Oil Prices Blow Through Red States, Democrats Take Back Both Houses Overnight! Trump Flaunts Veto Hat, Defeat Makes Him the Sole Pivot Within the Party! Divided Government Can Lock Down Legislation but Not the $40 Trillion National Debt or the Flames of War! Tariffs on the CCP Soften While Sanctions Harden, Congress Pushes Arms Sales to Taiwan to the Limit! Gold Breaks $4,000 on the Day!

The results of the US midterm elections have been announced. The Democrats unexpectedly recaptured control of both the Senate and the House of Representatives, with the collapse of voting in red states primarily attributed to soaring oil prices. High oil prices fueled inflation, forcing the Federal Reserve to raise interest rates, which further exacerbated the financial pressure on citizens. Trump's policies were blamed for the deteriorating economy, and voters expressed their anger with their ballots. On his part, Trump blamed the defeat on disloyalty within the party and candidate issues, while attempting to use veto power as a political bargaining chip. Under a divided government, Congress and the President will engage in struggles over legislation, personnel appointments, and war decisions. Regarding policy toward China, Trump's tariff threats will diminish, but congressional sanctions and chip controls will become tougher. Regarding the Taiwan Strait situation, Congress will push for arms sales to Taiwan, and any Taiwan-related concessions the Chinese Communist Party (CCP) obtains from Washington will lack institutional guarantees. The federal debt issue remains severe, a divided government makes structural reforms difficult, and options to raise taxes or cut welfare are deadlocked. Regarding market reactions, US Treasury yields and the US dollar index fell, gold and crude oil prices fluctuated, and AI stocks came under pressure. Analysts believe that a divided government is not a debt brake, and the next two years will be a period of inertia-driven bargaining.

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The U.S. midterm elections have concluded, and the Democratic Party has taken control of both the Senate and the House of Representatives overnight. They gained a net of seven seats in the Senate, and even deep-red Texas has turned blue. This is arguably the first time in 38 years that a Democratic federal senator has been elected there. Kansas is even more extreme; it is the first time in 94 years. Let me tell you what kind of place Kansas is: even if the Republican Party ran a border collie, it would still win. But even this place was lost. That night, Trump posted a picture of a red hat on his platform, but the place where it usually says MAGA was replaced with four letters: VETO. But a veto is useless now. Spot gold rose by 3%, breaking through $4,000, directly repairing the liquidity gap. Now we can analyze the subsequent impact: with the President from one party and Congress from another in the U.S., how will power be redistributed? How will this war be reshaped, and how will the Taiwan Strait be reshaped? The most important question is, how will that $40 trillion national debt be reshaped? Let's clarify the results first. By the morning of October 4th, U.S. West Coast time, the Democrats had reached 54 seats in the Senate, while the Republicans had 44. Although the seats in Alaska and Mississippi were not yet decided at the time I made this program, it no longer matters. The Democrats have locked in 228 seats in the House, surpassing the 218-seat majority threshold. Texas really surprised me; even the governor's seat turned blue. Texas hasn't had a Democratic governor in 36 years. The state attorney general, Paxton, who was personally endorsed by Trump, lost to state representative Talarico. In the Ohio gubernatorial election, the candidate Trump strongly supported, Ramaswamy, also lost. Georgia elected the first African American female governor in U.S. history. This is no longer a case of swing states swinging; this is the collapse of deep-red states. Why did they lose so badly? The core reason is one word: oil. How did this fuse blow through the Republican base? Look, at the end of February, the U.S. went to war with Iran. Trump boasted that he could solve it within a few weeks, but Iran retaliated by blockading the Strait of Hormuz, which handles a quarter of the world's seaborne oil. This directly caused the average U.S. gasoline price to soar from $2.78 at the beginning of the year to $4.50, and it remained stuck above $4 throughout the entire fall campaign. Although I didn't vote, I would curse every time I filled up my tank. It used to cost $70 or $80 to fill up, but now it's around $120. Voters were cursing even more every time they filled up. That's just one aspect; the main thing is that this life feels endless, and people are paying for Trump's hesitation, not for the war itself. What's even more fatal is the chain reaction. With oil prices rising like this, the year-on-year CPI in September rebounded by 4.7%, with over half of the increase contributed by gasoline. Then, with inflation rising, it forced the Federal Reserve to reverse course in September and start raising interest rates, pushing them to 3.75% to 4%. The 10-year U.S. Treasury yield broke through 5.3%, the highest record since 2002. Following that, mortgage and auto loan rates skyrocketed across the board. That's not all; besides oil prices and interest rates, the public is burdened by four other mountains. Tariffs alone cost the average American household an extra $920 a year. Then, AI data centers consumed 6% of the nation's electricity, directly pushing up residential electricity prices by 14%. Coupled with the expiration of health insurance subsidies and cuts to Medicaid, do you see the logic chain? The war pushed up oil prices, which triggered interest rate hikes, which in turn pushed up electricity bills and other costs, all of which fell on the heads of ordinary people. In Texas, Hinojosa was the one who unseated Abbott by publicly opposing the new data centers that were grabbing electricity. Let's look at how angry the voters are; just look at the polls. The blue-collar workers, independent voters, and suburban families who originally sent Trump to the White House were looking for lower prices, not a war. In the end, they were all backstabbed. So, this group was the main force that turned against them the hardest this time. In an AP survey, over 80% of voters said they were so crushed by gasoline, food, and medical bills that they couldn't even breathe. Two-thirds of people directly denounced Trump's policies for ruining the economy. The eight-plus months of the Iran war burned through $47.1 billion, and 60% of voters criticized the war as a complete mistake. Therefore, one-third of the people voted specifically because they were anti-war.

