly after they're over. So the midterms being about a hurdle for the Iran war to continue, and then once that hurdle is cleared, then it opens up the risk of this escalation. As per that Chris Murphy quote earlier on in the podcast. So there's that. But also, what is the war about? And I would connect that war, which I talk about in slide 23, with my last point on slide 22, which is this not paying and not committing to creating this orderly global system for global trade, which has benefited who? It's benefited the mercantilist powers that have subsidized their manufacturing bases and not profits to gain control over the world. So I think that's a good point. Over manufacturing capacity and having basically hollowed out, for example, the US and to some degree other economies to the benefit of their own in terms of that production capacity, if not profits. So how do you get back at that system? How do you get back at China's, from the US point of view, that is, how do you get back at US China's, that is, leverage on rare earths, prevent China from shutting down your economy? Well, you show them that you can shut down their economy as well by taking away all their oil suppliers. Venezuela, taken away in the space of days. Ability to host anything in the Caribbean, that is in Cuba, looks like it's going to be taken over at some point. Ensuring that they can do no deals in your hemisphere, weighing in against Canada, making sure you're doing not only military, but commercial deals with Greenland. In the case of Iran, another oil supplier to China. Even if you can't do regime change, you can't, you know, get rid of this regime that is so in the region with all of its proxies and in Yemen, in Hezbollah, etc. And therefore sort of turn the region into a one that is allied more with you, even if you don't really necessarily need their oil. Even if you can't do that, it's better to, as Michael Every says, it's better to make sure that the whole place is chaotic and dysfunctional and not able to ship oil. When you have Fortress America, including Canada, now Venezuela, Mexico, maybe even the United States, maybe even Brazil. But now that's a very interesting one that that did not go Trump's way. But Brazil aside, you have a Fortress America in terms of energy, especially in natural gas, where you're a superpower, the superpower. So what? That Iran can't export, but China is not getting cheap oil. China is not getting some especially extra cheap oil from a loyal supplier that is also disrupting some of your allies. So better that though, you know, ideally, you do regime change, you have a region that, you know, is unified and friendly towards you and less friendly to your enemy. But if you can't get your best case, just make sure the place is not fungible for delivering cheap oil to your global rival. That is, I think, a valid way to a valid lens for this. Nobody is declaring that the mainstream media outfits are not declaring that. But the likes of Michael Every are asking this question, and I ask it too. And I think there is something there very well. It could be something there. But another angle that has been added on during this Iran war, and I think is especially fascinating, is that the Ukraine war, the Russia-Ukraine war, and the Iran war have demonstrated the nature of new warfare. So the nature of these new weapons that are drone-based, you can hide them in mountains in the case of Iran, or in the case of the Ukraine-Russia war, you just have these overwhelming numbers of cheap weapons that make offensive assaults virtually impossible and very deadly if you persist like Russia does in just sending endless numbers of troops across their front lines. I don't know what the Ukrainian casualties are or the Russian casualties are, but it seems the Russians are losing far more than the Ukrainians by being, trying to be more on the offensive. That this makes war extremely difficult to prosecute, extremely destructive for the economy, and asymmetric in nature. So, I mean, it's remarkable to see the way that Iran is holding out. This was not the model we had in our heads when Israel and the U.S. started launching attacks after what we saw in the first Gulf War, even the second round of the Gulf War, you know, various attacks in Afghanistan. You could always at least establish some kind of quote-unquote order on the ground, even if you couldn't win over the people. It's just not the case in these wars. So it's a warning to the U.S. how difficult things are. It's a warning to Europe about its security that maybe wars look very differently. It needs to arm in a very different way. It could also be a warning for China in terms of any attack or any posturing towards Taiwan, if that were ever to get military. Now, I doubt China wants to do anything military against Taiwan. It wants to pretend that it can, but it would much, much prefer a peaceful flag planting in Taiwan based on a political maneuver rather than something military. But even if it was to go military, Taiwan is very difficult. And now with this new generation of weapons, it might be that much more difficult in such a scenario. I really don't know. I just wanted to put it in there. And actually, the irony of all that ugliness of war bit being that maybe we should have hope that the U.S. and China can move to some degree toward a grand bargain about control of Taiwan, you know, U.S. access to rare earths for the next 10, 15 years until it can build its own supplies. And it would give the U.S. time to get those chip factories humming on domestic soil. And then they could sort of move away from each other, have rivalries in various third countries, but that those rivalries wouldn't have to be existential because you wouldn't have, for example, a Taiwan that produces 90% of the high-end chips, where the U.S. insecurity, the U.S. fear is that, well, if China invades, our whole economy is completely in ruble. And so, I think, ironically, and