What's At Stake In The Midterm Elections?

Tyler Durden's picture

Via Goldman Sachs,

As the global election cycle begins to slow down we turn our attention back home to give investors a working roadmap for the Midterm Elections in the US. Indeed, with the President at the midpoint of his last term and policy uncertainty having abated (to a degree), we believe the market has not focused on what by all accounts looks like a toss-up in terms of election outcomes with no volatility being priced into the options market. To that end we focus on how a single-party Congress might impact the policy agenda and what needs to happen for that to occur.

What’s needed for Republicans to take the Senate? Democrats currently have a 55/45 majority in the Senate which implies Republicans need a net gain of 6 seats to secure a 51/49 majority. The particular subset of seats up for election this year has driven some in the press to expect that Republicans have the easier road to victory (note we do not take a view on the outcome of the election). Specifically, there are a total of 36 Senate seats up for election, 21 held by a Democratic incumbent and only 15 by a Republican. Further, just 1 of the Republican-held seats is in a state that voted for President Obama in the 2012 elections, while 7 of the Democrat-held seats are in a Romney-voting state. If all states voted as they did in the Presidential elections, Republicans would secure the net-gain of 6 seats needed for a majority.

What is the market pricing in, if anything? While the November 4 elections are still several months away and the political climate remains fluid (most recently evidenced by House Majority Leader Eric Cantor (R-VA) losing in the Virginia Primary to Republican challenger Dave Brat), we look to two market-based measures to gauge expectations around the election outcome.

  • Prediction Markets suggest election outcome is a toss-up. Today, online prediction markets show a roughly equal probability of a Republican controlled House and Senate (implied probability: 45%) as a maintaining of the status quo (implied probability: 40%), although these measures have shown significant volatility YTD. At the start of the year the implied probability of status quo was approximately 55% (Rep. House & Senate 37%), while less than two months ago the markets saw a higher likelihood of Republicans taking the Senate and maintaining control of the House (~55%). Our US Economics team notes that online prediction markets are often unreliable this early in the campaign cycle. For example, up until two months before the 2012 elections, prediction markets were implying that Republicans would gain the four seats necessary to win a majority in the Senate, while they ultimately lost two seats.


  • Option markets are not pricing in high volatility around the election. Expectations for elevated volatility around the midterm elections would leave ripples in the options market, in our view. Below we measure average implied volatility for S&P 500 stocks across contract maturities, finding no evidence of increased hedging demand near the time period of the election (i.e. December contract expiry). We note that at this point ahead of prior recent midterms (i.e., 2010 and 2006) there was a similar complacency in the options market, and the election was indeed followed by relatively small market moves (S&P 500 -0.2% in Nov-10; +1.6% in Nov-06). However, midterm elections are not always quiet times for the market. Over the 1962-2002 period, the median absolute move in the S&P 500 during the month of the midterms has been 4.7%. For context, the median absolute monthly move for all Novembers over the 1962-2002 time period is 3.7%, and 3.1% in nonelection years.

How might a single-party Congress impact the policy agenda? While a Republican controlled House and Senate could potentially serve as a catalyst for the high priority agenda items of Republicans (e.g. corporate tax reform), it is less clear that this would increase the likelihood of any proposed legislation becoming law as the need for bi-partisan support remains. Most policy items require 60 votes from the Senate and the President maintains the power to veto a bill. To the extent that Republicans in the House and Senate spend more time working with each other than across the aisle with Democrats, the likelihood of any major reform being passed could potentially fall, rather than rise. Therefore, it is unclear that the political gridlock will improve after the midterms and the possibility remains that much of today’s policy agenda could be pushed out until after the 2016 presidential election.

Policy agenda items we are watching:

Repealing or Amending the Affordable Care Act: While discussions over a Republican-led repeal of the Affordable Care Act have been circulating since the law was passed in 2010, the likelihood of a full repeal has seemingly waned as ACA implementation has ramped. Still, many Congressional Republicans remain steadfast to amending the law. One such example is the American Health Care Reform Act of 2013 which was introduced by Rep. Phil Roe (R-TN) last September and has the support of 130 House Republicans. Additionally, in his role as House Majority Leader, Eric Cantor (R-VA) was a driving force in the ACA repeal effort, overseeing more than 40 votes in the House on the topic, and it is unclear how his defeat in the Virginia Primaries impacts the Republican strategy from here.