As for my feelings, before Trump took office, I would basically leave right after work, or I was the type to leave early even before clocking out. After he came to power, there were many times I couldn't even leave the trading desk at six o'clock. Although I'm fairly indifferent to him, I absolutely loathe his big mouth. His mouth is truly an 'IBM'—International Big Mouse. Every time he fucking blathers on, the entire capital market jumps around in chaos. And then, we have to go and manage the situation. Honestly, I wouldn't say all of my overtime in the last two years, but eighty percent of it was the intensity Trump forced upon me. Let's get back to the point; the Democratic Party is just rubbing salt into Trump's wounds at this time. Out of sixty-five campaign ads, sixty-one were questioning: 'Why are you using our living expenses to fuel the fires of war in the Middle East?' When the voters saw this, they were already fucking furious. Trump was also engaging in cronyism during the primaries; he kicked Cornyn out in Texas to appease Paxton, who was facing impeachment, and handpicked Whitley in North Carolina, only for the whole effort to end in total defeat. In the month before the election, he held thirty frantic rallies, forcing voters to do what? Forcing voters to pretend they were on the ballot, which compelled the Republican Party to dump eighty percent of its ad budget just to protect this base. It can be said that he personally turned this election into a referendum on the anger directed at himself. And the Americans, having reached their limit, used their ballots to deliver the loudest slap in the face.

Well, let's continue to see how Trump handles this. While that broken-down station on the West Coast was still running, he posted that because he wasn't on the ballot, that's why they elected him like this and that. If he had been on the ballot, the Republicans would have achieved a crushing, sweeping victory. Then, in an interview with Fox, his tone softened again; he said the Democrats did a good job and fought fiercely, but he himself shouldn't feel any guilt, as voters just didn't like those candidates, not him. Then he delivered another blow to himself, saying something like oil prices are a short-term problem, traded for long-term interests. After Abbott conceded, he even made a post—what did it say? It said that if Abbott hadn't turned into a RINO in the last six months of his political life, he wouldn't have lost. Hey, what is a RINO? It stands for Republican In Name Only, which is the Republican party's curse word for a traitor. The grand finale was the VETO hat; he had already told CBIS reporters before the election about something, saying that ultimate power is called the veto, and everyone is welcome to call him Mr. Veto. He also said that historically, as long as you veto for a few months in a row, the opposing party will run over and say, hey, we need to make a deal. This structure is fixed—let's see if Trump's rhetoric is similar to Journey to the West, right? If he wins, the credit belongs to himself; if he loses, it's attributed to a lack of loyalty within the party, and he immediately sets up his opponent as the target for the next round. What's the use of doing this? Look, Abbott stepped down, McConnell retired, and Clinestat lost the election, so the Republicans are left with only one person still holding institutional obstruction power. That person is Trump, who holds the veto power. This creates a much more fun balance in American politics: his defeat actually made him the sole fulcrum within the Republican Party, while he holds an extra card in his hand—the Supreme Court just stripped independent agencies of their get-out-of-jail-free card in the Strauss case, ruling what? Ruling that Trump can fire Federal Trade Commission members at any time. He even said himself that this case gave the president unprecedented power, which means what? It means that if the Senate doesn't approve his people, he will send unvetted temporary workers to act on his behalf, and then sign executive orders to push straight through. But just having the veto hat still isn't enough; you also have to count the vote count. Overriding a presidential veto requires a two-thirds vote in both the House and the Senate, so can that be counted? The House has about 258 seats, and the Senate has around 54 seats. This means that for every veto the Democrats override, they have to pull in more than 30 Republican House members, plus about 10 defecting Republican senators, which is extremely difficult. Therefore, the only bills the Democrats can pass are three categories: one is appropriations to prevent government shutdowns and military spending; the second is bipartisan consensus like anti-Russia measures; and the third is purely political show bills designed to dig traps—intentionally passing livelihood bills that pander to voters to force Trump to veto them. Why do this? To hoard these materials and use them as black material to bash him in the 2028 general