hopefully, the ugliness of this war, first of all, we all hope that it ends tomorrow, or if it can't end yesterday, but that it leads towards more gentle solutions to the plague of these rivalries. In any case, we certainly have to hope that war stays on the trade front and does not become kinetic in the case of massive powers like the U.S. and China. All right. Getting along here, getting towards the hour of the podcast, I've got, what, three, four, five seconds? six, five more slides to get through here. And yeah, the next one is back to the Democratic Party, where I have my main point of curiosity in this election, really, not just will they win, but is the Democratic Party finally transforming itself? You had the lesson learned of the 2024 election in which the president, the sitting president, I cannot believe they advanced him and he advanced himself. His excuse is he was so far gone in dementia and so senile that he didn't realize how far gone he was, but that those around him didn't realize this was a no-go and he didn't have a proper primary process to identify a viable candidate, which resulted, of course, in this, you know, slamming Kamala Harris into the, you know, the hot seat of becoming the presidential candidate. She was, she's never been a good candidate. She's never been popular. She failed miserably in all of the other primaries, couldn't speak, put a sentence together to describe what she was thinking at any given time, oddly, because she's obviously not a dumb person, but was just very challenged in terms of her ability to communicate, simply put. So, you know, you have a senile zombie avatar replaced by somebody that can't communicate, that didn't really earn their position as to, you know, as the candidate. And this is just, once again, seems to be after the 2016 lesson, which was that it looked like a strong arming to get Hillary Clinton into the nomination to shunt aside Bernie Sanders. And of course, that is the two wings that are most at odds with one another. This progressive, a democratic socialist wing, proper sort of traditional democratic socialism, not real socialism. This is the sort of the modern socialism of Europe, right? You want aggressive redistribution so that the poor don't get too poor, the rich don't get too wildly rich. You have what every other, you know, advanced country has, which is some kind of universal healthcare system. The U.S. has it, as Bill Maher says, it's just we have democratic socialism for old people only, not for children. In other words, Medicare, et cetera. Stronger labor rights, you know, the whole corporate power and corporate cronyism and capitalism for the, you know, socialism for the rich and capitalism for the rest of us doesn't work for the rich. You can hear I have an element of sympathy for the general shape of this group. One thing, though, and the thing that is, I think, actually prevented them from having full power is their very progressive and very aggressively progressive stance on many social issues. And here we get into the LGBTQ side of things, which some on the natural left, I would call it natural left in terms of economic policy, are uncomfortable with, which takes you to the bottom group, the working class. And one might call underclass, which there definitely is in the U.S., people that are not just in traditional blue collar jobs, but the service, the weak service jobs, weak in terms of income power and gig economy and things like that. They can tend to be economically populist, but they're socially conservative. And this is especially includes on the latter point, some of the larger minority constituencies, African-Americans, Hispanics. They tend to be pro-union. That's more traditional working class stance and maybe skew a little bit older than the progressives who are more urban, tend to be more white and tend to have higher education levels. The working class underclass wants just the economic populism, not the social stuff, basic social insurance, health care and decent public services and for safe neighborhoods, let's be honest, but uncomfortable on the more socially progressive issues. And then you have in the middle there that professional, class. This is the establishment. They live in the suburbs. They have higher incomes, professionals of various levels. They tend to have the money. And in terms of the corporations, they have lots of money because the corporations are the ones that are talking to this class and donating to them and where they get the money from. So they're sort of paid to not have too aggressive a stance on anything that looks too left leaning in terms of economic redistribution, in terms of taking down monopoly powers, all these things that are, which the democratic socialists are absolutely clamoring for, but are being blocked by this establishment class that has access to the donor class. Again, educated, they can be socially progressive, but just less radically. So more pragmatic, want to, you know, really tiny changes, basically just want the status quo and the status quo. When you have a populist revolution going on across lots of the population, especially for young people that can't get on the social ladder, can't get into the housing market because housing prices and the financialization of the economy have blown their prospects to bits, that is where the internal divide really happens. And so you're seeing the rise of the democratic socialists, lots more candidates in elections across the U.S. in these midterms that represent the democratic socialist viewpoint. Zoran won in New York City, most definitely a democratic socialist, very popular, has been very much in demand for endorsements across a number of other individuals in democratically campaigned. So super curious where this is headed. What is the skew in those districts where you're seeing a properly democratic socialist candidate running? And in terms of when the results start rolling in, they get in as