On The Line – Five Senate Predictions

Date: 11/07/2022
Author: Mr. X

Profits flow from the top down.

Government spending should make up about 38% of GDP by the end of this year. It’s the government which determines who gets contracts, which big tech companies get regulations put in their favor, which tax structures allow certain industries to thrive while others are driven into oblivion, which companies are investigated and which are spared. In McCulloch v. Maryland, Chief Justice John Marshall famously observed that “the power to tax is the power to destroy,” and that power has only increased in the centuries since.

Chief Justice John Marshall, best known for keeping it real

There are multiple columns running concurrently in my head about what the elections will mean for our investments going forward. Yet all save one will be rendered moot within a few days.

We don’t want to waste time speculating. We do want to take an educated hypothesis on what is going to happen tomorrow, because it is going to guide trading behavior today.

First, I will stick with my prediction that the Republicans will capture the House of Representatives. This topic has already been covered extensively.

There are five Senate races of special interest. These are Arizona, Nevada, Ohio, Pennsylvania, and Georgia.

The conventional wisdom is that this is going to be a “red wave,” if not a red tsunami. I’m not so sure. The Democrats enjoy a sizable advantage in early voting in many states. A plurality of voters in the last NBC News poll prefer a Democratic controlled Congress to a Republican Congress (albeit by one point). Democrats have matched Republican enthusiasm for the election, burying a potential GOP advantage in turnout. If this is a base election, the Democrats are at least on an even playing field.

There’s some evidence that independents have turned away from the Democrats, but that doesn’t mean the Republicans have captured their loyalty. At a time of strong party identification and political polarization, there could be some dramatic instances of split party voting. In Arizona, Republican gubernatorial nominee Kari Lake has a slight lead over Democrat Katie Hobbs, though it is too close to call. However, incumbent Democratic senator Mark Kelly has enjoyed a polling lead over Republican Blake Masters over the course of the entire campaign.

So let’s start with Arizona.

Masters clearly has the momentum. He also gets a boost because the Libertarian candidate dropped out and endorsed him. Unfortunately for the GOP, Mark Kelly has enjoyed a significant advantage in early voting. He’s also separated himself rhetorically from President Joe Biden during the campaign. He’ll vote in lockstep with his party after the election of course, but it will probably be enough to get voters in this election. Prediction – Democrats win in Arizona.

It will be close, but Kelly has the edge. He shouldn’t be too comfortable though.

In Pennsylvania, Lieutenant Governor John Fetterman, a Democrat, suffered a stroke and has occasionally had a hard time expressing himself in public appearances. His opponent, Dr. Mehmet Oz, got off to a slow start in the campaign, with Fetterman’s social media running circles around Oz. Oz, who made his reputation with appearances on daytime talk shows, appeared out of place and clumsy while trying to appeal to working class voters. Again, Oz, like Masters, now has the momentum. However, it’s simply too late.

The Democratic political machine in Philadelphia will generate enough votes that Oz will already face significant obstacles. Young voters have voted early in Pennsylvania at rates far exceeding that in 2018. Any second-thoughts voters might have about Fetterman’s ability to serve are now moot. It will be shocking and embarrassing to many Republicans, but barring turnout at 2016 levels among working-class Republicans, Fetterman will win here. Whether he will actually serve in the Senate is a separate question. He or his replacement will be a reliable Biden vote and that’s all that matters. The Democrats also appear to have a lock on the gubernatorial race.

Don’t take my word for this. In a hot mike moment caught between Senate Majority Leader Chuck Schumer and President Joe Biden, Schumer said “it looks like the debate didn’t hurt us too much in Pennsylvania as of today.” However, he said that the ”state where we’re going downhill is Georgia.”

Despite personal scandals, Herschel Walker is essentially tied with incumbent Democrat Raphael Warnock. Warnock has a relatively low advantage in early voting compared to Democrats in other states – important, given that Republicans generally vote on Election Day. Incumbent Republican governor Brian Kemp appears to be pulling away from Democrat Stacey Abrams. I think her media-generated career as the Next Big Thing is done. The Kemp vote will bleed over into the Senate vote. This will also be shocking to many people, but I expect we’ll see Senator Herschel Walker.

