Democracy, debt and data centres: Inside America’s volatile midterms

Welcome to Beyond the Benchmark, the EFG podcast with Moz Afzal.

Daniel Murray:

Welcome. I'm Daniel Murray. I'm your deputy chief investment officer. And with me today, I'm super excited to have a political specialist and partner at Baird Strategas, Dan Clifton, old friend of EFG, always has a super well-informed and really interesting view of what's going on in the world. So crazy environment in some respects. It's been an amazing ride in terms of the US political situation over the past few years. How would you summarise the US political environment at the moment, Dan?

Dan Clifton:

Yeah. Well, thanks for having me on, Daniel. It's great to be back. And our big thesis over the last 12, 14 years has been economic volatility is creating political volatility. US economy has been grown at about 2%. That means that American households are about $5.6 trillion poorer since the financial crisis than if we were growing at the historical rate of 3%. The reason why we think that's important is there's just not enough income to go around to satisfy all of American voters. So we're going through probably one of the greatest periods of political volatility in American history. In fact, of the 10 federal elections since the financial crisis, the voters of the US have removed the party in power in nine of those 10 elections. Just to give you context, the last time that this happened was the post-civil war reconstruction period. So this is not a normal type of political environment that we're in.

And if the Democrats take the House in this election, it will be 10 of 11 elections and we will have surpassed that kind of post-civil war reconstruction political volatility. The reason that's important from an investment perspective is that Congress is changing political parties every two years. And so you're not getting that sustainability of policy. I'll just give you an example. In the summer of 2025, Congress passed 100% expensing of capital equipment where you could write off your equipment purchases in the factories. Very important for the AI build out that's happening right now. And the Democrats believe that if they win, that they have a mandate to start pulling back on some of those incentives and it would obviously change the CapEx plans. And you could do this on taxes, you could do this on healthcare, you could do this on energy. So you could see how that kind of political volatility is translating into policy uncertainty.

I think there's a couple more trends that are very important here as a backdrop for the 2026 midterm elections, and that is that these campaigns are now engaging in what's called early voting. This is something that didn't exist 25 years ago. And so every day the campaigns are getting a list of who actually voted and it allows for more specific targeting. It increases turnout. In every election, we're getting higher and higher turnout. But what it does is it allows the campaigns to get their voters out to the polls. And so the margins of victory between the two parties have become much smaller. In fact, the House of Representatives, the last three cycles have been the slimmest majorities that we've had on record going back to the Civil War in 1865. And our presidential elections are being decided by just a handful of voters in a couple of states.

So politics are becoming increasingly polarised at a fifty fifty odds. And then finally, and you see this across Europe as well, is that there's this move to populism both on the right and left. And what we would argue is that there's really four political parties in the US now, not two. And that's two political parties within the Republican Party, two within the Democratic Party, and the lack of growth is now surfacing into these newer, younger voters coming in looking for alternative options. So as these results start to come in on election night, investors are not just going to be looking at who won which political party, they're going to be looking at who won within each political party. And if the more progressive or populous candidates win on the right and left, the market will begin to price that in for the 2028 presidential election. And that can have an outsize impact in areas like healthcare and financial. So it's a very interesting time. You could possibly have the first true populist election in the US in 2028, first time in a hundred years. So very, very big changes on the political front as the backdrop to this election.

Daniel Murray:

Well, look, as you sort of highlighted, we're clearly going through a sea change in terms of the way domestic politics works in the US, and maybe we'll return later to the subject of the 28 election, but what do you think is the most plausible outcome for the midterms?

Dan Clifton:

Yeah, midterm elections are referendums on the incumbent's first two years in office. So if you think about a presidential election, you're making a choice between Vice President Harris and Donald Trump. Donald Trump won that election. He won that election by winning every suing state, winning the popular vote. And this election is a two-year test on how voters think that he's doing. Most of the time, midterm elections turn out to be pretty bad for the incumbent presidents because their voters are unhappy that they didn't solve all the world's problems in the first two years. And the opposition party is just outraged at all the things that the president did. And so that means that enthusiasm is usually higher in the opposition party than in the president's own political party. And so on average, a midterm election usually leads to about 28 House seats being lost for the incumbent party.