election. So where are the Democrats' real fangs? They are outside the legislature, because once the House membership changes, Trump's court subpoenas will fly everywhere. Oversight Committee member Garcia threatened to thoroughly investigate the Trump family's token issuance, special transactions, and Middle East business. Not only that, but messy accounts like White House gifts and kickbacks will also be dug up by Judiciary Committee member Liggins to settle accounts together. And the matter of unchaining banks and the crypto circle will be blocked to death by Waters in the Financial Services Committee. To prevent Trump from ignoring these subpoenas, the Democrats have prepared three tricks. What are these three tricks respectively? Do not subpoena the White House, subpoena corporations—let tech companies and contractors doing business with the White House hand over their internal communication records, and then share the obtained documents with Democratic state attorneys general to sue in state courts. Finally, invoke the impeachment investigation power, and impeachment motions targeting Defense Secretary Hegseth and Health Secretary RFK Jr. have already begun to be proposed, with drafts already in place. There is also Senate personnel confirmation. Going forward, every time Trump nominates Supreme Court justices, cabinet vacancies, or Federal Reserve governors, each one will require a nod from the Democrats.

After discussing the domestic situation in the U.S., let's look at the war, because this is where Congress can truly change Trump's calculations. What does the War Powers Resolution of 1973 stipulate? If the President has not received authorization for war from Congress, troops must be withdrawn within 60 days. To circumvent this, Trump wrote to Congress on April 30th stating that hostilities with Iran had ceased, and then the fighting continued anyway. The House of Representatives voted three times—on June 3rd, July 23rd, and September 15th—to demand a withdrawal. On September 15th, the number of Republicans who defected rose from four to seven, but the proposal was blocked by Senate Republicans on September 24th. Therefore, after January of next year, as long as the Democratic Party holds power, they will definitely cause trouble for Trump. On one hand, they will sue the White House to force him to withdraw troops according to the War Powers Act; on the other hand, they will write strict limitations into the 2027 military budget, restricting funds solely for fighting Iran, and use the Senate's filibuster to block any new war appropriations. However, we must view this as a political bargaining chip. Suing him may not necessarily be about stopping the war, but rather using it as a condition to exchange for political leverage from the Democrats. What is the current state of the battlefield? The U.S. military has relied on blockading Iranian ports and forced escorting to barely pull the traffic volume of the Strait of Hormuz back to 14 million barrels, which has recovered to 82% of pre-war levels. The Democrats dare not truly cut off the U.S. military's supplies; otherwise, if the strait is blocked again and oil prices skyrocket, the Democrats will have to take the blame. Their suing of Trump and blocking military spending is essentially treating the war as a hostage, forcing Trump to trade domestic welfare for this military funding. This completely changes Trump's calculations, which is also why he said he wants to seek cooperation with the Democrats. Let's look at this timeline: before January 30th of next year, this is his final window of freedom to use force without paying a toll. After January, every day he fights, he will be extorted by the Democrats. Look at the negotiating table; Qatar is passing messages, and Iran has proposed seven points. Now, those fucking idiots in Iran are probably afraid that Trump will go crazy, so what did they propose? They said that as long as the Strait of Hormuz is unblocked and assets are unfrozen, they would implement a phased reopening of the strait plus peace talks. Then, on November 2nd, Trump hinted that he might sign this agreement. As a result, oil prices plummeted by more than 7% that day. But not long after this news was released, Netanyahu urged him to strike hard after the election. Then, on November 3rd, the U.S. military raided that Iranian island, clearly wanting to use bombs to force Iran to sign before January, directly destroying this bargaining chip of the Democrats. But what if this window of time doesn't beat the fucking Iranians into submission? In this situation, what will happen? Next year, the two parties will engage in unlimited bickering, trading military spending for budget items, and the war will be dragged out indefinitely. Therefore, I estimate that the probability of escalation during this lame-duck window is raised to 35%, the probability of dragging it out until the end of the year while fighting is 30%, and the probability of a negotiated ceasefire before the first quarter is only 35%.

