How War Inflation And Voter Anger Could Flip Congress

The midterms are not just a politics story. They are a pocketbook story, and the loudest message might be the giant number on the gas station sign. We connect the affordability squeeze to the Iran war and explain why even a real ceasefire may not translate into quick relief at the pump, keeping inflation anxiety alive for months. That day-to-day pressure shapes turnout, swing voters, and the mood that decides control of Congress.

From there, we pull the thread into markets and monetary policy. We talk about the Federal Reserve, interest rates, and the brutal math of rising national debt interest expense, plus why political pressure for lower rates collides with sticky inflation. We also dig into voter trust and the power of corruption narratives, including how “government works for billionaires” can become a simple organizing message that shows up in campaign ads and kitchen-table conversations.

We then look at structural forces that can surprise people, like redistricting that creates more purple districts that can flip fast in a wave year. We discuss the immigration enforcement wildcard, why ICE and CBP stories can flare back into the headlines, and how that can energize a base while pushing the middle away. Finally, we bring it back to investing with a candid market outlook: possible pullbacks, the appeal of gridlock for investors, and the geopolitical tail risk of China pressuring Taiwan and turning semiconductor chips into leverage.

If this helped you think more clearly about midterm elections, inflation, gas prices, the Fed, and market volatility, subscribe, share the show with a friend, and leave us a review so more skeptical investors can find it.

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Transcript

Welcome Midterms And Markets

Steve Davenport 0:02

Hello everybody, welcome to Skeptics Guy to Investing. I'm here today with Clem Miller before he's he's going up to the Great White North and seeing Newfoundland and um we're here talking about what's gonna influence um the midterm elections for both Democrats and Republicans, what are the key factors that we need to look at and as we start to see things happening, we probably need to be more defensive or more aggressive with our portfolios. Um so Clem, I guess I'd start with is it the Iran war, Iran aggression, is it Ukraine, is it what's going on with China and Russia and how they support Iran? What things should we be looking at in terms of what will influence affordability and ultimately influence um how the midterms go here in the US?

Clem Miller 1:02

Well, I think I think there's there's basically two issues that I think are going to be big for the midterms. One is the whole oil price, you know, gasoline prices, affordability issues that you know normal people out there are concerned

Gas Prices Tie Politics To Iran

Clem Miller 1:26

about, um, day-to-day-to-day, right? High gas prices. Uh and then I think the other aspect that people are concerned about is the it's kind of a little bit related to the first one, is this sort of feeling that government is not working for them, that instead it's working for you know the leadership and it's working for billionaires and not for individuals.

Steve Davenport 2:01

Yeah.

Clem Miller 2:02

And I think, you know, on the first one, the affordability issue and and high gasoline prices, obviously that's linked to the to the Iran war in large part. And so I think people are looking at the Iran War and wondering, how the heck did we ever get into this thing? Was it a mistake to get into this thing? And if it ends, is it really ending? Or and if it re is really ending, how long is it gonna take before gas prices go down? And from what I've been reading, I think that that even if the war were to end really soon, yeah, really end, not fake ending, but really end soon, I think it's still gonna take months and months for gasoline prices to get back to to where they had been from where they are now. So I think affordability is going to be remain a significant issue going forward, largely because of the Iran war. On the other issue about whether government is really looking out for people um or for billionaires, , I think you have to look at you know some of the stuff that um our president is you know focused on, , such as the the so-called ballroom. Um I mean, let's be serious, right? I think that's he's he he he looks at the White House and his what and at Washington DC as sort of his own personal version of Versailles.