And right now the Democrats need a three, they need to gain three seats to win the majority. It is very, very likely, 90, 95% probability likely that the Democrats are going to take the House of Representatives. I think the debate that's going on into the election will be how big will that win be? We have data that suggests that this could be a 30 to 35 seat loss in the House of Representatives. What we'll be doing is watching the early voting data over the next couple of days, and we've been monitoring it. We could talk about what we're seeing in that data, especially as it relates to the Senate races. But the Republicans have a lot of wood to chop. They are way behind where they were in 2024 and where they were in 2022 in the early vote in some of these key states.

And so if you ask me is the bias for a better than expected night for the Republicans or worse than expected night from the Republicans from where the consensus is today, the initial data suggests that it's actually going to be a little bit worse and that they're probably going to lose more congressional seats than the consensus anticipates. As you move over to the Senate, there are really three options or really two options. Do the Republicans keep the Senate or do the Democrats win the Senate? And for what the Democrats have to do, it is really difficult. They have to flip two Republican states that would be over 11% voter registration for the Republicans. I've only seen it twice in my career, my 30-year career, but it feels a lot like 2006. 2006, you had a second term Republican president, George W. Bush. He had a low approval rating, 38%. Congressional generic ballot was low, unpopular war in Iran, and high gasoline prices, very similar to today.

I will tell you, I've travelled all over the country. I've been to every swing state. We have a very good view of what's happening locally on the ground. I'll tell you, North Carolina, which is a Republican held state, that's probably gone. And Alaska will be close, but Alaska's probably gone for the Republicans as well. So that gets you to two. And most of the focus is going to be on Maine, Texas, Ohio, Iowa, Nebraska, and Kansas. And what binds those last couple states that I mentioned, they are agriculture states and agriculture states are just responding to Trump a little bit differently. High fertiliser cost, high diesel cost, tariffs, the agriculture economy is not doing so well. And again, that looks like 2006 where the Democrats were able to surprise to the upside in the Midwest and some of those farming states overall.

So a lot of similarities to that 2006 election, but it's not all bad for the Republicans. In this national environment where the president's approval rating is down 13% and the Democrats are on offence, the Democrats are really struggling to expand their lead out in Minnesota and expand their lead out in Michigan. And those are the two areas where the Republicans may be able to pull off a little bit of a surprise and offset if the Democrats have a big night and try and keep the Senate. I think that's very important because if the Democrats get 51 seats, they'll have a slight majority. And the point that I'm leading into is that election night will be a big night. There will be a lot of cascading events that can happen after that that can change the math. And we're not just watching for switching parties, which cabinet secretaries resign, who does Trump blame for the election loss, and can the Republicans pass legislation during that lame duck session before the Democrats get there and try and take away their leverage?

So I anticipate the election night being a starting point to a pretty big race through the end of the year before the Democrats take over at least the House on January 3rd.

Daniel Murray:

So given the fact that the Democrats will take the House almost with certainty and that you'll have a split Congress, does it matter so much who takes the Senate? What are the political implications?

Dan Clifton:

Yeah, I think it makes a huge difference. And the reason why I think it makes a huge difference is because if the Democrats control both chambers, they'll have complete control of the budget and that's where their leverage comes from. So we think that if the Democrats sweep, they're going to approach the president and they're going to say to the president, look, we don't like your war in Iran, but we'll make sure the military has its money for its upgrades and critical. We don't want to leave our troops at risk, but there's going to be a very high cost for us allocating that money to you. And we would like to see the Medicaid cuts get restored. We'd like to see the National Institute of Health budget get increased. We would like to see the renewable energy tax credits pushed in. And the best way that I would explain this is the Democrats would have to choose accomplishment over ambition, and that is that they want to show that they can get a couple of accomplishments here and then go back to their voters and say, see these incremental changes that we got with a Republican president, you give us complete control in 2028 and that will show we can even do more.