Managed care companies (e.g. UNH, WLP, AET, CI) are potentially the most exposed to any legislative changes to the ACA, and could stand to benefit if certain aspects of the law are changed (e.g. a reprieve to the Medicare Advantage reimbursement cuts). That said, with the political backdrop as fluid and uncertain as it is today, insights regarding what legislation (if any) will ultimately be proposed and how the healthcare sector may be impacted remain unclear, in our view.


GSE reform appears unlikely near-term: Housing finance reform remains a focus, with a number of proposals introduced this year, including Johnson-Crapo, a bi-partisan bill by Chairman Johnson (D-SD) and Ranking Member Crapo (R-ID) that passed the Senate Committee in late May and the PATH Act in the House, which was proposed by Rep. Jeb Hensarling (RTX) that was introduced in January, among others. However, there are large differences across the proposals, leading many to conclude legislation is unlikely to be passed near-term.


A key concern of legislators seems to be the impact any reform may have on the housing recovery, particularly affordability. Homebuilders, title insurers and brokers (e.g. RLGY) revenues are very sensitive to the volume of home sales. Private mortgage insurers (PMIs) would also likely be impacted by reform, but the direction is less clear. There could be a larger role for PMIs (such as MGIC, Radian and Essent) as the private sector takes more credit risk, but their business models are also dependent on the existence of a GSE-like institution that requires mortgage insurance for high LTV loans. In addition, competitiveness vs. alternatives (like the FHA) could also shift depending on the scope of reform.


Corporate Tax Reform remains a key agenda item but the potential election impact is unclear: Both Republicans and Democrats have discussed and set forth sweeping corporate tax reform proposals this year (i.e. President Obama’s FY 2015 Budget and the Tax Reform Act of 2014 set forth by Rep. Dave Camp, R-MI). Key debates on issues such as revenue neutrality have kept law makers at odds and recent focus has been narrower in scope. For example, in May Senator Carl Levin (D-MI) introduced the “Stop Corporate Inversions Act of 2014” which specifically aims to end the practice of corporations re-domiciling outside of the US by means of an M&A transaction. Recent press also indicates that Senators from both parties, including Rand Paul (R-KY) and Senate Majority Lead Harry Reid (D-NV), are in discussions over a potential repatriation tax holiday. As mentioned above, it is not clear that a Republican-controlled Congress would increase the likelihood of any becoming law, but it could revert the focus back to more broad-based reform.

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Deathrips's picture



They are all controlled opposition collectivist shitbags?



SafelyGraze's picture

which color is the one that supports increasing debt and increasing military kinetics

because that is the color we want to go ahead and vote for


macholatte's picture


Diebold voting machines can be hacked by remote control



It is enough that the people know there was an election. The people who cast the votes decide nothing. The people who count the votes decide everything.

Joseph Stalin

wee-weed up's picture



"What's At Stake In The Midterm Elections?"

Obozo's balls...

If the Dims loose the Senate...

Obozo will be castrated.

zhandax's picture

"What's At Stake In The Midterm Elections?"

Nothing more than whether the same thieves get to keep robing us blind.

AlaricBalth's picture

"Now, there's one thing you might have noticed I don't complain about: politicians. Everybody complains about politicians. Everybody says they suck. Well, where do people think these politicians come from? They don't fall out of the sky. They don't pass through a membrane from another reality. They come from American parents and American families, American homes, American schools, American churches, American businesses and American universities, and they are elected by American citizens. This is the best we can do folks. This is what we have to offer. It's what our system produces: Garbage in, garbage out. If you have selfish, ignorant citizens, you're going to get selfish, ignorant leaders. Term limits ain't going to do any good; you're just going to end up with a brand new bunch of selfish, ignorant Americans. So, maybe, maybe, maybe, it's not the politicians who suck. Maybe something else sucks around here... like, the public. Yeah, the public sucks. There's a nice campaign slogan for somebody: 'The Public Sucks. F*ck Hope.'"

