Midterm Wrap

The big surprise of the 2018 midterm was the pollsters: they actually had it right this year. They also had it right in 2016 if you considered the margin of error, but in midterms they historically were off by 2 to 3 percent. This year, they were correct and the final vote swung in favor of Democrats. As I noted in my simple model, the only way Democrats could take the House was with a wave election and they got it. I expected the final result would narrow from the polling data, but it widened.

The quick takeaways.

1. U.S. equities typically rally after midterm elections no matter the outcome. This time looks no different.

2. The U.S. dollar weakened, but it was already pulling back. Looks like an acceleration of the consolidation.

3. This is the first divided government since 2010 to 2014. If Congress goes the route of impeachment then the 2020 election starts today. Otherwise, there could be deals on immigration, spending and possibly healthcare. The ACA is still a disaster.

4. Several Republican states expanded Medicare. The U.S. fiscal position is deteriorating. There is no constituency for cutting spending.

5. Texas almost went blue. Demographics will turn Texas blue by the middle/late 2020s, after which time Republicans as you knew them before 2016 will be unable to win presidential elections without resorting to Trumpian populism. Unless Democrats pick really bad candidates. But by the 2030s, Democrats can probably run bad candidates and win Texas.

6. Florida could turn reliably blue in 2020 because of demographic change, but also a referendum past last night that allows 1 million ex-felons to vote will accelerate the shift. Again, candidates matter in the nearer-term, but in the longer-term, demographics will shift both parties in the direction of identity politics, socialism and populism.

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