And that's the model that Nancy Pelosi showed in 2006 with the Iraq war. She was able to get a minimum wage increase. She was able to get student loan reform and children's health insurance. And you know what? The Republicans took the same exact task in 2015 when Obama was president. They were able to get rid of the crude oil export ban, which changed the global energy markets. They were able to get a lot of tax changes that made it cheaper for them to do tax reform when the Republicans took over the House and Senate. And so that's the choice in front of the Democrats, and we believe that they're going to take that choice. But I got to tell you, if they get a big win, they're going to be looking for bigger policy changes and they got to be careful that their ambition and their infighting amongst their party don't spoil that accomplishment and then they end up with just the investigations.

I think the Democrats will suffer politically in 28 if they campaign on affordability and turn around and just do investigations on Donald Trump overall. Where the big issue will come from is that the debt ceiling will have to be raised at the end of 2027. And the Democrats are arguing that if they win, they will hold the debt ceiling hostage to take away these capital expensing rules that have been so critical to data centres. So data centres are really the centre of this election, both at the governor's race and at the heart of these congressional races. And the magnitude of the Democrats' win in Congress is going to be significant in terms of how much leverage they're going to have to take away some of these tax incentives. And the market's going to be very, very focused on this, both at the governor's level for how the AI trade will move and for the Congress for the debt ceiling.

If the Democrats just win the House, I would anticipate that you would just see a deal of more NIH spending, National Institute of Health for defence spending. And what's very interesting is that that's been sort of the pair trade in the equity market of the way the equity market is expressing their views in the election. As the odds of a Democratic sweep have gone up, life science tool stocks have outperformed and defence stocks have underperformed. We think defence spending and NIH spending is going to go up, but the more the Republicans win, the more defence spending goes up, but the more the Democrats win, the more NIH spending goes up and that feeds directly into life science tools. That's probably the best way the equity market has expressed its views on this election. And those lifetime tool stocks are pricing in about a 65% chance of the Democrats sweeping. Anything that changes from that one way or another will impact that trade.

Daniel Murray:

So the bigger shock then would be if the Republicans retained the Senate from -

Dan Clifton:

Absolutely.

Daniel Murray:

In terms of those odds?

Dan Clifton:

Yeah. I mean, people ask me about prediction markets. I love the prediction markets, not because they're predictive. Four years ago at this point, they were predicting an 80% chance of a Republican sweep and it didn't happen. We think the prediction markets are just basically following the polling data overall. But for us, the reason why we like them, Daniel, is that they price in what the consensus is. They're telling us what the consensus is. The biggest change would come from a Republicans retaining the Senate. And what we do is we don't really pay attention to the polling data. We're paying attention to how actual voters vote. So we've had 80 special elections since the 2024 election. The Democrats have gained about 10% since then. The problem that we have with that data is it hasn't been updated since July. There have been no real good special election since then.

So that's why we're using the early data voting, early voting data. And so I'll give you an example. In Ohio right now, if you take our model based on what's voted in the early voting, it suggests that the country has moved about 15% to the Democrats. That's a big number and they needed to get over 13%, so that suggests that they're going to get over that number. And I do think that that's why if the election was held today, the Democrats would sweep, but we still have another seven days of this data. And I think the Republicans understand that the data coming in for them is pretty bad and they got to get their voters to the polls. So we'll see how that data goes, but it's going to be much more powerful than the polling data.

Daniel Murray:

So you mentioned data centres there, you mentioned the debt ceiling, really important topics. Something else that's been a super important topic over the past few years is the return to positive inflation and inflation that's above target, and that in turn has an implications for the cost of living and certain demographics are not doing so well in this environment. How important do you think that is for the midterms?

Dan Clifton:

Oh, I think it's huge. I think this is an inflation election. And the best way that we think about it is that presidents have brand and the brand that President Trump brought into this election was you vote for me and I'll get rid of Biden inflation. And we're now having an election that's testing whether he got that through. And in fact, he did not. So now I have two elections, actually three elections in a row that are about higher inflation, 2022, 2024, and 2026, and voters are demanding a change. This is why you're seeing all this political volatility that's associated with it. And I'll just give you this example. In 2008, President Obama campaigned to end the financial crisis if you vote for him. And in February of 2009, he was talking about healthcare and people were like, "No, we elected you to do this job." And President Obama went on to lose 63 seats in the House of Representative.

