Softy is looking increasingly precarious now, a trade even my friends in Dubai dissed when I argued its logic at MSFT 320. The Microsoft 320 short is a gift that keeps giving since MSFT fell below 214 on Friday. Last week was ugly for the bulls but the wicked witch of Wall Street is not done yet and the midterms will be the next catalyst to take the market lower. The Volatility Index (VIX) closed at 25 on Friday, almost ten points below its August highs. Are the markets positioned for the sort of political uncertainty that gutted the UK and China/Hong Kong assets? No. The GOP's potential tax cuts that will only raise inflation risk and thus the scale of the Powell Fed's monetary tightening stance. The prospect of a divided government will be anathema to Wall Street because a Republican control of Congress almost certainly means a bitter fight over an increase in the debt ceiling, repeated government shutdowns and budget fights of the sort that led to market meltdowns in September 2011. This is the reason Hispanic women and whites with only high school education have swelled the ranks of the Republicans, even though its trident right wing champions are election deniers enthralled to Donald Trump. It is a pity that the Biden White House tilted to the loony left of the Democratic Party and did not grasp that Middle America's core angst is about inflation, crime and immigration.
The Republicans will gain control of both the House and the Senate in a sweep reminiscent of the Tea Party success against Obama in 2010 and Newt Gingrich's humiliation of Bill Clinton in 1995.
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