ALEX BRUMMER: All change on Wall Street

During a visit last month to a historic Texas town a short drive from the state capital Austin, a relative picked up a garden poster for Beto O’Rourke, the Democrat running for governor.

On the short walk from the Democrats’ office to the car, a driver in a pickup truck opened his window and yelled obscenities.

O’Rourke may be the good man in the current gubernatorial race, but despite Republican incumbent opponent Gary Abbott’s litany of office mistakes – ranging from a backlash over Covid-19 restrictions to a flawed response to the school massacre in Uvalde – it would be a surprise if the centrist O’Rourke could remove the Republican from power. No Democrat has won a statewide office in Texas since 1992.

Bill Clinton won the presidency that year on the slogan ‘it’s the economy stupid’. But as Americans go to the polls today in the midterm elections, this time Democrats are campaigning for a claim that it is democracy itself that is at stake.

If, as expected, Republicans regain control of the House of Representatives and secure the Senate (less likely) and some governor races, then Joe Biden’s stumbling presidency will face two years of stalemate. The usual impact of a stalled Washington is benign neglect.

This may not necessarily be the case at a time of high inflation and recession risk. In the 2010 midterm elections, the stalemate led to protracted disputes between the White House and Congress over debt.

It eventually led to the Budget Control Act of 2011, which cut government spending and led to fiscal tightening, slowing the recovery.

That’s a scenario Rishi Sunak and Jeremy Hunt should consider as they reach for the meat chopper.

In Biden’s second year in office, nearly half of the 38.3 percent gain of the first year in the S&P 500 stock index was wiped out.

A second term in which the US central bank, the Federal Reserve, tightened the screws and the Republicans on Capitol Hill demanded more responsible fiscal policy after Biden’s $2.4 trillion spend (including student loan cancellation) would likely lead to a revenue decline.

Worryingly, it would unleash political uncertainty, with Wall Street fears of a return to Trump’s chaos.

Republican gains in Congress should be good for defense stocks as Russia’s war on Ukraine rages on.

Energy supplies can be given a second life if green policies are abolished and the extraction of fossil fuels is encouraged.

Clean energy supplies can take a beating. Healthcare and pharmaceuticals could benefit from less interference in pricing.

As for antitrust attacks on big tech as seen in Europe, forget it.

Allaying fears of government interference could counter the ill-fated effects of rising prices and interest rates.

Garbage can

It is undoubtedly good policy for Lib Dem leader Ed Davey to propose a rescue plan for homeowners struggling with mortgage payments.

Many of the seats his party is aiming for are in Tory strongholds in the south. His intervention comes in the wake of the mini-budget turmoil, with month-on-month house prices falling 0.4 percent as the cost of fixed-term mortgages temporarily skyrocketed.

The idea that people with homes and mortgages need to be bailed out after an unprecedented series of double-digit house price increases is preposterous.

Homeowners are generally not the most vulnerable in society, and lenders already have a range of schemes in place, such as deferring repayments for longer for difficult times.

Davey never misses an opportunity to talk Britain down, with accusations of wrecking the economy, despite the UK being full-employment and not yet in a recession.

The Lib Dems are proposing to pay for its giveaway of up to £300 a month with a retroactive tax on the banks dating back to 2016.

That would wipe out credit, investment, production and growth. . . well done.

Big Brother

If Rishi Sunak thought regulators would turn around and give ministers a tickle if the government passed ‘call-in’ (override) powers in the new Financial Services and Markets Bill, he should think again.

Nikhil Rathi, the head of the Financial Conduct Authority, is unimpressed. Sunak should remember what happened when Kwasi Kwarteng tried to ignore the Budget Responsibility Bureau.

Chaos reigned.