"I have solved this political dilemma in a very direct way: I don't vote. On Election Day, I stay home. I firmly believe that if you vote, you have no right to complain. Now, some people like to twist that around. They say, 'If you don't vote, you have no right to complain,' but where's the logic in that? If you vote, and you elect dishonest, incompetent politicians, and they get into office and screw everything up, you are responsible for what they have done. You voted them in. You caused the problem. You have no right to complain. I, on the other hand, who did not vote -- who did not even leave the house on Election Day -- am in no way responsible for that these politicians have done and have every right to complain about the mess that you created."

George Carlin

Tall Tom's picture

You summed up the reason that THERE IS NO POLITICAL SOLUTION.


What is at stake in this election? Nothing of any consequence...nothing of consequence to you...to me...or to most people.


Now Goldman Sachs believes that something is at stake. So they issued this propaganda piece aimed at manipulating the ignorant.


Why Tyler published it I will not ever understand. Maybe it was to educate us about what the enemies of Freedom and Liberty want. But I already know what they want. They want to crush Freedom and Liberty. They want the masses destitute and under their control.


Fuck Goldman Sachs and the Muppets whom support this corrupted and vile system.

Anusocracy's picture

Who's going to temporarily own the plantation.

It doesn't matter which one - either will continue to salt the economic soil and the harvesting of the middle class.

wee-weed up's picture




Obozo getting castrated is a show I'd gladly pay BIG money to see!

(Of course, if you like the incompetent bastard and his lawless shitting on the Constitution every chance he gets [more so than any Prez in history]... then please feel free to junk away!)

asdasmos's picture

Posted Elsewhere:


1) The taxes are not worth the value being returned.

I don't have a problem paying taxes, so long as they go to something worthwhile. I will end up paying around 33% - an entire 1/3rd of my income - in my 2013 tax return. Yes, I am getting a refund, but when I am paying tens of thousands of dollars and not getting the services I should receive for that investment in my country, celebrating the return of a few hundred dollars seems absurd.

Where is my benefit from my government for all of this? Do I have free healthcare? No. Do I have a world class education for my child? No. Do I have any kind of guaranteed income should I lose my job? No.

No, instead, I have a country which is the only one in the world to tax its overseas citizens. A country that bails out banks who prey on those who just want a home to raise a family when they become insolvent - but when it happens to me, and I short sell my home, the IRS is there, ready to tax me on "phantom income" - forgiven debt.

I have a country that spends billions on fighting wars for political gain, but does nothing when there actually is evidence of WMD use against others. A country that hemorrhages so much money on military spending, it must turn around and take loans against my child's future - her income - in order to continue to pay for programs we don't need.

2) I'm tired of people being surprised that I'm American because I have manners, common courtesy, and the ability to see the other side of issues.

Seriously, the number of people I meet who think Americans are rascal-riding land whales (like in the movie Wall-E) with handle-bar mounted machine guns, a sack of Big Macs in the front basket, a clinical addiction to NASCAR, and a passion for the modern day artist that is Jerry Springer - it's just too much. I've been introducing myself as Canadian because apparently I'm so polite, that's where they mostly assume I'm from.

3) The fact that none of this is ever going to change, regardless of what party is in charge, and the fact that the American government continues to shred the constitution a little more each year, until it doesn't even matter anymore.

You may not think of America as a police state, but it is. Nobody's going to come grab you in the middle of the night, unless you're reported as a terrorist of some kind. At that point, just forget about "police work" and get ready for the SWAT team.

Nobody is going to take your children way from you, unless Child Protective Services is called, and someone decides - for whatever reason - that it's "in the child's best interest" to be removed.

Nobody is ever going to interfere with your access to medicine, unless you're trying to get something that isn't ridiculously expensive from another country; in that case, get ready for being charged as a drug trafficker.

Nobody is going to freeze your bank accounts, passport, and other means of movement, unless the IRS believes you haven't given them enough money. Suddenly you have debt to prove isn't there, and it will all get "sorted out" at the blistering fast speed of government efficiency. Or you could just pay the amount they say and it all ends quickly.