By the way, what is the position of the CCP in this game? As we discussed in previous episodes, the emergency tariff power that Trump collected was long ago abolished by the Supreme Court, replaced by that 10% global tariff. However, it also expired in July; to extend it, he would need Congress to legislate, but the Democrats would never approve it. But don't look at Trump's tariffs as soft; Congress's sanctions are even harder. Just in August and September of this year, both the Senate and the House passed a bill by an overwhelming majority called the Graham Sanctions on Russia and Iran Act. Trump signed it on September 18th. This bill is fucking awesome: whoever dares to be the number one buyer of Russian energy, the U.S. will impose a maximum 100% secondary tariff on all their goods exported to the U.S. Who was named? China and India. As a result, on October 16th, Trump signed an executive order directly waiving the clause involving Russia. So, sanctions on Russia are the issue where Congress is most likely to gather a two-thirds majority, so I believe the probability that the Democrats will join with Republican hawks next year to legislate the abolition of this waiver is not low. By then, what the CCP will face will not be Trump's tariff threats, but secondary tariffs written into law by Congress. As for chips, the House Foreign Affairs Committee in this Congress passed a bill 42 to 2, which is to give Congress the right to directly intercept the export licenses of high-end chips like Intel's HR100 to China. It is highly likely that this will be brought up again next year. The Taiwan Strait is even more interesting. Congress had already pre-approved $14 billion in arms sales to Taiwan in January of this year. However, Trump is just sitting on it and not formally notifying Congress. What did he say publicly? He said that arms sales to Taiwan are a good bargaining chip for negotiations with the CCP, and the tools in Congress's hands are very specific. In the 2027 fiscal year military budget bill, the House has specifically allocated $1 billion for the Taiwan Security Initiative cooperation. The Senate Foreign Relations Committee has been taken over by Coons. At this time, Congress will not only force the White House to release the $14 billion in arms sales, but what else will they do? They will also let Taiwan cut the line to get HIMARS rocket launchers and Stinger missiles first. This is a good thing for China, because from now on, any Taiwan-related concessions the CCP gets from Washington will have no institutional guarantee.

Finally, let's talk about money. The federal debt has officially broken through the $40 trillion mark this year. The federal deficit for this fiscal year has reached $1.99 trillion, with expenditures at $7.4 trillion and revenue at only $5.6 trillion. Interest payments alone have reached $1.1 trillion, accounting for 3.4% of GDP, which has already surpassed defense spending and Medicare. It now ranks only behind Social Security. Can the Democratic Party control this deficit if they take both houses? They cannot, at least not structurally. First, the Democrats do not have a two-thirds majority, so they cannot override a presidential veto. In the Senate, they cannot muster 60 votes to break a filibuster. Even if they use the budget reconciliation process that only requires a simple majority to force it through, it would be useless if Trump doesn't support it first, so the legislative path is completely blocked. What kind of situation does this create? It means that bills to raise taxes on the wealthy and large corporations cannot be implemented at all. The only thing they can do is trade: exchange the defense and border funding that Trump wants for what? For the restoration of Medicaid and the extension of healthcare subsidies. The bargaining chips start with the temporary funding bill expiring on December 11, followed by the full-year funding for fiscal year 2027, and finally the 2027 debt ceiling. Let's look at history; Americans have actually tried the combination of a Republican president and a Democratic Congress four times. During Reagan's term from 1987 to 1989, the deficit rate went from 3.2% to 2.8%, but this is the only time the deficit rate went down, and it relied on the 1987 budget summit, plus an average annual economic growth of nearly 4%. Then there was the George H.W. Bush era, from 1989 to 1992, where the deficit rate still rose from 2.8% to 4.6% in 1992. Why? Because the savings and loan crisis and a recession hit. Then there was the George W. Bush administration from 2007 to 2009, where the deficit rate soared from 1.1% to around 10%; those bills were voted on by both parties. Finally, there was the latter half of Trump's first term, from 2019 to 2021. At that time, the Democrats only controlled the House, but even under those circumstances, the deficit rate still rose all the way from 4.7% to 14.7% in 2020; the pandemic relief bills were also voted on by both parties. We can see one pattern in these four historical periods: divided government has never stopped the deficit. Divided government only stops structural reform, and because both parties need to exchange political resources, it is highly likely that both tax increases and welfare cuts will be locked out simultaneously. At this point, as long as an exogenous shock occurs, the relief bills passed by both parties will become larger each time. So why is this time even more rigid? It is because of the interest. With a stock of $40 trillion in debt rolling over at an interest rate close to 5%, old debt can be replaced by new debt, but the total debt will not decrease by a single cent, and the interest continues to rise every year. What is the situation now? The current debt ceiling is $41.1 trillion, leaving only $850 billion of space. If it continues at the rate of $1 trillion every 162 days, it will hit this line again as early as February next year. Even if the Treasury Department uses extraordinary measures to delay it, it can only last a few more months at most. The real X-date, the day the cash runs out, will likely fall in the second half of 2027. Coincidentally, that is exactly when Congress will be busy issuing subpoenas to investigate Trump. While conducting political purges on one side and negotiating borrowing on the other, the situation between the two parties will only reach a stalemate.