early as 1 a.m. here in Denmark, which is, well, now with the clock coming in at an hour, that's midnight GMT. Figure it out yourself. That's midnight GMT on Tuesday night. Major states to close, Florida and Virginia, Georgia, I believe, as well, around that midnight GMT. There is a very interesting race with Angie Nixon. Not only is she a democratic socialist in terms of her policy, I don't know how she labels herself. By the way, I should say that this is for the Senate race in largely Republican Florida. But she's also working class, which is a little bit unusual here because many of these are a bit sort of more urban and, you know, highly educated from a working class background, is able to speak out in the out in the rural areas of Florida and is getting more of a response out there than most of these other traditional types of democratic socialists get. She's considered having no chance of winning the race there. I think 10 percent odds on Kalshi. But could, you know, obviously there could be a tremendous shock would be if somebody like this wins. I doubt if that's going to happen if polls are correct. But could it be much closer race than anticipated? That would be one of the early night sort of races where you say, wow, something big is going on here, even if she does lose as those results start to come in. Then there's the Texas polls closing at an hour later. And there is a super interesting race because Texas has been so Republican for so long. Could this poor quality candidate from the MAGA side, this guy Ken Paxton, accused of all kinds of improprieties and basically crimes running and very poor quality candidate again, does he lose to the Democratic challenger who is not in this case, progressive. But back to the progressive side of things in different constituencies, I might come up with one or two more of those in a podcast before the midterms early next week. But there was back to my slide deck. There's the Michigan race also with a very progressive candidate. This is his name, Abdul Al-Sayed. He is a Ph.D. from Columbia, Rhodes Scholar in Oxford, etc. Of course, he's labeled as I think is a Trump. He's called him a jihadist or something like that. Ridiculous, right? But he's running less interesting about his being a Muslim than his being a proper progressive, a bit in the Mamdani line of things. And here is in this picture on slide 25, celebrating with Bernie Sanders. So can a Bernie Sanders endorsed candidate win outside of a state like Vermont? His tilt is actually quite modest, a 66. So two thirds in favor of his winning versus Mike Rogers, the sort of Republican challenger. And that's another race to watch. I don't have the closing time for the polls there, but that Michigan race, super interesting. Then move forward to slide 26, asking about, again, this issue of will Trump and his politically, political hitmen in the Department of Justice, let's be honest, they all, all appointees are political to some degree, but could there be some systematic effort here to try to not move towards certification of these elections? It could one or two key races make the difference if they're held up for a long time in the courts. One of those, and probably the easiest one where there might be a little bit of something in challenging what's going on is in Alaska, where there's this bizarre situation where a man with the same exact name as the Republican candidate, who is not a politician and has no chance of winning, but he's on the ballot. So this guy, Dan Sullivan, some random retired school teacher has gotten himself into a lot of trouble. I don't even know how. And the Department of Justice is saying that, or Trump is saying, somebody's saying that they will refuse to recognize the election result if it does not result in a victory for Dan Sullivan, the Republican candidate. And the Democrat, of course, is leading in the polls. So highly charged situation there. And then there was that other angle on whether there was any traction by the Department of Justice effort if they move forward with it to refuse to certify votes where they say that They have evidence that some voters have voted that are not U.S. citizens. This is sort of this primal fear of the Democrats that think that we're about to lose control in the U.S. of our democratic system and that there will be some kind of authoritarian reach here. I don't know what delta to put on this. I think a reasonably non-zero delta for some kind of effort, for an effort to really succeed, to completely overturn America's 250 years now of precedence of these elections being most of the time quite democratic. There were some really irregular elections on a couple of occasions, 1876 being one of the worst. But I don't know. I'm reluctant to go there. So reasonable delta that there could be some – I'm going to say delta. So 25% chance, let's say, that there's some kind of effort to delay things and there's a little uncertainty and bother about all of this. But a much lower delta that this actually looks like something that is going to really seriously put an existential risk of the U.S. system of government being overturned. By the way, if by some miracle there are one or two of you out there that have listened all the way through here into the 70th minute of this podcast, would absolutely love to hear from you. If you like this long-form demarcation. We dive into a subject like this. I find these quite fun, but they do take a lot of time to produce. I could also – I've been talking about it, unfortunately, way too prematurely, talking about doing a YouTube channel. This format, especially with an accompanying slide deck, would fit a YouTube-style format much better. Would much prefer to do it there. And so whatever. Let me hear your thoughts. I hate this. I love this. I would love it even more if it's on YouTube. Please fill out my inbox. I really do. I do appreciate everybody's feedback. I also had – when I get to the links