4) The fact that the future for my child in the US is so dark.

All this debt, and it's going to fall on her and her children. She's broke, and she doesn't even know it yet. Disgusting.

Well, I count myself fortunate that I don't own a home in the US - it affords me the ability to even consider leaving it all behind. There's so much propaganda about how wonderful America is but, when you look at it without those rosy lenses on, what you really see is horrifying.



rwe2late's picture


"All that is necessary for the triumph of evil is that good men do nothing." (Edmund Burke)

Not voting may falsely balm your conscience, but it does nothing to actually oppose the exercise of power by the establishment.

If you do not pay any taxes, accept any government services for yourself or your family, have any investments or make purchases that contribute to wrong-doing, or work at any job that supports the system

... then I will at least commend you for a submissive and anti-social consistency.

drendebe10's picture

Wishful thinking. Fat frackin chance.

drendebe10's picture

Wishful thinking. Fat frackin chance.

CrashisOptimistic's picture

Oil scarcity is non partisan.

Doesn't matter who wins.

andrewp111's picture

No way.  The Republicans taking the Senate changes nothing, except perhaps Obozo's ability to appoint Supreme Court Justices. That's it!!

Now, the more unlikely outcomes do change something. If the Congress went full Dem, Obozo would be partying like it is 2009. And if both houses flip to the opposite party (an outcome that isn't even indicated in the graphs above), that would induce moderation and compromise, and the moderates and non-political types would be very happy.

Freddie's picture

The Republicans-NeoCon RINOs or really the NWO has made sure Lindsey Graham will stay unless an independent runs and beats him.   The NWO will let the little people "win" some house races but the Senate is like the Roman Senate - owned and totally corrupt.  

Unless you see more RINOs thrown out in primaries then don't expect much.

August's picture

Nothing worthwhile is "at stake" in the November US elections, unless a Constitutional Convention is called a year or two earlier than expected.


Of course, if a Constituional Convention were to actually assemble, and this was not confirmed by the New York Times and endorsed by the Southern Poverty Law Center, it would merely be a collection of middle-brow cranks, and could be safely ignored. 

On second thought, make that middle-brow subversives, with domestic-terrorist sympathies.

Winston Churchill's picture

A nice  fat target for a hellfire missile.


JLee2027's picture

I view a Convention of the States as the last chance for a peaceful outcome. 

A Lunatic's picture

I view a convention as a great way to do away with most of the Constitution and make tyranny the law of the land officially. I find it funny that the same people who don't trust their representatives to do the right thing in the day to day shit think they will do the right thing at a Constitutional Convention, LMFAO.......

Mike in GA's picture

You are absolutely spot on!  The worst thing could do is a CC in this highly polarized and toxic environment.  The mob would bring their emotional arguments to fend off logic and reason and the result would be exactly as you say. 

Those that see a CC as a panacea are deluding themselves with unicorn-grade fantasy.  The real world would fast make a mockery of any attempt to enact anything resembling old-fashioned responsibility.

andrewp111's picture

If there was a Convention, Obama would figure out a clever way to hijeck it and write a new Socialist Constitution.

Freddie's picture

The status quo is not working.

AGuy's picture

"I view a convention as a great way to do away with most of the Constitution and make tyranny the law of the land officially."

+1. A Convention is much more likely to destroy the constitution than save it. Too many corrupt politicans. On the GOP they want to expand the NSA powers, on the DNC, they want to expand the NSA powers. Its a loose-loose scenerio for liberty and freedom.


JLee2027's picture

---I view a convention as a great way to do away with most of the Constitution and make tyranny the law of the land officially.---

Which would cause a revolt.

They don't have the balls, so I don't see them messing with the Constitution. 


yrbmegr's picture

We might be officially screwed.