So here is the fun part. Let's see how the market is pricing this, right? Today's reaction can be taken as a very, very clean sample. Let's look at the data: the yield on the 10-year US Treasury dropped by six basis points to around 4.9 percent. The US Dollar Index fell to 101.39, also a one-month low. Spot gold rebounded to $4,047 an ounce; basically, whatever was punched through by the liquidity gap was recovered within a single day. Brent crude also fell to around $102 a barrel. Nasdaq futures dropped as much as 24 percent at their lowest before bouncing back. Why are AI stocks so nervous these days? The liquidity gap is a big part of the reason. There is also pricing for the midterms, because incoming Speaker Gilfus has listed AI regulation as a priority and plans to restart export reviews on chips to China. Coupled with the fact that Texas and Georgia, with their cheap electricity and abundant land, have become the main hubs for data centers clustered across the US, and now that governors have all flipped to Democrats, building new computing power centers will require local water and electricity approvals. Therefore, I judge this to be a valuation discount, not an earnings shock. In other words, the expectation of total deregulation is gone. As for the crypto circle and financial stocks, the prospect of complete deregulation is also out of the window. Conversely, clean energy and utility stocks rose first because once the Democrats take back Congress, Trump won't be able to repeal green subsidies. Pharmaceuticals benefit on both ends: the Democrats want to legislate a massive cut to drug prices, but with Trump holding the veto power to shield pharmaceutical companies, and the Democrats forcing Trump to restore previously cut medical subsidies, it means drug prices don't have to drop, and the government still pays the bill on time. Wall Street has a pretty interesting statistic: in the past 88 years, the S&P 500 has never had negative returns in the 12 months following a midterm election, averaging a 14 percent increase. But what is the starting point this year? It's that the Federal Reserve is still raising interest rates, the yield on the 10-year Treasury is close to 5 percent, and oil prices are hovering around $100. So my basic judgment is this: as long as oil prices don't drop—even if they just maintain their current level—I do not believe another rate hike can happen in December. I don't care what probability the market prices in; I only look at the cloud data. Why? Because after cramming AI crazily, the big tech giants propping up the S&P have completely exhausted their free cash flows. In the past, tech giants had plenty of cash and weren't afraid of high interest rates, but now their cash flows have hit rock bottom, buybacks have shrunk, and they've collided with the Democrats blocking chip exports and rate approvals. If interest rates are hiked again in December, it will directly crush the cash flow of the big tech giants. Therefore, the yield on the 10-year US Treasury can only fluctuate between 4.75 percent and 5.1 percent. Without the cash flow floor provided by tech giants, it will be extremely difficult for the S&P to replicate that 14 percent average. Don't be fooled by how broad the rebound looks now; there are short-squeeze factors involved. Only gold holds firm above $4,000. So everyone remember: a divided government in the US is never a debt brake; the Democrats lock down Trump's legislation and personnel, Trump locks down the Democrats' agenda, and what neither side can lock down is interest rates, Hormuz insurance premiums, and war itself. Therefore, over the next two years, what's truly being priced isn't which party wins, but what things continue to run on inertia when no one is calling the shots. The deficit is one, tanker war risks are another, and the AI regulation discount is yet another. As for the CCP, well, what kind of US is it facing? Trump's tariff threats are softening, but congressional sanction threats and chip controls are getting harsher. Even if Trump tries to suppress arms sales to Taiwan, Congress will push for them to the bitter end. In a situation where arms sales to Taiwan are suppressed by the president but pushed to the extreme by Congress, everything the CCP gets from Washington lacks institutional guarantees. At least for me, I might have to work overtime a bit less and have more time to put out high-quality programs for everyone. Alright, I'll stop here for today. If you like the program, please click the bell below. If you want to support me and join the membership channel, we welcome you to our four weekly deep-dive programs; welcome to join Good People Together. See you in the next program.