Steve Davenport 3:43

I think that's a good I just got back from Versailles and I think it's a very good the way that the things were decorated to the extreme with the gilding and the gold, and you know, it was it was a time in when the French were you know the leaders of the civilized world and they were considered, you know, the the greatest you know, the sun king, the king who was, you know, attributable to everything great in Europe. And I I think that, you know, honestly, it was an age of you know Baroque and more, you know, fanciful art than I think I really, you know, I'm personally more of a renaissance guy and an impressionist guy, and I'm not really a big Baroque guy. So I I think it's like anything. There's a style. And I think what Trump is trying to do is to put his style stamp on Washington. And I don't think it's necessarily, you know, where he should be focused his efforts. I mean, in my mind, this issue of the midterms comes down to affordability, as you've talked about first. And my comment is I can't see us getting to a treaty that was as good as we had with Iran because they're not going to give up on the need for nuclear power. And I don't think they're gonna give up on you know what they've talked about in terms of having weapons that could influence and control the strait. Now they've put control of the strait as another item on the list, and I think by doing that, it's hard to see how Washington negotiates and gets us to a place that's better than we had before. And so, therefore, I don't see anything. You said you know, something were to come along quickly and things get resolved. I don't see it. I don't see it getting resolved by October, and I don't see it getting resolved anytime soon. So I think it becomes this open issue, kind of like the Ukraine. I think the Ukraine has come close a couple of times to ending, but it didn't. And so I sit here and I say, if we're not able to end the Ukraine, what makes us think that a more complicated situation, which I believe that Iran is, because of all of the entities involved, Saudi Arabia, Israel, , Iraq, you know, everything involved makes the situation for Iran more complicated than the Ukraine, not less. Therefore, if it's more complicated and we can't end and finish up the Ukraine, I don't think in three months we're gonna end and finish with so I think higher gas prices are gonna be there. And I saw one article this week that made the point that said, you know, I don't know how much more you spent on shirts and and shoes, but he says everybody drives down the same roads that have the price of gasoline in huge block letters every time you go by a gas station. So this issue, although it's you know not percentage-wise a significant part of anybody's life, it's still in their minds because of the way that it's marketed and displayed. And you know, I don't know if they should just not put the numbers up there and see who comes into the, you know, I don't know.

Clem Miller 7:10

And and you got the little and you got the little stickers now that say Trump did this.

Steve Davenport 7:18

I think that we know um more information for our you know collected voters is gonna probably say this is a negative. Therefore, people who are on the fence, which is that middle, you know, the massive middle or the malaised middle or the unsure middle, whatever you want to call the middle of this country, I think they're gonna have a problem with higher gas. And therefore, that problem is gonna lead to more dissatisfaction with the affordability of things. Every time I go out to eat, every time I look around, I see how much more expensive things are. And I'm not saying that we can't live in this environment with this level of inflation, but what I'm saying is there are a lot of people who find this increased level, you know, I saw the lines go over each other where the average hourly earnings went down and the number of , you know, the average cost of the goods went up. Yeah. So if we're not earning more, it's it's harder on people. And therefore, I don't see us getting to some new, you know, just because war. Let's let's flip to the other, the third kind of stool leg, which I think is the Fed. The Fed has been trying to figure out how to be more accepted, how to be more influential, how to be more of what the government needs, which is lower rates, because our debt has ballooned. Therefore, our interest payments are now almost

The Fed Rates And Inflation Squeeze

Steve Davenport 8:55

a trillion dollars. There was 200 billion just a few years ago. And so if you've got a five-time increase in our interest expense, everybody needs lower rates. And we can't get to lower rates when inflation is running. That's correct. And so I look at that and say, okay, the Walsh influence, the lower lower gas prices and lower inflation interests, they're not gonna, they're not gonna influence this midterm in a positive way. They're gonna influence it in a negative way. Right. And so I look at that and say, you know, he's about to find out about Cook and whether he can fire Cook, which I think he's gonna come back negative from the Supreme Court. Right. And I think that he's gonna find that he doesn't have the ability to , you know, continue this lawsuit against Powell for you know whatever violation he thinks he made in the construction of the new headquarters. I think those are gonna be losses that make it harder for Republicans to justify what they've been doing the last six months.

Clem Miller 10:04

Well, and you I mean, and even apart from the ballroom and the so-called arch and the the blue reflecting pool and all this you know stuff, there's also you know, obvious corruption like the the weapon anti-weaponization fund that he came up with and the the proviso on that, that you know, he doesn't

Corruption Redistricting And Democratic Strategy

Clem Miller 10:28

have to, he can't be prosecuted for tax crimes. I mean, that's just you know plain, plain ridiculous. And people will see that, and Democrats will use that in the election and say, hey, how can you support this guy? Which brings brings me to another point we haven't touched on, which is this whole redistricting effort. And you know, there seems to be a there seems to be a view out there that this redistricting effort on net favors the Republicans largely because the the Virginia thing was turned down by the Virginia Supreme Court.

Steve Davenport 11:12

The Virginia Yeah, and Texas was a big win. And I don't know if California was enough of an offset to Texas, I don't think it ended up being, but but but I don't think I don't think I think the spinning of this as a Republican victory may be a little bit overblown.

Clem Miller 11:31

And and the the reason I say that is because you know, if you eliminate a democratic district, like a black democratic district, if you eliminate that and split it, split the population among multiple other districts, , you actually make those other districts more democratic.