The best way to think about this election, Trump campaigned on getting rid of inflation, but on April 2nd, 2025 proposed $700 billion of tariffs. At that point, his brand was hurt the same way Obama's brand was hurt, and that has been the big problem. We have 15 years of polling data on Trump, and his approval rating on the economy had always been positive. Even during COVID when we had double-digit inflation and a major contraction in the economy, nobody blamed him on the economy. But after his announcement on tariffs on April 2nd, he began to get blamed on the economy and he's never recovered since then. So it's a little bit economic. It's probably more cost of living, and I think that's why it's very important what's happening at the Federal Reserve. We can stamp out inflation like we did in the '70s and '80s, but it would require lifting rates, lifting rates, lifting rates and squeezing it out.

And I think the Fed chairman just thinks that maybe we need to look at what the post global financial crisis model was and maybe reverse a bit of that. And that was using the large balance sheet. And I get the sense that regardless of what happens in this midterm election, you are going to see financial deregulation coming out of the Fed after the election, and that financial deregulation is designed to unlock capital out of the banks and use that capital to help bring down the Fed balance sheet. For every $250 billion of balance sheet reduction, that's one less rate increase that the Fed needs to do. And they're just trying to find a different way to be able to get that inflation out without destroying the housing sector, which is in significant trouble in a higher rate environment. So all of that is feeding into it.

You mentioned data centres. Data centres are just a rough proxy for how people are feeling on inflation and some of the other issues, gasoline prices, electricity prices, and something you're going to hear a lot more from the Democrats if they take over the House is healthcare costs.

Daniel Murray:

And you mentioned tariffs there. Obviously it was a massive part of Trump's policies, certainly in his first year, but you also highlighted how important that's been in terms of keeping inflation elevated. Do you think that we'll see a softening in terms of the Republican attitude towards tariffs as this presidential term comes to an end and as we approach the next election?

Dan Clifton:

Yeah. I take a step back and I would argue 2025 tariffs were a headwind and fortunately the US economy had AI to overpower that. 2026, this year, tariffs were a total tailwind. We had $150 billion of tariff refunds. And when the Supreme Court threw out Trump's tariffs, we went a good six, seven months without those tariffs in place. So they're coming back for 2027. And the best way to think about this, Daniel, is that both fiscal and monetary policy are going to be tighter in 2027 than where it is in 2026. And I think that's regardless of whatever happens in the election results. We've done $800 billion of stimulus this year, which has been effective in basically cushioning the dislocations from the Iran war and some of the effects of that Iran war has kept the economy pretty strong. And so I think that that will be a good test.

How damaging are those tariffs when they start to come back in and whether inflation is still here, whether the economy is beginning to slow. Some theme that you're going to see post-election, especially if the Republicans lose the Senate, is that existing Republican senators will blame Trump for their loss in the Senate. The Republicans should not be losing Texas. They should not be losing Ohio. They should not be losing Kansas. And so they're going to blame Trump's policies for that. And where I think that change and shift can come from, maybe not so much on tariffs, but on data centres will come from Vice President Vance. Vice President Vance may try and move the Republicans because if he's going to be the nominee for 2028, he may want to try and reposition some of those Republican views. And that's something that you've never seen before where Trump is competing with somebody within the Republican Party and could create some tension between the president and vice president over the next two years. Get your popcorn out.

Daniel Murray:

Yeah, it's going to be a fun ride, that's for sure. Super interesting. There's lots of stuff going on, right? We've got, well, you mentioned how the political environment, we haven't seen this for 150 years. You mentioned data centres, we've got high inflation, we've got a war going on Iran, high energy prices, divisions within the main political parties and it's become very factionalized. So there's a lot of stuff going on. And you also mentioned how the stock market is voting on this and how effectively it's weighing up the different odds and leaning in one direction, which in this case seems to be towards a Democrat sweep of the House and the Senate. What about bond markets? How do they react in all this?

