Midterm Forecast

Midterm Forecast

“We now live in an era of nationalized elections,” says the demographer Neil Howe on the eve of the midterms. 

That’s the nature of America’s polarized politics. 

No longer is it about which candidate will best represent the well-being of, say, farmers in Iowa or oil field roughnecks in Texas. It’s all about which tribe will control the House and Senate.

“No one’s really focusing on who I want for my state, it’s all on who’s going to govern on the national level,” Howe said on a webcast this week. “That’s how angst-ridden our politics have now become.”

With that as the backdrop, welcome to the Paradigm Press midterm election outlook — headlined by our macroeconomics maven Jim Rickards.

If you’re not aware, Jim has racked up a handful of notable election forecasts that bucked the mainstream and turned out to be right. 

It started with passage of the “Brexit” referendum in the United Kingdom in 2016 — followed a few months later by Donald Trump winning the U.S. presidency. More recently, Jim forecast Trump’s triumph in 2024 — all the way down to the exact electoral vote margin of 312-226.

In forecasting elections, “what matters most is whether your models are the best they can be with the right inputs and that they assign the right weights to those inputs,” Jim says. 

“That’s a big part of what we do. We also use behavioral psychology, anecdotal evidence, history, Bayes’ theorem (updating an initial thesis) and common sense to reach our conclusions. Without those soft or intangible factors, a strict mathematical model can lead you astray if it has even the smallest flaw.”

Jim’s call for Trump in 2016 stood in sharp contrast with the mainstream pundit who commanded the most respect at that time — and still does.

Even if you’re not a political junkie, chances are you’ve heard of Nate Silver. 

He burst onto the scene in 2008 with his FiveThirtyEight website. He correctly forecast Barack Obama would edge Hillary Clinton for the Democrats’ nomination. In the general election between Obama and John McCain, he correctly called the winner in 49 states.

In the 2012 Obama-Romney race, he improved on that performance — calling all 50 states correctly.

Along the way, Silver built up a faux-science mystique around his work in a book called The Signal and the Noise: Why So Many Predictions Fail — but Some Don’t.

In the course of analyzing the endless quantities of data available today, he wrote, “the numbers have no way of speaking for themselves. We speak for them. We imbue them with meaning… Before we demand more of our data, we need to demand more of ourselves.”

Then along came Trump… and Silver should have demanded more of himself.

Wrote Silver in July 2015: “Trump has taken trolling to the next level by being willing to offend members of his own party… In the long run — as our experience with past trolls shows — Trump’s support will probably fade.” By November 2015, he said even a 20% probability of a Trump victory in the primaries was “substantially too high.”

Six months later, Trump had the nomination sewn up… and Silver was forced to engage in a bit of introspection.

“Our early estimates of Trump’s chances weren’t based on a statistical model,” he averred. “Instead, they were what we [call] ‘subjective odds’ — which is to say, educated guesses. In other words, we were basically acting like pundits, but attaching numbers to our estimates. And we succumbed to some of the same biases that pundits often suffer, such as not changing our minds quickly enough in the face of new evidence.”

Translation: “The possibility Trump would catch fire was so offensive to my elite sensibilities that I just made s*** up.”

On Election Eve 2016, Silver grudgingly gave Trump a 30% chance of pulling out a victory. 

Yes, we reprised all this history at the time. But here we are a decade later and the mainstream still hangs on Silver’s every word.

Sorry, just couldn’t resist the opportunity for a good dunk today…

We’ll cut to the chase: Jim forecasts the Democrats will take a slender majority in the House but Republicans will retain their comfortable majority in the Senate.

Much of it will ride on turnout, he says: “There is some evidence from early voting that turnout this time will be higher than usual.”

As Jim sees it, this factor will help the GOP. With Trump as a lightning rod, Democrats are already highly motivated to vote — while “it’s the Republicans, especially MAGA types, who tend to skip the midterms.” Thus higher turnout overall should reflect higher Republican turnout.

In the Senate, Jim forecasts the Republicans will retain their 53-47 advantage — although two Republican seats will flip to the Democrats and two Democratic seats will flip to the Republicans. (Jim has specific forecasts for the 16 most competitive Senate races, but we’re reserving those details for his paying subscribers.)

Nate Silver, in contrast, projects the Democrats will come into 2027 with at least 52 Senate seats — maybe as many as 54 depending on two races he counts as tossups.

As for the House… the Republicans are going into Election Day with a tiny advantage of 219-214 with two vacancies.

Between gerrymandering and the “self-sorting” of Americans who’ve relocated to reliably red or blue districts over the years, only a couple dozen House seats are truly competitive these days.

Jim’s assessment is that Democrats will take the House with a fairly slim 11-seat advantage of 223-212.

Silver, meanwhile, told The New York Times on Tuesday that the Democrats will pick up about 22 seats — which would give them a much wider margin of 236-199. That’s comparable to the advantage the Dems had during the final two years of Trump’s first term.

If Jim is right, control of Congress would be divided during 2027–2028 — which history shows is very good for the U.S. stock market, no matter which party the president belongs to.

Markets Today: A One-Two Punch (and a Record Crypto Heist)

Yesterday it was Google. Today it’s Amazon and Intel. The AI spending scare is alive and well.