Steve Davenport 11:54

Right. It has to do with percentages versus you know, over problem numbers.

Clem Miller 12:00

And and if if we were in, you know, if the problem with with what this redistricting is, you know, trying to take a blue district and make it purple and then make the red districts purple so that you've got a lot of purple, right? That doesn't work in a year where politics is swinging against the red, it's swinging towards the blue. Right. So you're gonna have a lot of these purple, in my mind, you're gonna have a lot of these purple districts, the new purple districts, maybe some of the old purple districts. Uh they're gonna swing blue in this election.

Steve Davenport 12:43

Yeah, no, let me let me just run something by you. So when I think about the Democrats and I look back at the last three major presidential elections, I say, was it better or worse for them to go with a more liberal candidate or a mid-term mid- you know, in terms of liberal views, someone more in the middle? They've decided to go with Biden in the middle and they won. They decided to go with Camilla Harris and Hillary and lost. What do you think the plan is for Democrats in 28? Because what they do in 26 in building this consensus in some of these districts and some of these, you know, elections that they want to win, I think is gonna tell us a lot about who is ultimately their candidate and how they can take this midterm victories and shape it into an overall election. I look at it as Budej and Klobuchar represent kind of a middle-ish part of the Democratic Party, and Newsom is in my mind a little bit further left. Do you look at these candidates and say they've got to start to find their people or their ideas so that they can commit around the country to a change to the Republican way, which I think that they're probably gonna label as favoring billionaires. I mean, does it does it come down to something simple like that, Glenn? Or is it do the midterm elections need to be looked at as completely different races in every single state and every single district? No, or do you think there's a theme?

Clem Miller 14:37

I think the I think the midterm elections are gonna bring out some overall themes. I mean, of course there's local issues, right? But they're gonna bring out some nationwide themes. And as soon as the midterm elections are over, then we're going to see the real battles start within the Democratic Party for the 2028 elections. And , and I I have a feeling that at this point we don't even know who's gonna be the next Democratic candidate in 2028.

Steve Davenport 15:11

Well, we can go on to polymarket and probably see who are the highest odds.

Clem Miller 15:18

Yeah, but that's that's that's all based on right now, and , and we don't know what's gonna happen. And those those bets are going to expire, they're gonna be renewed, they're gonna be in different numbers.

Steve Davenport 15:30

Uh some people are gonna is it you know, when you get past the affordability and the in the Fed and interest rates, what do you think the next thing is that's gonna really drive people to the polls or make people more active in their opinions? Do you think it is about you know insider trading and insider influence? Or do you think it is about you know how how have we treated immigrants and and you know, does the immigrant vote go against Trump and MAGA because of their work with ICE? Or I mean, what do you think issue number three is if we have one and two as affordability and two as what's happening with um everything around the Fed?

Clem Miller 16:24

Well, I think I actually I think the Fed is is in my mind, the Fed is three or four in terms of the midterm elections. Okay. I think first is affordability, including gas prices, and and that's related to the Iran war. Second, I think is this view of pervasive corruption in Washington, D.C. Um, I would not,

ICE And Border Politics Wild Card

Clem Miller 16:48

you know, I would not um downplay how corruption is viewed in middle America. Um so I think that's a a significant issue. Uh third, it may well be the Fed, or it could be fourth. But the other one, that's either third or fourth, is , as you mentioned, I think is ICE Border Patrol and their their abuses. Now, they have been downplaying that. Um the White House has been downplaying that, but that could very well come back to you know to full force, you know, in a matter of days or weeks. Uh, and we'll see what happens with that. Um I'm um I'm a little skeptical that they're going to keep keep this so low-key. I think there might be some um additional violence coming out from um from ICE and CBP. So we'll see what it we'll see what happens. But I think that you know that will be a fourth issue or a third issue in the upcoming elections, but people will have forgotten a lot about it if they keep it you know in the shadows. But I'm not sure that so sure they're gonna keep it in the shadows. I think it may roar back. Really?

Steve Davenport 18:13

You don't think that Trump has kind of lost the momentum on that issue and bringing it back will bring back, you know, a negative versus a positive for the base?

Clem Miller 18:26

Well, the problem well, the problem is that the base loves that. His base loves that, right? And the other problem is that Stephen Miller is running that show and he has not lost the support of Trump. So that's why that's why I think that stuff could come back big time. Okay. And because because Stephen Miller believes in that stuff, and he's a true believer in that stuff. He's not just saying, well, this is good politics. He's a true believer in that. And I think that I think that's one reason to believe that he could that this that the ICBP stuff could come back, you know, with fuller force. But I would put that maybe third, put Fed forth. But again, first is affordability in the Iran War linked, you know, to which affordability is linked through gas prices. Second is the pervasive corruption, and third is ICE CBP, and fourth is is the Fed. That's how I would line them up.