section, I had a reader, Matt Casey, I think that's your name, of Beltway Alpha, who put out a piece, a really interesting piece, on his sub stack, Thoughts from the Road. So talking with folks across the USA and actually making a note that AI is playing an interesting role in people's awareness and sort of discomfort with what's going on. You're seeing that in a lot of polls, and it feels like a lot of it's kind of diffuse. There's a lot of fear there. But he's putting some words on that based on actual discussions with people on the ground across the U.S. So much appreciated from you, Matt, for that link, and I'm passing it along to all of you Saxo Market Call listeners. Okay. Back to the slide deck. I'm almost through here, but I wanted to bring up a couple of things. Where are we? What are my thoughts on the long term? With or without these midterms? I think. I have some concerns that technology and AI are a bit richly priced. I'm especially intrigued. There's so many people saying so many different things on AI now. I've passed along probably too many skeptical things. I'm a little bit too skeptical by nature. It's important to know, know thyself, to know your biases. But one of the more interesting things and divergences of what people are saying is some people are putting forward the evidence that that GPU rental prices are going up. So the demand is through the roof, and others are saying, well, that may be, but that's because it's hard to get a data center space that connects to the grid, and that the limitation is on data centers and grid capacity, and that means there are tens of thousands and more chips that have already been sold that can't even be plugged in. So why should we think that chips can grow another 3X over the next two years or whatever the projection is? That means many things. It doesn't even have to mean that AI demanded. It isn't there or that we're about to collapse in terms of the overall move towards AI at all. It could just mean that where the profits can be realized are going to be very different. But I don't know. I'll continue with my thoughts on that for the long term elsewhere. I do have a near-term concern over the next 12 months that we've projected too much. The market shares those concerns when you look at forward PEs. The market does feel that this is cyclical, but how cyclical is it, and when does that cycle play out? I'll give it up to 18 months. I think it's more like three to six where we see within three to six months, we see some kind of significant break, if not ugly break, in the whole story, just in terms of the financial assets, not necessarily in the implications for AI technology longer term. A bit like the railroads, and that leads me to that 1873 book recommendation. I put the little graphic there on slide 27. Another encouragement from my side for everyone to read that book. I think we've learned. The opposite lessons to the extreme from the lessons that were not learned during that whole episode. What I mean by that is the imposition of the gold standard and just simply the lack of money being an unnecessary break on global progress at the time with all kinds of unpredictable social phenomenon that came from that as well. I do like materials, commodities, and infrastructure on this geostrategic issue that I've talked about. Bonds, I think, well, short term, we've already seen quite a bit. I think I've hopefully been talking about bonds a little bit on the podcast in recent weeks. I think that's been a decent call. I think there could be some more there, short to medium term. They give far better return relative to inflation than they have in a long time. Of course, we will not solve our huge debt problems through austerity, I don't think, but we'll do it by sort of forcing economies to run hot and to force inflation, or at least keep bonds. It yields from exceeding inflation by too much when we get to that point where they become a problem with financial repression moves, et cetera. So what do we do with bonds? They're there. Maybe they're interesting now. Long term, I don't think they'll provide strong returns. And then I'm really curious about the political drift of the nation after these elections. My prediction would be we continue to drift left populist after this election and a little bit away from the right populist. So left populist being towards the democratic socialist crowd. If they can drop enough of the social, at least be quiet about the social progressive stuff, enough to get the natural left populists on board with their coalition, I think there's a much more powerful coalition in the U.S. to square away some of the inequality there is in the U.S., which is remarkable and near record extremes, really, in the modern era. And if you put all that together, what I just said, and by the way, connected to that last idea, that End Times book by Peter Turchin, his framework is way too overimposed and sort of academic. But I think the shapes of it are super fascinating and super compelling. What I mean by that is his idea that we're facing a massive pivot because we've destabilized our society by having a group in power, the super wealthy that have a big wealth pump in place, which is the stock market and passive investing. And those people that are benefiting from that system will defend it at all costs, whereas those that are not benefiting from it are being weakened. And you have these counter elites, and at some point, it just all blows up. And I think we're getting to the blow-up point. The blow-up doesn't have to be violent. It just has to mean we have a significant change in direction. And I would encourage people to read that and consider that book as well. But down to my last point, all of the above, what does it lead up to, combined with the Turchin framework and some loose sense, is that we're moving in the direction of it being better to be a young and a wage earner. At least the prospects for younger and wage