Speaker 1Happy Wednesday out there, Team 42. It's your skipper here, Darius Dow, to present our Macro Minute for Wednesday, November 4th, 2026. We've got a ton of macro to chop through, so let's just hop right in. As always, we'll start with the executive summary from today's lead-off morning note, so let's dive right in. What did we learn today that will likely have the greatest impact on your portfolio? The midterm election results, data center ballot results, and wealth and income tax results generally supported the durability and severity of the current risk-off inflation market regime. While key macro data or policy signals supported our active themes or consensus expectations, the October ISM Services PMI report supported our resilient U.S. economy and staking inflation themes. The Q4 quarterly refunding announcement supported our Fed Treasury Accord 2.0 and Cold War 2.0 themes. In China, the final October composite PMI data supported the consensus forecast of moderating growth. In the U.K., the final October composite PMI data supported the consensus forecast affirming growth. While key macro data or policy signals challenged our active themes or consensus expectations, the October ISM Services PMI report and October auto sales data challenged the consensus forecast affirming growth. The October ISM Services PMI report challenged our paradigm C, aka rented hot theme. The October auto sales data challenged our resilient U.S. economy and paradigm C, aka rented hot themes. In the Eurozone, the final October composite PMI data challenged the consensus forecast affirming growth. The Eurozone's October CPI data supported the consensus forecast of peaking inflation. And what other key macro data, policy signals, did we analyze in today's lead-off morning note? So obviously, about as much information as I've analyzed in one day in my entire life. So we have the midterm elections, the data center ballots, the wealth and income tax results, and then the Treasury decided to sneak the Q4 QRA in for good measure. So let's unpack them one by one here. So regarding the midterm elections, the Senate, House, and gubernatorial results were a worst-case scenario for POTUS and his Republican Party. The results contained a striking number of historic achievements for minorities, and the results contained a striking number of historic achievements for minorities, and the minority party. In our view, these historic achievements signal significant redistributive policies in the years ahead, such as wealth taxes, trust busting, higher corporate tax rates, and eliminating tax deductions whose benefits overwhelmingly accrue to the donor class, such as the stepped-up basis in the estate tax carried interest loophole and 1031 exchanges. A morning consult poll from November 1st signaled that 69% of voters nationwide prioritized health care affordability as the number one issue, while 57% prioritized housing costs. Voters favored Democrats on both issues by 15 plus points, which was to be expected given the historically regressive nature of the president's signature policy, the One Big Beautiful Bill Act, or ABBA. Number two, regarding the risk of a politically induced slowdown in data center construction, the data center ballot results were a worst-case scenario for the historically concentrated AI theme. With respect to the myriad of policy proposals aimed at data center construction, restricting data center construction won 36 of 37 fully counted measures, allowing data centers to be constructed, won only one measure. Nine measures still remain open, restricts median vote share in yesterday's polling at 77%, restrict won all six earlier 2026 data center measures with 66 to 90% support. So, I mean, it's an overwhelming bloodbath in favor of slowing down data center construction. As we have highlighted in our Cold War 2.0 research, number one, data centers are overwhelmingly unpopular across the country. Number two, data centers are most unpopular with females and young people. And number three, females and young people overwhelmingly vote in favor of the Democratic Party. Again, anyone shocked by today's results was simply not doing the required work that we've been doing in our macro scatter reports. Shifting gears to the risk of significant redistributive policies. There were three states with ballot measures that were worth watching, California, Colorado, and Washington. The measure that mattered most, the California wealth tax proposal, failed in favor of the donor class. This is bullish. In our view, this is the second most important driver of today's bullish reversal in stocks behind the Uber dovish Q4 QRA, which supported our Fed Treasury Accord 2.0 and Cold War 2.0 themes. The Colorado and Washington measures did, however, signal broadening support for redistributive policies in ballots where relative financing was less of an unfair fight. On Monday, the Washington Post reported that California Proposition 40 opponents led by Alphabet co-founder Sergey Brin outspent supporters 250-fold. Brin himself donated $100 million to defeat the measure. Opponents raised $379 million against the wealth tax. Supporters raised only $35 million. If these numbers are independently verified in the coming days, this outcome would potentially represent the most salient evidence that the US political system has been hijacked by the wealthy