Steve Davenport 19:36

Okay, I think I I can't see how you bring up ICE and it helps the the middle of America voter go for, you know. I I and I understand how it might re-energize some of the people to the far right, and therefore they might do it for that reason, but I think it hurts you in the middle. And I think in anything, if I look at this, that hurts the middle and makes it less likely to vote Republican and vote, you know, and more likely to vote Democratic. I think you gotta, you know, those are the third rails of of politics. You don't talk about self-security, you don't talk about like there's things you don't talk about, and I think that that's kind of to the average voter, to the average investor, I think those things make people nervous.

Clem Miller 20:26

Like the IC CBP, yeah. Well, that but the thing is, is that they probably knew this before, right? And they went ahead and did it, and there's a lot of things that they're doing, like with all the corruption stuff, that doesn't go well with people. And I agree, but they still go and do it.

Steve Davenport 20:47

The longer you play with fire, the more likely you are to get burnt, right?

Clem Miller 20:51

Um I you know, I think that a loss in the midterms, which I think is guaranteed for the Republicans, I think even the Senate could go, could disappear on them, right?

Steve Davenport 21:05

I think that I think that that loss if they're if the Democrats take it over, do they take it over with enough of a majority to actual rule, or is it just gonna be

If Democrats Win Power And Pushback

Steve Davenport 21:15

a theoretical and they're gonna need everybody to show up for every vote?

Clem Miller 21:19

They're not going to they're not gonna get 60% in the Senate, right? So not , but then you know that doesn't really matter anyway because you know they could pass something and Trump could veto it, right? So that's 60% is irrelevant. If they get over 50% in the Senate, that means they can block every single nomination that Trump puts forward.

Steve Davenport 21:42

Right. I think that you know it takes is they're they're currently behind two or three seats right now, and they need about four or five seat changes.

Clem Miller 21:51

And it's not gonna help them, it's not gonna help the Republicans that Trump gave his blessing to Ken Patterson. Paxton in Texas over John Cornyn. Uh, because Ken Paxton is is one really corrupt guy. Yeah.

Steve Davenport 22:10

I mean, I I think that in in order for our investors to understand everything, I I I think it's hard to follow all these races and really understand the politics behind them all. So I like to stay somewhere at the higher level saying, I think they're gonna have maybe a 10-seat advantage in the House, and I think they maybe get to a two or three-seat advantage in the Senate. Um, if they don't get to those numbers and it's a smaller number than that, they're gonna have to bring people in with IVs, they're gonna have to bring people in with hosts, and you know, it's just gonna, I I I don't think that's enough um to really change. Um, but I look at it and say, without the big beautiful bill, you know, what has Trump passed?

Clem Miller 22:57

And so so this is what's I'm gonna make a prediction. It's sort of like a polymarket prediction. Okay. Uh I'm gonna make a prediction. Uh what one of those swag predictions, okay? Uh that the Democrats are going to win big in the House. Big meaning what? Oh, like 15, 20 in the House. That Trump is gonna say, Trump and his minions are gonna say, they're gonna claim there's no way they could have won all that without cheating. Uh Trump is going to put a call into Mike Johnson. And Mike Johnson, , when the new Congress comes in, is going to refuse to seat them, receive the seat the new congressman on corruption grounds. The the ones who lost, I mean not on I mean on election um election corruption, election fraud grounds, right? The ones who lost aren't going to be there anymore because well, I don't know, because they're they're they are not you know, they're not still representatives, right? But he'll refuse to sit to seat the the new ones who did get who did win. And he'll do that on behalf of Trump. The only question is, will will Mike Johnson be corrupt enough to go along with that scheme? Or will he do a lot of things?

Steve Davenport 24:27

I guess I'd ask is is that don't they have a vote as to who has the majority in the new and that that person is the one who installs them? So wouldn't it wouldn't it be the Jeffrey?

Clem Miller 24:42

The old the old the old speaker of the house, okay, is in charge of seating the new members, and then he chairs the new the new house and then hands the gavel over to the new speaker of the house. Okay. So at some point in that process, I've read, okay, that Mike Johnson could you know do things to frustrate that turnover. And so my prediction if the is that the Dems will win the House and that Mike Johnson will be pressured by Trump to try to to try to refuse to seat the new House. I mean, he's already he's already done things like like shut down the house, right, for periods of time. So that would lead one to believe that he might do something as corrupt as this, but I don't know. I I have to believe that at some point you know somebody will say no to Trump, just like Mike Pence did. Yep.