Dan Clifton:

Yeah, the bond market is quite interesting right now. I mean, the first thing you have to remember is that the US fiscal policy model is going under a once in 30 year change. When the Berlin Wall went down, inflation came down, interest rates came down. What that essentially allowed is the US policymakers to be able to finance a large deficit in debt with no real funding issue. As long as our debt servicing cost was low, there was no issue in the bond market. We did a hundred-year study here at Baird Strategist to figure out when do deficits matter. And what our study found is that the debt servicing cost is the inflexion point and that there's a clear dividing line in history. When the debt servicing cost measured as interest as a percent of tax revenue hits 14%, the US goes into austerity. So we hit that number in July of 2023 and Janet Yellen began to try and issue coupons and the bond market said no.

So we've been in a strategy for the last three years where we've had no increase in long-term debt. We've been funding the deficit on the short end of the curve. And that's really important as you start to think about the question that you asked because we were okay doing that, but when the Iran war came up, our debt servicing costs biked. So we're at 19%, our debt servicing costs. It's the highest that we could find on record. It's pretty amazing. So now you're constrained and what you're seeing is the 10-year yield is following that surge in the debt servicing cost. So there's a lot of factors that are impacting rates right now that are not just the election itself, but there's been a very strong correlation between the odds of a democratic sweep and bond yields going up. And the way the market is expressing this is they're basically saying Trump doesn't care about deficits and in a large democratic sweep, they're probably going to do a budget deal that's going to increase defence spending and non-defense spending and it's going to not make the deficit get any better.

Now, as I mentioned before, deficit's going to come down next year, but by the time that spending gets out, it might be a 28 story and the markets are already seeing that overall. So that's one side of the story. The other side of the story, which has been gaining traction over the last two weeks, if there's fewer data centres being built, what does that mean for hyperscalers issuing debt? It means that the hyperscalers are going to issue less debt. So fewer data centres may be good for hyperscaler stock, but it also may mean that the hyperscalers aren't competing with the US Treasury as much. And so what you've been seeing is bond yields starting to come down as the market begins to anticipate that there's going to be less data centre build out. If there's less data centre build out, that means there's going to be less CapEx growth and less competition for treasury markets. And so if I was to say who's winning that race right now, it would be the latter rather than the former, but both of those issues are in the market and that's really being weighed in bond yields right now.

Daniel Murray:

So another important feature that ties in with that is regulation. And you mentioned how I think there's already been some moves to relax regulations around financial services. You sort of hinted at data centres. What other parts of the economy do you think will be impacted positively or negatively by changes in expected regulation after the midterms?

Dan Clifton:

So I know regulation or deregulation was one of your big key themes, and I think it's a great theme and it's one that I think will continue to hold. Regulation is coming from the executive branch, less on the congressional side. We don't expect the Democrats and the Republicans to come to an agreement that can get 60 votes that regulates the AI sector or reregulates the oil and gas sector after years of Trump. That's going to be if the Democrats sweep in 28, you'll start to see a lot of rollbacks of what Trump did overall. And so I think the key areas to be focused on for further deregulation are financials. As I mentioned before, 2027 is going to be the year of reform in that area. Continued move away from the environmental rules that the EPA, the Department of Energy. How do you get more refineries built?

I mean just way different than previous Republican administrations, less on the regulatory side and more on the kind of aggressive growth side from that deregulation overall. Those are going to be the two areas that I think get the most focus from the Trump administration in the final two years, but I would really focus on that banking deregulation. We think that the Basel III rules will require the banks to hold less reserves, and then following that will be liquidity rules that will then actually free up bank capital. And that freeing up of the bank capital allows them to buy more treasuries and issue more loans. I think will be positive for growth and positive for allowing Kevin Warsh and the Fed to be able to conduct a more balanced monetary policy that uses both rates and the balance sheet to try and get inflation down.

Daniel Murray:

So if we've got tighter fiscal and tighter monetary policy, it's quite a tough environment for markets, but to what extent can that be offset by this reduced regulation you talked about by private sector credit effectively?