I am Jobe's picture

Same A  Holes and Hookers to decieve the masses TX included . TX is as Socialist Sate as NY just disguised as whore state 

AGuy's picture

"TX is as Socialist Sate as NY just disguised as whore state "

Socialists are like locust. After the consume and bankrupt a state the move on to the other states they haven't consumed. The locusts have set their eyes on TX,VA,FL and NC. lots of CA socialists are moving to TX, in the Northeast Socialists from MA,NY,CT,NJ are heading south to VA,NC and FL. The only states they are not going to flock to is the mid-west, and north-central states because its too cold and there isn't any section-8 housing there.





adr's picture

Yes, the market pricing in improbable outcomes of an event months in the future. Yet believing the event has already transpired making those who manipulate the market loads of money in the hopes of influencing the improbable outcome to become reality.

In other words more evidence of a completely rigged market and bullshit economy.


Tracerfan's picture

Death by hanging or death by drowning.

disabledvet's picture

"War with honor" and "war without."

All others will be called traitors...AND SHOT!

buzzsaw99's picture

both parties agree there will be moar (for the .0001%)

disabledvet's picture

Hmmm. Well...those are the ones who have in fact fought in this war.

Or is that the other .0000001% you're talking about?

drendebe10's picture

As if it makes fukall a difference.

Gummint. Ctrl-Alt-Del

yrbmegr's picture

The red-blue show is at stake.

goldhedge's picture

If you keep voting for Rep or Dem then Nothing will change u dumb Americans.


gatorengineer's picture

never has there been less difference between the R's and the D's......  I think "they" are winding the charade down....  we are pretty close to officially becoming an oligarchy...

yrbmegr's picture

There is very little to refute your position.  You are probably right.

honestann's picture

Everything about so-called "government" is pure fiction.  Only the predators who run around telling everyone they must obey "government" are real.

Therefore, the only action that means anything is either the predators giving up (never happen) or the predators being exterminated.

Any other result is irrelevant, no change and status-quo.

quasimodo's picture

Yeah, but Cantor lost the other day....change is in the wind!


Urban Redneck's picture

That was a primary election, so it mattered.
Moreover, the central committee lost one of its high priests, which is always good.
But the federal midterms in November (when the sheeple vote) are inconsequential. (Unless there is a viable independent candidate on the ballot in a given district, and the Diebold drones fail to communicate with the mothership.)

Referendums and LOCAL elections are important regardless, but people need to research the ballot spoilage rules in their specific district.

When a single local candidate can garner more votes then the combined federal demopubicans on the same ballot, (which requires bringing integrity back to the vote counting at the local and state level) then change will be in the wind.
/no sarc

honestann's picture

Please change "then change will be in the wind" to "then Diebold will make sure dems and repubs win".  The game is over, humans are finished, there are no ways to "fix the system", except to exterminate all predators.

icanhasbailout's picture

Change IS in the wind!

In an effort to properly explain to my mother WTF just happened, I put together this narrated index.

The Real Story of Eric Cantor's Downfall


The mainstream media are being a bunch of dumbasses as usual and not getting it. TBE put out no fewer than 78 articles on the campaign and related events while they were happening - but did Google News accept us as a news source? Oh no, we ain't even good enough for them to state a reason. But there's the truth for anyone who wants to see it for themselves.

SIOP's picture

I dont know where I read this, I think it was posted here and it hit the nail on the head. it went something like this...

"Voting is like picking actors for a play, the script never changes, only the actors"

kurt's picture






shadescale's picture

In the last primary, I wrote in Beelzebub.  I figured voting for the head evil was better than the lesser of two.


If I lived in CA, I probably could get Beelzebub the electoral votes....

zebrasquid's picture

What's at stake? The country. The only chance we have is to vote against the status quo. While, as most of you note, there are no heroes on the scene in D.C., the status quo that needs their turn to be upended and checked are the Donkeys.

Best and only chance we have of throwing some brakes on this runaway train, so don't let your idealistic cynicism get in the way of voting R this year.

Anusocracy's picture

I'm sure the Dumbercraps are feeding the same BS to their true believers.

Sometime look into a mirror, you will see the problem.

Son of Captain Nemo's picture

If by "Election" you mean the upcoming one that will include 536 8' sharply pointed pikes that will be running through the anus, stomach, heart, lungs and mouth of the incumbent(s) in Washington D.C.?... I can't wait...

Tell me when the "voting" commences!

A Lunatic's picture

Goldman Sachs doesn't give a fuck about anything other than their bottom line.......