Steve Davenport 25:50

I um you know, I think that Johnson to me has um kind of been a non-factor in terms of how he can influence Trump. He seems intimidated by Trump, he seems overwhelmed by Trump. He doesn't seem like he's ever had to deal with this kind of a you know leader before in terms of figuring out how to get more things done. And I I think in general, he's a disappointment to Trump, he's a disappointment to MAGA. He's not, you know, I I don't I don't know if they're operating in a you know real cohesive way now, because I think they've had so many blow-ups and and and things. So I'm I'm not sure there's gonna be the kind of coordination on the new new Congress. It's it's possible, Clem. I guess I'd I put the odds more on. I think that it's gonna be a little tighter. It's gonna be like a 10-seat majority if if they're lucky in the in the in the house. And I think it's gonna be a two-seat or even a you know a one-seat majority in the Senate. And I think it's just gonna be just a shit show for two years, where all they do is is point fingers and not getting things done. And and I think for most investors, I

Market Risks Pullbacks And China Taiwan

Steve Davenport 27:10

I'd say that's what they want. Most investors like stalemates. Most investors like not having Washington not having any ability to change the rules or the way they operate. And and I think that that will be enough for markets to say, all right, there's some of the craziness has been eliminated, and therefore we're gonna see better markets for the next two years. And I I I think that people will be relieved by what has.

Clem Miller 27:40

Steve, I would agree with you, but I think we're in a new dynamic now where Trump basically ignores Congress and does whatever he wants.

Steve Davenport 27:48

Yeah, I think that you know, I think you could be right, Glenn. Um, but I I kind of think of going back to the periods where there's been a lot of hatred about one group disliking the other group and and trying to operate completely separate from it. And I think there's been, you know, examples in history where, you know, the the the best thing that can happen is to have nothing happening. And I I kind of believe that's what we're heading into. And I think ultimately I believe there's gonna be a pullback in markets as we start to digest everything that's happening. And I think that pullback is gonna represent an opportunity, and that opportunity is gonna be um for change in the Senate and the House, which is gonna lead to um, you know, two years of of pretty good markets. Um, so yes, I think that we see a 20% pullback before the end of the year, but I then see that we start to stabilize around, you know, something that's a little bit more clear cut. And I think right now things aren't clear cut. And I think that the presumption by everyone is that this is all being run by the you know, the absolute strength and ideas of the market that come from the Trump administration. And I think that most people aren't buying that. I think most people are buying that, you know, we made a mistake in Iran. I mean, we made a mistake in Iraq. I I mean, I I don't think I don't know why we thought we had a lot better chance this time. Um, and I think the the idea that we've solved everything and we've blown them to obliteration, or you know, I I I I don't think those ideas are a really stand much test of the Middle East, because I think if you look at the Middle East, you'll know that anybody who gets overconfident usually gets disappointed. So um if I look at the midterm, I mean that's the way I'd sum it up, is I think expecting there to be no reaction from the voters is is probably not realistic. Um people react when they see their pocketbook being attacked. And I think it's been under attack here for the two months that we've been involved in Iran. And I I I think the worst that could happen is that China says, hey, let's we like this idea of blockades. Blockades seem like a good solution to what we have. You know, it's very hard to invade Taiwan. One side is all cliffs, the other side is long flat beaches. It would be very hard. Would it be hard to blockade it? I don't think it would be that hard because of all of the US assets that are located in the Middle East, and because of it, China could say, look, we want to protect our, you know, our fuel and the access to our fuel. And we also want to control anything that's going off from Taiwan that could be, you know, against China. And I think that they're gonna make chips political, and that's gonna really hurt this market. Right. That's my opinion. And that hurt of the market is gonna make people even more likely to vote for change.

Clem Miller 31:10

Yeah, so um, do you have anything else? No, I don't. Uh you know, thank you everybody for listening. Really appreciate it.

Steve Davenport 31:20

Yeah, this has been great. And , I hope everyone takes these ideas as education, and we're not trying to predict or tell you what's going to happen in markets. We're just trying to give you um how different factors might influence

Wrap Up And Share Request

Steve Davenport 31:34

markers and help educate everyone to be more skeptical and more on top of what's happening in markets and investor. Thanks, everyone. Please share and like with your friends.