Walker may score the upset here

Republican Adam Laxalt is pulling ahead of incumbent Democratic Senator Catherine Cortez Masto in Nevada. This race has received relatively little attention despite its importance. Early voting actually shows a GOP increase. The Democrats are also losing their lock on the Hispanic vote, largely due to economic factors. Given the combination of early voting trending red and late-breaking polling data, the GOP will flip a seat here. We may even see Nevada start moving red again.

In Ohio, Republican J.D. Vance poses an interesting challenge not just to the Democrats, but to the usual GOP way of approaching Big Business. Vance, author of Hillbilly Elegy, is waging a forthrightly anti-corporate, populist campaign against Rep. Tim Ryan, the Democratic nominee. Tim Ryan is now following Senator Mark Kelly in separating himself from his own party. It’s too little, too late. The difference between a senator and representative is tremendous when it comes to personal branding, and Senator Kelly can pull this off. Ryan can’t. Vance, a onetime critic of Donald Trump, has bent the knee to ’45 (who has recently called himself the “MAGA King). He’s managed to straddle the line in this election and is now pulling away. Ohio will go red.

If the Republicans lose in Pennsylvania and Arizona, there will be an outright refusal among many in the party to accept the results. However, I don’t mean that it will be “election denialism.” We could see the GOP finally start to connect the dots that it loses campaigns which essentially end on arbitrary dates before Election Day. An issue which I’d expect an ambitious Republican to pick up is restricting early voting but compensating by making Election Day a holiday. If there was less early voting, there would be no doubt in my mind we would see a red wave of massive proportions on Tuesday.

If the Democrats overperform, it will be because they banked enough early votes to create insurmountable obstacles, were able to paint Republicans as extreme, and exploited the narrative that democracy itself is on the ballot. That might be enough to push scared independent voters to stick with the status quo.

Donald Trump will almost surely announce a run for president this month. That will give us another wave of warnings about authoritarianism and the end of the republic. (It will not in fact be authoritarianism and the end of the republic, and whatever your feelings about the man, the 76-year-old Donald Trump is no position to establish some long-lasting personal rule).

If the Democrats can hang on to the Senate, it will serve as confirmation that tying the GOP to Trump is effective. Look for more Republicans to blame Trump for GOP defeats (especially because of certain nominees that he endorsed). The big money is already moving to Ron DeSantis of Florida, whom I believe will win re-election on Tuesday.

That said…

We often talk about the difference between fundamentals and technical-based trading. With politics, there’s a third element. That’s your gut. I wouldn’t trade with your gut, but with elections, you can sense it. There’s a feeling you get with crowds, with the motivation among voters, with the kinds of things normally apolitical people are saying.

That is telling me it really will be a red wave. I distrust it, because I always want to put my reason ahead of instinct. But instincts and gut feelings should inform reason. The Democrats are clearly on defense. Their national campaign message – we need to save democracy itself from Donald Trump – is not compelling to most voters according to the polls. Again, I’m not giving my opinion here. This is simply the objective reality that polls are showing. Most voters are worried about inflation, the cost of living, and gas prices.

Republicans enjoy the traditional midterm boost as well as a narrative that President Biden has sabotaged the economy with restrictions on energy production and rampant spending. It doesn’t matter that Federal Reserve Chair Jerome Powell has more influence over the economy than President Biden does right now, nor that President Trump’s spending with a GOP Congress was also unsustainable. The GOP can speak with more credibility about the things most voters are interested in.

If I’m underrating the GOP’s chances, it’s because I’m applying the rules of past elections to this one. The GOP base is driven, united, and has a unique opportunity to drive a deep wedge into the Democratic coalition. The Democrats’ advantages are structural, especially when it comes to media support and early voting. The great question of polling over the last few years is whether Republican voters are unwilling to talk to pollsters because they fear media attack. If there is a silent, angry Republican vote, it’s bigger than it was in 2016 or 2020.

Saying what this will all mean for national politics and our investments is much more straightforward than predicting elections. Polls are meant to shape opinion as much as reflect it. Journalists are activists with bylines. Every campaign has to say that its winning and that it’s internal polls show trends breaking their way.

My read is that the Republicans are a bit overconfident. The “Red Wave” is possible but conservatives shouldn’t get ahead of themselves. Early voting and the blue takeover of urban centers mean they are almost always running behind when midnight hits Election Day.

The GOP capture of the House, however, looks virtually certain. That alone will dramatically weaken President Biden’s position domestically and internationally – and the Senate map for Democrats looks even worse in 2024.


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.

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