earners is going to improve from here relative to the wealthy and those that are living from investments and asset markets. So position yourself accordingly would be my – or I want to position myself accordingly is something I consider for the longer-term future. Which leads me to my – my final slide you may or may not be pleased to know, and that is I mentioned it on a – there's actually an additional slide, which is a slide from the podcast I did last week with J. Safra Sarasin's Raphael Oshini-Marzis on the midterms. This one being a little bit more in-depth and a little bit more personal twist on things. Slide 28, super important. And this was something I mentioned on a different podcast. Somebody put – or somebody talked about this, this – and I've talked about this, which is corporate profits, they're at an impossibly high percentage of GDP. That was the case in 2000 – was it before the global financial crisis? That was the case. And we got that big mean reversion. It looked like the indicator was really working. But then with the response of QE and forcing everybody into risk assets, we – we re-inflated the asset bubble. And it's gotten even more inflated since the pandemic and the pandemic response. So what was supposed to mean revert, and there's a parallel in this with the Buffett indicator, which is supposedly, oh, the U.S. stock market could never be worth more than X percent of U.S. GDP. It went to insane extremes in 2000, far above how big the stock market was back in the 60s, which didn't even approach 100 percent of GDP. It got almost to 150 percent. It got almost to 150 percent of GDP in the 2000 bubble. And it went to – well, it first went to 150 percent of GDP in 2018. We had that little mini-volpocalypse violent correction there. during Trump, the pandemic panic there, and then the pandemic response blew the thing up to 200% of GDP plus. So this is not a mean reverting indicator, and that somewhat parallels the experience of these profits versus percent of GDP as well. Two different things, but it's measuring how well the capital is doing versus labor, and it's measuring somewhat related to that, how well the capital markets are doing relative to the economy. So 200 plus percent of GDP, post-pandemic, we get the inflation blow up, we get the vicious central bank response to tamp down inflation, markets cooperate by collapsing back down to just around 150% of GDP in the US, and then we get the AI investment bubble, and calling it a bubble for now until proven otherwise, which only the owl of Minerva will look at. Let us know eventually somewhere down the road. Now we're at the record extremes. This chart is as of end of 2024, and it's gone even higher since then. So far, this darn thing has just not been reverted. Does it mean it'll never be reverted? Does it mean we'll go to 300%, 400%, 900% of GDP? I don't know, but at 900% of GDP, I suspect we're getting a lot closer to that social revolution happening, and I think we're kind of already there. And it's very much also related to the very indebtedness of the public sector, that we are this high in the private sector. And that is a part of the equation that needs to square eventually as well. And we're at the bleeding edge with these record levels of costs to finance the public debts, service the debt. I do think that pivot is coming sometime within the next four years, let's call it. So somewhere after the 2028 election, for example, and the policy, we'll have to be in place there. Could come after the overhang of an AI bubble, which could come ahead of that. I don't know, but something to consider. No, it hasn't been reverted. Yes, it got to levels that none of us imagined, or very few of us imagined. I was one of the people calling for this thing to mean revert ages ago, and people were circulating these charts 15 years ago with conviction, me among them. And I'm still circulating them, but this time with the humility of knowing that I have absolutely no chance of getting reverted. I have absolutely no idea of the timing. But I do think, obviously, with these levels of indebtedness, with the impossibility of continuing to finance things as we've been doing for the last 30, 40 years, that the inflection point is that much closer. A long-term point of concern, as we look at the next few days, the very short term of the midterm elections and what they will bring. Look, I hope you have found this worth your while. I certainly hope you have found this worth your while. I certainly enjoyed it. I enjoy expressing myself on these issues. Do look for the link to this, or I should say to the slides in the podcast episode description if you wanted to see what I was talking about in the various references. I'll link the couple links I mentioned before as well. And there was another one that I found very interesting from the South China Morning Post on tipping culture in the U.S. I've talked about it before. It's become something that's really annoying for the community. It's become something that's really annoying for the consumer out there. And it's a very interesting perspective on that, comparing it to the conversation held at the beginning of the movie Reservoir Dogs by Quentin Tarantino. So look for that. And again, I'll try to dredge up this article from Wall Street Journal on the specific elections where the data centers are very much on the agenda and in the awareness as the elections go forward this Tuesday. So stay careful out there. Have a wonderful weekend, which you maybe are enjoying already. And we'll touch base again next week with the next Saxo Market Call. This has been the Saxo Market Call podcast. Thanks for joining today's episode. We're always happy for your feedback and questions of all kinds. To reach out, you can drop us an email at marketcallatsaxobank.com. That's marketcallatsaxobank.com. Saxo. Serious trading worldwide. We'll see you next week.
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