中期选举与蓝潮冲击下的宏观变局：MAGA拐点、AI交易受挫与资产定价重构

All right guys, so every now and then we have big turning points in history and it looks like last week was one of them.

Last week I believe it was the end of MAGA. MAGA had been the most influential political movement in the US the past decade. It brought us two terms of President Trump, changed domestic politics, and of course shook the global international order.

And we already see some of the immediate implications with the implosion of the AI trade, but I think there's more to come because we're being set up for about a decade of Democrat rule. And so before we talk about what that might mean for the US economy and asset prices, let's first start with the data last week starting and then we'll talk about the blue revolution.

So the tech companies are AI native, so you'd expect to see productivity gains there before anywhere else. Now productivity is the most important thing when it comes to living standards. However, I must caution everyone that doesn't mean you're going to make money. So for example, let's say that I want to know about hydroponics in Afghanistan in the 1980s, right? If I wanted to know about that, I could have AI compose a research report for me on the topic. I can get that instantly, and that would be real goods and services produced, and I would be wealthier because I get to have this piece of knowledge. However, I didn't pay anything for it. So, again, separate the increased production in goods and services from the monetary side. I continue to believe that we will all be wealthier from AI, but uh not many people will make money off of it.

Moving on to the employment data, well, the week began with the JOLTS, and JOLTS was notably stronger than expected. So, JOLTS is the number of job openings in the US, and it was it was a big jump, suggesting increasing demand for labor. Moving on to the NFP report, NFP was strong across the board. On a headline basis, many more jobs created than expected. The unemployment rate declined to 4.1%. Um labor force participation increased, and wage growth accelerated. The labor market in the US is strong.

And from a Fed perspective, that means they don't have to worry about their labor market mandate. They only have to worry about inflation, which remains too high. We're still on track for a December hike, notwithstanding the hiccup we got in the markets the past week.

So, I've been following President Trump since he descended the staircase in Trump Tower in 2015 and announced his candidacy.

At that time, he was really doing something truly revolutionary. He was against free trade and against illegal immigration. There was really no voice in either party at that time that supported those positions.

Now, that was a popular position for the working class in America. The working class had seen their jobs offshored during the era of free trade and now illegal immigrants coming across the border and that's uh that's increased supply of low-skilled labor that was competing for them. So, pushing their wages lower, notwithstanding all the propaganda from the talking heads and the uh economists, right? Telling you that, "Oh, increasing amount of labor doesn't have an impact on wages." Well, obviously, the low-wage workers themselves felt differently.

And that political position propelled him to take the nomination in the GOP and eventually defeat the uh Hillary Clinton to become president of the United States in 2016. Honestly, it was uh truly revolutionary because at that time the Bush family and the Clinton family were the most prominent political dynasties in the United States.

Of course, the president would go on to lose in 2020 and in many eyes kind of disgrace himself only to come back in 2024 and win the popular vote. Again, this is a beautiful Hollywood story if it only ended then.

So, over the past couple years, the president consolidated power within the Republican Party and and it kind of became a dictatorship, right? If you watch the cabinet report cabinet meetings, everyone is basically, "Oh, president, you're such a great guy, great leadership. Wow." You know, it was like North Korea level stuff. And so, he had he became the Republican Party. It was all about him. He made all the calls, shaped the messaging, and everyone was just there to uh basically um beg for his blessing. So, all the victory belonged to him and now all the defeat belongs to him as well.

Just looking at the Senate, which was favorable to Republicans at the time, lost Texas, lost Kansas. Looks like you're going to lose Mississippi as well.

So, at the end of the day, it looks like the Democrats will have 56 seats on the Senate, a majority.

Uh going one level lower, looking at the state governorships, you know, lost Texas. I mean, that's Greg Abbott's seat, long cuz widely considered to be a very safe seat, but you know, swept away. Georgia governorship, Nevada governorship. State legislators as well.

So, that that is honestly, it's uh just basically wiped away a generation of Republican politicians.

So, why were the people so upset? And the polling suggests that it's it's really simple. They did not feel the economy is working for them. It was all about these kitchen table issues.

And they seem to be unhappy with the economy because inflation remains too high, and that's really hurting their living standards.

They're particularly mad at the president because well, he he out inflation is high and in part because of his policy choices. So, tariffs, again, they were good rationales for that, try to reshore domestic industry, but that did raise the price of imports.

Iran war, obviously raising the price of gas.

So, they were they elected President Trump to make things more affordable, but he did the opposite. Of course, side some other issues were of course a perception of corruption. The president's family did become even more wealthy, much more than any other presidential family over the past past you know, actually since the history of the United States. I mean, the president is even selling a faster subscription to Truth Social to help traders and so forth. You know, that's just another level of stuff. Epstein files, he was hired to drain the swamp. Didn't seem to do that. And there was also unhappiness with how immigration enforcement was done.

Basically, a total repudiation of the Trump era.

And that has really big implications because the Senate map in 2028 is not favorable to Republicans. So, it looks like the Republicans will lose the Senate for a decade.

And if you're this unpopular right now, it looks like you'll probably lose the White House in 2028.

The betting markets are saying that there's almost a 70% chance that the Democrats would take the White House.