Dan Clifton:

Yep. Well, I think what you really need is to make sure that the AI CapEx is overcoming the fiscal and monetary drag. That's what happened in 2025, and that's what you would need again in 2027. Midterm elections are rarely macro events. They are usually about sectors and specific stocks because it's basically a midway point to the presidential election when you could have really big macro effects. But this year you're seeing a macro trade beginning to develop and that's because the AI is so big and really on the data centre build out. Last year we had one of the few governor elections that happens off cycle, and that was in Virginia. Virginia is the largest data centre state in the country. At least it was. It's now being surpassed by Texas. And what happened, Daniel, is that a new governor came in and the new governor imposed a $600 million tax increase on the data centres.

And within three days of that happening, Blackstone pulled its largest data centre build out. Just last week, Amazon rezoned four data centre tracks for other uses. And so what you're seeing in Virginia is that there's going to be less CapEx today than was envisioned on election day a year ago. And so this is why the governors will really matter for this growth story to overcome the fiscal and monetary. If you look at where the Republican governors are struggling, they're all data centre states, Texas, Ohio, Iowa, Georgia, Nevada. Those are states where you're going to build data centres. And if you get four or five of those that flip and the Democrats are calling for moratorium on data centres, you've got to lower your CapEx forecast. And if you lower your CapEx forecast, you're lowering your earnings forecast. So I think that's going to be the biggest impact of the election, and it may happen at the governor's level rather than at the congressional level.

There's been a very strong correlation between the data centre ETF's relative performance and the odds of those Democrats winning those governor seats. If it's one or two states, it's totally manageable. It's what happens if there's just a straight sweep and a rolling and something's going to get done by June in all those states on data centres given the prominence of the issue in the election, and it really does begin to impact earnings and CapEx.

Daniel Murray:

So let's turn to what happens after the midterms. Trump will be in the last two years of his second administration. Often presidents then turn their attention to legacy. How will Trump want to be remembered? What is he likely to focus on?

Dan Clifton:

Yeah, so Trump is a very different animal in the second term than the first term. This is a guy who campaigned on America first, but he's been fictionated on foreign affairs and much more so than domestic. And that's part of what's showing up in the midterm elections where people are like, "Why are we doing all this stuff when my costs are up, whatever your costs are, whether that's gasoline or food prices." And so I don't think anything will really change. If he's got a Congress that's going after him on investigations, why wouldn't he continue to focus on foreign affairs? I think what's not getting a lot of attention is Trump's Western hemisphere strategy, which has been going really well right up until the Brazil election where they thought that they were in another place of taking over. So best way to think about it is the world's deglobalizing.

China weaponized rare earths against the United States. The United States are now saying that they need to build out resource development close to home and they need to lock down their backyard before they can project strength outward. So this is why the president is very focused on Greenland all the way down to the Panama Canal and everything in between. That's why you see them taking stock and taking shares in those companies so that they can build those sectors out and not need China in the future if that's going to be the case. So I think that's going to be an area of focus. If you look at what's the last piece on the board in that area, it's going to be Cuba. And that's something that's very important to the Secretary of State, Marco Rubio, in being able to finish that job overall, particularly with signal intelligence 90 miles off the Florida coast.

That's something that they're not going to see as something that should exist. And so that's going to be the background of what Trump is probably going to focus on. He's also going to look on reducing Iran's leverage in the Middle East. There is a thesis that's building around that this will be an escalation in Iran post-election. I still remain a little bit of the view that that's not going to be the case. The US just does not have escalation dominance over Iran. So if you're going to go down that route, you're going to run into a whole lot more risk. The oil market would disagree with me on that. You could see the war drums beating in to the commodity markets overall, but I don't know if that's just a kind of jawbone ahead of the Israeli election and a jawbone ahead of the US election.

But my sense is if they do anything, they're going to be just mowing that lawn so that they can continue to get oil out of the strait and minimise the ability for ships to be attacked overall. Those are two areas of foreign affairs that I think will be the focus. Obviously trying to stop the Russia-Ukraine war as a priority, though that has not been able to work. But you have to remember that on January 3rd at 12 o'clock when the Democrats get sworn in, their focus will be on these investigations and the Trump administration is going to have a lot to be investigated on and is going to drive almost the entire domestic narrative here in the US.

Daniel Murray:

And what does all this mean for the 28 election? You talked about Vance possibly being the Republican nominee. You also mentioned Rubio there, who's obviously got ambitions. There's a long way to go, but who do you think is in the current state of players most likely to be the Republican nominee?

