Midterms Priced In, Commodity Views Intact: Post-Election Market Read

Derek Macpherson (0:01)

We're recording today on November 11th, around noon Eastern time. So, you know, always preface that, especially with peace talks going on in Russia, Ukraine and Iran. Probably all make sense that something could change by the time we record this, between when we record this and when it comes out. My name's Derek Macpherson, I'm the Executive Chairman of Olive Resource Capital. With me as always is Sam Pelaez, President, CEO and CIO of Olive. As per usual, we are just looking at where markets are and what we did. On our last episode, we talked a lot about things, our tax loss shopping list, what we're going to go out and buy, what we're looking at, things that we're looking for. And it's been a whole week, and we've subsequently reported our cash balance, which is sizable for us for this time of year.

And we'll talk about what we've been buying and where we think, how windows might get created that we can step into. So I guess the day we recorded, if I remember correctly, the day we recorded last time was the US federal election. So we didn't have the results yet. They've, it's been coined the blue tsunami. The Democrats won the House, the Senate, and a lot of governorships as well. Kind of a bit of a surprise.

People talk about all kinds of factors that could affect elections, et cetera. Generally speaking, it's the economy. Nine times out of 10 is the economy. And so high prices still existing, the high diesel prices, which affect everything.

I think it's a referendum on the economy and I think that's what we saw. For the average person, it's expensive. Their cost of living has gone up and their wages haven't.

Samuel Pelaez (1:52)

Definitely was a blue tsunami. However, you know we like to stick to seasonality and sort of like general norms. And almost every president loses a big number of seats in the midterms. It's almost the standard. And the six months after the midterms tend to be very good in the stock market. I'm going to start, I'm going to preface, but everything I'm going to say with that. History says presidents are very likely to lose seats, and the stock market does well, i.e. rebounds.

What we've seen since the announcement of the results has been a sense that most of it was priced in. There's been some aggressive selling in the AI sector. I'd say there's other additional reasons for that. And for the most part, the reaction in commodities other than crude oil, which we'll talk about in a second, has been somewhat, you know, flat, flat-ish. The US dollar remains strong. So, you know, not a lot of, I won't say, it's actually been less voluptuous than I expected as a result of the elections.

The two things that I, sorry, go ahead.

Derek Macpherson (3:00)

Yeah, I would agree with that. And just maybe on your point on the loss of seats, A, it's typical, B, it's even more typical when the president is in there last term. So typically if you have a two-term president in the last two years of that second term, which is what Trump is in, the numbers go even higher on seats lost in Congress.

And frankly, I would point out that I think Obama in his last term lost 65, in his last two years, he lost 65 seats at that midterm. So 37 isn't unprecedented by a stretch of imagination. But whatever one's talking about, things like Texas having a Democrat governor is probably a little more noteworthy than maybe what happened in Congress.

Samuel Pelaez (3:50)

Actually, people tend to forget, if you look back at the history of governorships in Texas, it's almost all blue. There's a few very well regarded, very well known Republicans, but it's actually not unusual for Texas to be a Democrat or to lean Democrat. Let's call it Texas Democrat.

Maybe this time is a little bit more blue than that man expected, but still, that's one state that I think carries a lot of weight in the common opinion, in the public opinion, but I wouldn't read as much into it as some of the people are reading. I'm not a political analyst, so if you happen to be one, please correct me, please write a comment. I'd love to learn more.

Derek Macpherson (4:38)

I guess the other thing, but I guess maybe we've talked about this, but maybe let's circle this back to how it affects mining stocks and commodities and the markets in general. I think the big thing on the push, we've seen it already, there's going to be a lot of pushback against AI data center build-outs, so that has a twofold effect. One, we've seen that reflect in the AI stock, so we've got money coming out of those.