If they take the White House and they take the Senate, well, you know, you're losing the Supreme Court as well. Right now, Republican appointed justices have a majority on the Supreme Court, but many justices are old, like Justice Thomas. So, they're going to retire and they're probably going to be replaced by a Democrat president. So, we it looks like uh the Republicans are are going to lose um all branches of the government uh and we'll have Democrat rule for the for for the next decade.

Now, to be clear, this happens sometimes, like after the disaster of the Iraq war, Republicans were in disarray and it wasn't until Trump came along that they regrouped. So, you know, political parties implode, go out into the wilderness, and then reconstitute themselves. Totally normal. But the implosion we saw last week was really, really historic.

And you know, President Trump was supportive of data centers. Everyone else was not. And so, now that we have even um so, on the state level, which which is where a lot of the the data center stuff is happening, um you can see that a lot of the data centers were being built in Texas and in Georgia and incoming Democratic governors and state legislators, they're not suggesting that, you know, everything's going to stop, but they're they're suggesting that we're going to pause for more regulation, more investigation and so forth.

Uh, maybe they'll need more environmental impact fees or something like that. So, at the very least, the data center build out is going to be slower.

Now, there were already fundamental reasons for for that were arguing against the data center build out. There's a good podcast by Brandon Carl on Bitcoins Squirrel discussing how massive improvements in algorithms had really meant that we could have more tokens per unit of compute. So, basically, uh, the supply of tokens has been increasing significantly. He suggests that maybe there's 13x token deflation a year now. And so, we were already on the cusp of, you know, the AI tree being shaky on the grounds of being over built. Uh, and now we have, you know, more disruptions. And so, last week, you can see you can see the market beginning to price in more concern about the data center build out. Tech really, really imploded. You have the Nasdaq losing the 200-day moving average and really just kind of having a really, really bad day on Thursday.

The S&P 500 holding up a bit better, maintaining the 200-day moving average, but just looking at it, it really looks like, um, we had a double top and are trending lower.

Doesn't mean we're going to crash. Continue to believe that this will be kind of a process, right? I mean, look at the Kospi. Went parabolic earlier in the year, declined by 40% in a month, kind of meandered for 2 months, and then took the next leg lower recently. So, my best guess is that's what's going to happen. Um, we are heading into a seasonably positive time of the year, into Christmas. So, you know, don't think we're going to crash, but it does seem like, uh, the trend has changed as the AI trade implodes, the market is going to have to sift through this and find a new narrative.

Um looking ahead, of course, that also suggests that

Oh, one one other thing. So, another popular theme, of course, was uh some resolution from the trade war, especially when it comes to Canada. Now, I think there's broad support in the US that, you know, the US should not be in a trade war with Canada. Canada is our friend. Uh maybe against China, whatever, but, you know, against Canada, that that's stupid, especially uh when you were having an election in border states like Michigan and Maine where where uh uh there the senators in those states did lose, even Susan Collins in Maine, who has been a long political survivor. So, it looks like some tariffs will come down as well. Now, lower oil prices, data center, you know, hiccup, um lower tariffs, that's all positive for inflation, right? So, the strong political message that the public is sending is that affordability is a problem, and that's the winning campaign message.

So, the political class is going to try to target that, and that also gives the Fed more room to maneuver, more room to hike rates if necessary. And remember, the Fed is um not accountable to the president, it's accountable to Congress. Now, we have a Democratic Congress, and honestly, Chair Waters was always a hawk, so maybe we'll have he will have more inclu- more uh willingness to hike, maybe even hike too much, although that is not in the market at the moment. So, and I I think this is all very bullish for bonds, and inflation suggests to me it will come down.

Could be higher corporate taxes, it could be higher capital gains taxes, it could be higher ordinary income taxes. And taking a step back, looking at the US compared to other countries, you can see that in the US, taxes are indeed relatively low, or taxes relative to GDP on the low end of the OECD. On the high end, of course, there's France. Uh France is very highly taxed, and keep in mind, though, even as they're highly taxed, even as they provide many uh free goods and services to the public, not free, paid for by the taxpayer, goods and services to others, the people there continue to be very unhappy. In any case, there is room for tax rates to go up in the US, and I I don't think it's going to have a big impact on economic growth, but I think it will have a big impact on the financial markets.

That's of course less earnings for companies and honestly when you have a lot of money, what you spend your money on is to buy financial assets. So when you have maybe less less of a K-shaped economy, that suggests that there are few people buying stocks. So it could be a better social model for the median person, but it doesn't seem like it's going to be good for asset prices and that's something that we have to think about going forward. And there are many people who are bidding on seeing more of the green energy stuff, solar and so forth and maybe that will be a theme as well.

So what we're looking at really is a a big watershed moment in in the country and I think the big winner is going to be the bond market because, you know, all the things that were causing the Fed to hike, they're being reversed and everyone understands now that affordability is a key campaign issue.

Now the one risk between now and then next year end of this year, I think is potential escalation Iran. I don't think that will happen, but again many many smart people like Professor Pape continue to highlight this as a very dangerous time. It could be dangerous because maybe Iran will escalate. They are being choked economically and maybe they can see that one way to break the stalemate given that they've kind of done regime change in the US would be to just further press their luck and maybe escalate on military targets. So that's something that people are afraid of at the moment.

So but going forward though, I continue to think just grinding down lower in risk assets, rallying bond markets with a potential flare-up in the Middle East. So let's see what happens. Definitely in an interesting time in the world. All right, so that's all I prepared for today. Thanks so much for tuning in. Talk to you guys next week.