Dan Clifton:

If the Republicans suffer a large election loss, there will be people that get mad at the president and say that this is the president's fault. And obviously JD Vance is going to be looking to shift Republican policies. You can already feel here in Washington that people are gravitating towards him as the presumptive nominee, but he's got to make a decision. Do I want to run in this environment where the president's approval rating is 38%? It's probably not going to get any better from here overall. I would remind you, he's got four children, he just had a baby in July. He's got an exit ramp if he doesn't want to run it. And so if he doesn't run, Marco Rubio will be the person who run. But Marco Rubio is very clear that he is not going to run if JD Vance is in that spot.

This is a guy, JD Vance has been able to do all the politics he wants under the Trump administration. Most vice presidents are constrained. So he's built this extremely formidable Republican political operation. And if you know that, it would be unlikely that you run against him. And that's sort of the contrast between Rubio and Vance. Now, I do believe that Ted Cruz is definitely in the race. He's the senator from Texas, and I do believe that Ron DeSantis is creating the optionality to run for president. Then if you add onto that, if the Republicans suffer large losses, then I do think that you'll see some senators that will entertain the idea.

Daniel Murray:

Look, American elections are rarely boring, whether midterms or full presidential elections. And I think both Obama and Clinton came from nowhere. So actually could yet be a candidate we haven't even thought of. So we talked about the implications for domestic US policy in the economy. We talked about the implications for the Western hemisphere. We talked a bit about China and the Middle East, Russia, Ukraine. What about Europe? What does all this mean for Europe?

Dan Clifton:

So I worry about Europe. The whole idea here is that when Trump rose up to power, it was happening at a time of what I call de-globalization. I know that's a big theory, but in 2018 we set out our macro view and our macular view was that the world is going to de-globalize. And the test for us was whether Joe Biden would keep Donald Trump's first term tariffs in place, and he did. Not only that, he campaigned on it. So that told us that the US was moving back to a model that looked like before the Berlin Wall went down. And when that happens, you get slightly higher inflation, slightly higher interest rates, and more geopolitical volatility. As we would talk about that, what we noticed from Europe was that they began to worry that Trump de-globalizing would split the world into three poles, a US pole, a China pole, and I got to be honest with you, a Russia pole.

And so that leaves out Europe in that scenario. And Europe understood this really well from 2018, really from 2016, and had been planning accordingly. So what you see is this kind of middle coalition building where Kearney is trying to form a relationship, Kearney from Canada, Europe, and put it together. But Europe really has to figure out, are they going to regulate their economy out of existence or are they going to go for a growth model overall? I mean, the AI story was over before it even began in Europe. And again, I don't mean to be critical of it, but I do see some shifts that were going on in place. And those shifts are on environmental rules now looking for growth. The CEO, chairman of Nvidia was just there saying, "I feel that we can do AI growth here and get that growth story going back." But the Western world has high debt loads.

They have a lot of needs for defence spending in this type of environment, and you got to battle through that and you got to figure out how to be able to get growth higher. That's why that AI story and the productivity story from that is going to be very important for them moving forward.

Daniel Murray:

Dan, look, I could chat with you for hours more. Unfortunately, we've got to bring that to an end. Perhaps just one final question. I'll put you on the spot here. I think it was British Prime Minister Harold Wilson who said a week is a long time in politics and we've got a week to go. But bearing that in mind, what do you think will be the outcome of the Senate?

Dan Clifton:

Yeah, I do believe that the Democrats are going to win the Senate based on the data we have. We obviously can change that if the Republicans figure out a way to get their voters to the poll, but it's clear to us that the Democrats are enthused to vote. Republicans are less enthused to vote. The Independents have swung to the Democrats. That should be enough to get the Democrats four seats in the Senate, take over the majority, and then basically have a fight for two years until the 2028 election.

Daniel Murray:

That's great. Thank you. That's very direct and straight opinion. This has been Beyond the Benchmark. Dan Clifton, thank you so much for joining us as ever. Really fascinating. I hope you enjoyed that, listeners, and please join us for the next session. Thank you very much.

 

 

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