due to decades of corruption and campaign finance deregulation. History has proven time and time again that this mass emiseration plus mass disenfranchisement typically leads to paradigm E, a.k.a. major political realignment and total war. I'd like to take my word on that. Take my friend, mentor, former colleague, Neil Howe's work, his fourth turning framework on that. You can take Ray Dalio's Disintegrating Domestic and Geopolitical World Orders framework on that. Or you can rely on Peter Turchin and his colleagues at the Complexity Science Hub, his Clio Dynamics colleagues, and their lead over production framework. Three independent frameworks all are pointing to the same place, which is the folks on the bottom of the K are going to flip over the Monopoly board if we don't get our act together here on the top of the K. So anyway, regarding the Q4 QRA, the Q4 QRA featured large increases in net marketable borrowing and the TGA balance for the first quarter of 2027. Still, "Treasury believes its current auction sizes leave it well-positioned to address potential changes to the fiscal outlook and to the size and composition of the SOMA portfolio. Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and floating rate note auction sizes for the next several quarters. Treasury is monitoring SOMA purchases of Treasury bills and growing demand for Treasury bills from the private sector. In considering any changes, Treasury will be guided by the objective of financing the government at the lowest cost over time. The translation from this is investors should anticipate that the $2.14 trillion funding shortfall for fiscal 2028 and 2029 will be addressed via incremental dovish net financing policy. Years of persistent dovish net financing policy have forced the Treasury into a dilemma: continue financing in the bill market and increasingly drain bank reserves, or extend the duration of financing and increasingly compete with AI for long-term debt capital. There is a third option that skirts these constraints, and it's a Fed-Treasury accord 2.0. Our expectation is we're going to start to hear more on that in the second quarter of next year. And so this is why we thought, hey, even if there was a risk of a Q4 2018 style scenario, which in our view, we don't think that risk has dissipated, we think that risk has actually increased as a function of these election results and ballot measures, irrespective of today's VANA-induced rally, irrespective of that, we've always been of the view that, hey, this market cycle does not peak until we get into the second half of 2027 or the first half of 2028. We still think there's a tremendous amount of upside for stocks, gold, Bitcoin, over the medium to long-term until the end of this ultimate market cycle. And part of the reason we think that is for two reasons. Well, there's several reasons, but one of the reasons we think that is we do believe liquidity is on the way next year in the form of the Fed-Treasury accord 2.0, liquidity that will support the U.S. Cold War 2.0. We don't think the U.S. will win Cold War 2.0, but we certainly think the administration will try to support that victory. So, as always, we'll wrap up with a question from our community. This was titled "Election AI Fears." This is, "Hey, Dede, how much conviction do you have in the idea that a democratic sweep would actually slow AI construction? Isn't it possible that the anti-AI rhetoric is largely campaign positioning that fades once the election is over, especially given the influence that big money donors that have exposure to AI?" So, yeah, very clearly, that's what the market is saying today. I mean, if we go look at the NASDAQ futures here. So, obviously, in the election results, the NASDAQ futures from futures went down 3%. And then they've since rallied about 4% to be modestly up on the day. So, in our opinion, this is very clear evidence that the buy side largely covered their shorts here. And there's a lot of zero DTE, one DTE type short positioning that was obviously covered here in terms of closing out those short positions, which causes dealers to have to cover their short positions. However, their shorts, their delta hedging shorts and things like SPUs and Qs. I would not read too much into this at all. I mean, this could be the start of a new, the end of the correction in AI, and then beginning of a new breakout to a risk on market regime. It could also just be a function of dealer gamma flows or dealer delta hedging flows rather. And so, not knowing the answer to that, because I don't think anybody knows the answer to that until we get the dust settles. But I would just give this a couple of days, in my opinion, because the results were very much signaling, in our opinion, the risk of a politically induced slowdown in data center construction is greater. I've heard a few folks on the Bloombergs and whatnot saying that, okay, this is somehow bullish. I don't understand how AI data center construction impeding, proceeding with no impediments is bullish, but slowing it down is also bullish. Maybe I'm too stupid to understand that, but I would just give this a couple of days. So, wrap it up. Darius Dale here presenting our Macro Minute for Wednesday, November 4th, 2026. Best of luck out there today. Okay. We'll catch you back here tomorrow. Cheers.
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