Amazon — one of the major “hyperscalers” along with Google, Microsoft and so on — reported its quarterly numbers after the closing bell yesterday. Relative to Wall Street’s expectations, it whiffed on both revenue and earnings.

“The big stories here are cash flow and capex,” says colleague Davis Wilson, editor of The Million Mission.

“Amazon reaffirmed its 2026 capex guidance of $220 billion, showing that the company has no plans to slow its massive AI infrastructure buildout. 

“At the same time, free cash flow remained negative for the second consecutive quarter. Amazon reported a $42.4 billion free cash flow outflow over the trailing 12 months, a significant deterioration from the $7.6 billion outflow reported last quarter.

“That's a tough combination for investors right now. With the market already nervous about how much Big Tech is spending on AI, another $220 billion in capex and rapidly deteriorating free cash flow isn’t what investors wanted to see.”

No, it’s not: AMZN opened the day down 5.5%.

And then came Intel — which we’ll remind you is now 9.9% owned by the U.S. government.

On revenue, INTC beat Wall Street’s expectations by a hair. And on earnings, it was a very comfortable beat.

But the downer was comments by CFO David Zinsner: “We see the PC slowdown continuing at least through the first half of next year.” Seems that high prices for memory are putting a dent in demand for PCs. 

INTC shares rallied hard last spring but sold off this month in sympathy with nearly everything else AI-adjacent. And they opened the day down 27%. Ouch.

This one-two punch is setting up the market for its worst day since June.

At last check the S&P 500 is down 1.6% on the day — below 7,600 for the first time in six weeks. The Nasdaq composite is down over 2.5% to around 25,500, a three-month low.

Hot money fleeing stocks is flooding into Treasuries, pushing yields down. The yield on a 10-year T-note is under 4.94% for the first time in over six weeks.

The dash for yield is putting a big hurt on the precious metals. Gold is down over $100 and barely holding onto the $3,900 level. Silver’s down over 5% to $24.33.

Meanwhile, U.S. oil futures have raced back over $104 for the first time since mid-September — as rumors abound that Israeli Prime Minister Benjamin Netanyahu is about to restart the Iran war so he can hang onto power as a caretaker PM amid inconclusive results to this week’s elections. 

And then there’s crypto. 

Overnight, hackers hit Binance — the world’s biggest crypto exchange — and pinched $6.3 billion in coins.

That’s way more than Binance had set aside in emergency reserves. Thus Binance has halted withdrawals.

With that, Bitcoin has tanked from over $81,000 to under $77,000 — the lowest since September. The story is similar for Ethereum, barely over $2,200 now.

We won’t dwell on this event here; James Altucher and his team are preparing an urgent edition of Altucher Confidential that will arrive earlier than usual today; watch your inbox if you’re a subscriber.

Anthropic Will Keep the Lawyers Busy

You’d think every corporate customer of Anthropic would be alarmed by the company’s IPO prospectus, filed this week.

We went into some detail about that filing in Tuesday’s edition. But there’s another angle worth touching on today.

There’s a section that says, “Our AI models may behave in unintended, misaligned or autonomous ways, including by taking harmful actions that no user or third party directed, which could adversely affect our reputation and brand, business, financial condition and results of operations.”

When early details of the company’s filing dropped earlier this month — complete with the bit about “existential risks to humanity” — we wondered why AI companies were getting a pass when it came to the liability requirements that confront most other industries.

But maybe they won’t get a pass after all: “Anthropic's risk factors should alarm the general counsel of every corporate customer,” says our Dan Amoss, senior analyst for Jim Rickards.

“Product liability lawyers will inevitably bring cases of Claude users unintentionally causing damage. Lawyers will likely find success convincing juries that the unpredictable nature of the service should put liability for damages back onto Anthropic, despite its terms of service.”

We’ll be keeping our eye on this one as IPO day approaches sometime next month. We’ll also be eyeing Anthropic’s massive future obligations — $600 billion worth — to Broadcom, Google, Amazon and Microsoft, among others.

OK, that’s a lot of heavy content today. Time to lighten things up as the weekend approaches…

Mimosas for Everyone!

Thanks to a corporate wager, Milwaukee is awash this morning not only in beer but in sparkling wine and orange juice.

After defeating the Tampa Bay Rays in the World Series on Wednesday night, the Milwaukee Brewers’ victory parade is today. 

But before the games began, Johnsonville — the official sausage sponsor of the Brewers, based in Sheboygan Falls — placed a bet of sorts with Florida’s Natural Growers.

The wager was simple: If Tampa Bay won, Johnsonville would send 413,554 bratwursts to Tampa — one for each resident. (Of course, the Rays play on the other side of the bay in St. Petersburg, but whatever.)

And if the Brewers won, Florida’s Natural would send 200 kegs’ worth of orange juice north — “approximately enough for every alcohol-drinking adult over 21 in Milwaukee to enjoy a mimosa,” according to Milwaukee magazine.

Going into the series, Johnsonville’s VP of marketing Jamie Schmelzer suggested Florida was getting the better end of the deal: “The internet is really concerned that 200,000 mimosas is not enough for Milwaukee,” he told the city’s CBS affiliate.

Word. Looking at a livestream of pre-parade festivities in Milwaukee this morning, the beer line is already three deep — at 8:30 a.m. local time. Drink Wisconsinably!

Comic Relief

We’ll stay in the Badger State as we wrap it up today… although the sentiment applies everywhere!