Author: Mr. X
Let’s provide some context for predictions.
At the beginning of this year, many of us made specific predictions. One of mine was that Russia would in fact invade Ukraine. Unlike the Ukrainian government at the time, I thought Vladimir Putin’s government had put itself too far out diplomatically to withdraw without disgrace. Russia’s previous interventions in Georgia, Transnistria, Crimea, Syria, and other territories had met with success.
I was right. A lot of experts were wrong.
What I didn’t expect was that Russia would drive for Kyiv. President Joe Biden had said the quiet part out loud in the run-up to the invasion when he said that sanctions against Russia would depend on the extent of Russia’s invasion. I thought Russia would limit itself to the separatist People’s Republics of Luhansk and Donetsk, with perhaps a drive to create a land bridge to Crimea. That’s basically what Russia is fighting for now – but only after a disastrous offensive against the Ukrainian capital which rallied the entire Western world against it.
President Vladimir Putin was simply overconfident. After the collapse of the American-backed government in Afghanistan, he probably thought Ukraine was a similar puppet state that would fall apart just as easily. Yet Ukraine has proven it is a nation with a willingness to fight.
Now, President Putin faces a war for Russia’s very existence. I thought that Russia would mobilize far earlier than it actually did. The reason it’s been so slow is because Russia is not geared up for total war. The Putin government has stayed in power largely by depoliticizing the country. Even the latest conscripts are being told that they won’t serve in the newly annexed regions, and the Russian military relies heavily on separatist militia forces (who have been fighting since 2014), the Wagner private military company, and units from areas such as Chechnya.
Western predictions of Russia’s military “collapse” have been overstated. Russia still holds Kherson and has begun limited offensives with newly freed up troops. Western nations may grow uncomfortable with demands from Kyiv and pressure could intensify for a negotiated settlement if Ukraine can’t retake the offensive in the next few months. Kherson and Bakhmut (in Donetsk) are the key battlegrounds here. To offer another prediction at odds with most Western experts, I think Russia will hold on to its annexed territories and would use nuclear weapons before losing Crimea.
In short, I was right… but the details are important. I didn’t expect an existential war that would drag on for years. I expected a limited intervention by Russia that would essentially force Ukraine to reconquer territories it hasn’t fully controlled for eight years. Predictions are more complicated than simply “yes” or “no.”
This brings me to another prediction I made back before the New Year.
The GOP will claim the House of Representatives. I said this again in mid-March.
I’m standing by it.
One of the most important indicators of a wave election is polls moving in the same direction across the country. In 30 recent generic congressional polls, Republicans lead in 25. They are also up by three points in the RCP poll of polls as of this writing.
This is significant because the Democrats usually lead generic congressional polls. The movement is also significant, with support for the Democrats trailing in the most recent polls.
A recent NPR/PBS NewsHour/Marist survey found the GOP enjoys an advantage on voter enthusiasm. More significantly, Republicans enjoy a 20-point advantage when it comes to inflation. The most significant issue among Democrats in this poll is “conserving democracy.” President Joe Biden reemphasized this in a speech last night, using the bully pulpit to rally his base. However, “conserving democracy” may not be enough of an issue to reach undecideds, for whom economic issues tend to be key.
A Reuters poll from last month found “inflation” and “jobs and economy” to be the most important issues going into the election. Republicans enjoy an advantage on both. It may be an unfair advantage, as there may be little President Biden can do to change the economy in the short-term. However, the GOP can stick to its traditional message of limiting spending as a possible solution to inflation.
The Senate is a far more delicate situation. President Donald Trump consolidated his control over the GOP with his endorsements in Pennsylvania, Arizona, and Georgia. These three key races may decide the Senate. If the GOP accomplishes a clean sweep, it won’t just be that the GOP will have the upper chamber. President Trump will have unquestioned command over the party and will be the prohibitive favorite for 2024. Even Florida Governor Ron DeSantis (who appears likely to win re-election with relative ease) has said he will not challenge Trump if ’45 runs again.
If Dr. Mehmet Oz (Pennsylvania), Herschel Walker (Georgia), and Blake Masters (Arizona) lose, President Trump may take the blame, especially for the first two. That could provide the opening DeSantis or another challenger needs. Candidates such as Nikki Haley, former Vice President Mike Pence, or Senator Tim Scott are unlikely to have the kind of mass appeal and media presence Trump and the Florida governor enjoy. DeSantis is saying he doesn’t want to run for president, but he notably dodged the question of serving his full term in a debate. He’s looking for an opening, and he doesn’t have one yet.
Here, we get into the details. “Russia invading” is different than “Russia is trying to take over all of Ukraine.” Republicans will take the House but I am not confident enough to say that the GOP will take the Senate. There are three reasons why.
First, in most of these close races, especially Arizona, Democrats have consistently led in the polls.
Second, though there has been definite momentum towards Republicans, early voting is sapping some of the movement.
Third, there has been notable support for split-ticket voting. Blake Masters, for example, has far poorer numbers than Republican gubernatorial candidate Kari Lake.
The Democrats are trying to tie certain candidates to Donald Trump, but I don’t think he will be very significant in this election.
Totally deplatformed, his influence is deep but not wide. He has the power to push candidates over the top in a primary but he doesn’t generate the headlines that will push undecided voters. Democrats talking about “saving democracy” seem somewhat disconnected when Trump isn’t on the ballot and people are more concerned about economic issues.
What’s key is that with a Republican House, many of the investigations the Democrats have launched will die. The Republicans can also be expected to obstruct President Biden’s economic policies, while still supporting aid to Ukraine (despite a vocal minority’s opposition.) We’ll end up with divided government.
Historically, for markets, that’s a good thing. Policies like a student debt amnesty, a windfall tax on oil companies, and more spending that could fuel inflation will be dead on arrival. Energy companies will be the biggest beneficiaries from a Republican victory.
I’m not wimping out on a Senate prediction – I’ll say something again before Election Day. For now, I’m absolutely confident the GOP takes the House. I’m reasonably confident the Democrats will hold the Senate by a very narrow margin. I’m certain that divided government will be good for investors.
It may not be enough to save the country from recession, but it will prevent things from getting worse.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing.