Grey Swan #3: The Midterms Deliver a Socialist Majority in the House

“Every socialist is a disguised dictator.”

–Ludwig von Mises

December 31, 2026 — Right up front, we’ll be happy to be 100% wrong about this forecast.

Enthusiastically. With champagne. Not to salute the Trump global realignment narrative, but because the socialist agenda is economically incoherent, and for an empire with a debt load the size of the U.S. federal government sitting at the epicenter of the global financial system, the economy cannot afford the weight of envy and class-driven redistribution of wealth legislation.

That said, channeling Benjamin Disraeli, let’s hope for the best, but plan for the worst.

The 2026 midterms will mark the most consequential political re-sorting of American economic power in a generation — one that markets, households, and institutions are profoundly unprepared to absorb.

Our Grey Swan #3 would truly hit like an event.

Social Democrats have already stolen the hearts of the party. The outcome of the midterms will not depend on a charismatic revolutionary or a single galvanizing crisis. The qualms of socialists fester in a fetid stew of (bad) math, demographics, cultural fracture, and the accumulated disappointment of voters who feel priced out of the American promise.

For the rest of us, well, we’re just fed up with Congress. Full stop.

By November 2026, the House of Representatives will tilt decisively toward an openly socialist, redistribution-first coalition — not in the sense of being progressive, as in the Clinton-Obama era, but structurally adversarial to capital, wealth accumulation, and private ownership as organizing principles.

 The Setup: A Generation Voting For Apples (And Against Oranges)

For the first time in decades, midterm voters face a choice that is not incremental, passive or slick.

On one side: Republicans offering a “radical” economic package — lower taxes, lighter regulation, cheaper money, growth first, distribution later.

A virulent strain of new American nationalism accompanies this Trump variety of populism. It’s not exactly a coherent vision without the MAGA mantra as the lead.

However, it has, thus far, delivered a remarkable stock market rally, which has resulted in asset appreciation for those already in the game, as well as headline-grabbing GDP growth in 2025. That growth is likely to pick up speed in 2026.

Unfortunately, as we saw when the “information revolution” dominated the stock market and the economy in the early 2000s, there is a growing swath of the population left out and feels locked out of the nascent AI economy.

So… on the other hand, there is a coalition of democratic socialists, economic populists, old-party zombies and cultural radicals who care less about growth metrics and more about “equity” than they do about governing on reasonable principles.

Their soundbite messaging is designed to moralize and shame opponents. The concept requires equity redistribution before the prosperity process has even begun. The coalition promises and or demands lower rent, tuition, health care, student debt, transportation and cheap gadgets.

They also want higher wages.

Gender and race identity.

Power.

These voters only consider tax brackets that are higher than theirs in the view of the IRS.

They’re not proposing a new system to replace the boomer edition they see every day. They are voting on whether the system works for them at all. Like the Reign of Terror in France in 1793, or the Bolshevik drive to power in October 1917, the merry band of useful idiots seeks to gain victory first, then figure out the details.

TikTok has replaced cable news as the organizing medium. Viral narratives outperform white papers. Cultural grievances travel faster than economic nuances or incentives.

The Wall Street Journal observed earlier this year that “younger voters increasingly separate markets from morality, and no longer assume the two are aligned.” Bloomberg added that economic dissatisfaction among under-40 voters persists “even in periods of strong employment and rising asset prices.”

In Empire of Debt, we warned that asset inflation without broad participation eventually becomes politically radioactive.

By 2026, whether we like it or not, the gamma rays will reach Congress.

 A Bull Market That Leaves Too Many Behind

This forecast unfolds alongside Grey Swan #2 — the crack-up boom.

Markets soar. AI stocks dominate. Trillion-dollar IPOs flirt with reality. Bitcoin and gold set new highs. Paper wealth multiplies. Contracts supersede fairness.

What the younger set, starting with Millennials, see in front of them is outrageous rents and unaffordable home prices. Healthcare premiums can consume up to 30% of their income. Obscene tuition for higher education that doesn’t necessarily prepare them for the job market they are entering. Student loans that can last a lifetime.

For them, the system is broken.

The Federal Reserve’s own data shows that the top decile owns the vast majority of financial assets. That fact, repeated endlessly across social media, becomes a rallying cry.

In the first edition of Financial Reckoning Day, we observed this moment already underway two decades ago, precisely: when inflation and asset appreciation enriched balance sheets while hollowing out public faith.

The result is not apathy. It is anger with a negative, nihilist, legislative agenda.

 The Messaging That Wins

The socialists will not campaign citing Marx. Only the agitators will even know who Marx is.

The campaigns will incite neo-Leninist “useful idiots” to pine for better economic outcomes.

“Why can’t I afford a home in the country my grandparents built?”

“Why does health care bankrupt people with jobs?”

“Why do corporations get bailouts while students get interest?”

“Why does the stock market boom while my life feels stuck?”

These messages land because they are emotionally accurate, even when economically simplistic.

As one Democratic strategist told Politico this year, “You don’t need to explain how money works. All you need to do is explain why people feel screwed.”

That explanation is supplied daily on social platforms, amplified by influencers who blend cultural critique – “don’t be a hand-maiden to the patriarchy,” warned Hilary Clinton in 2025 – with economic resentment to their own advantage.

 What a Socialist House Actually Does

This Grey Swan is not about rhetoric. It is about committee power.

A socialist-leaning House majority controls:

• Tax legislation

• Budget negotiations

• Debt ceiling brinkmanship

• Regulatory oversight

• Investigations

• Impeachment calendars

Expect proposals that include:

• Wealth taxes framed as “fairness contributions”

• Rent controls at the federal level

• Corporate windfall taxes tied to AI profits

• Student debt jubilee expansions

• Aggressive antitrust enforcement

• Capital controls by regulation rather than law

With the AI economy just around the corner, rather than the normal boom and bust, AI will be blamed for job losses, right before the midterms.

Political proposals will run the gamut from efforts to slam on the brakes, reminiscent of early Internet proposals that sought to ban any new tech that could displace jobs.

An ambitious set of socialists will also see the new tech as the final straw and demand Universal Basic Income (UBI) — the ultimate “equity” program coded directly into the system.

Markets will not wait for passage. They will reprice the proposal of each absurd one-size-fits-all plan… whether it gets votes or not.

In Demise of the Dollar, we described how capital responds when legitimacy becomes negotiable. Money moves quickly out of the line of fire. “Optionality” becomes priceless.

 Trump’s Reaction Becomes the Second Act

If the socialist agenda lands, the reaction matters as much as the results of the initial vote.

A hostile House gridlocks legislation. Investigations proliferate. Impeachment chatter returns. Executive authority stretches to compensate.

Publisher Pete Coyne’s contribution to our forecasts captures this risk succinctly: political paralysis, combined with escalating executive power, marks the beginning of institutional decay, not reform, not ease.

The political goal of the reactionary strategist will be to muck up the Trump realignment as much as possible to regain power in the House, the Senate (eventually), fortify the courts and ultimately take back the Oval Office.

Trump will not face a midterm defeat like past lame-duck presidents. We’ll see a host of creative efforts to assert executive authority and override the people’s House. The checks and balances bestowed by Montesquieu at the very root of the Republic will be tested as never before.

Markets dislike uncertainty more than they don’t function on ideology.

This divided government will be unlike any we’ve seen in the history of the Union.

Locked in permanent conflict, Congress will be unable to address deficit spending on entitlement programs and mounting interest on compounding debt…  volatility will skyrocket in the stock market, inflamed by historically low interest rates and a robust new round of quantitative easing from the Fed.

 Who Escapes, Who Gets Trapped

This is where the forecast turns personal, especially for Baby Boomers.

Households with assets, mobility, and options will be better equipped to adapt. They’ll shift exposure, structure income, and arbitrage jurisdictions. If they can.

Households without assets will be the primary focus of new policies.

Universal benefits sound generous. They also arrive with conditions, surveillance, and rampant inflation.

We have long warned that redistribution financed by debt eventually erodes the purchasing power of the very people it claims to protect.

We also forecast that one meme, often repeated throughout history, will find a new era in U.S. political history.

It will be more than Schumpeter’s observation that capitalism sews the seeds of its own destruction. It even surpasses the mode in which prosperity encourages reckless speculation, as Minsky refined the theory.

A brief history of revolutions teaches us that a dissatisfied youth can overwhelm the existing political order through collective will alone, whether they have a plan to replace it or not.

 Why This Is Grey Swan #3

This outcome feels implausible to political professionals and obvious to millions of voters. That gap defines the Grey Swan.

The midterms will not be a referendum on Trump alone. They will be a referendum on whether asset-driven prosperity counts as prosperity at all. These are the lessons political strategists will have taken from the special elections in New York City and statewide in Virginia and Pennsylvania in November of 2025.

If we are wrong about Grey Swan #3, we will celebrate. Not because we share a MAGA fever dream, but because we believe free markets and technical innovations are far superior to politics and the cretinous ilk collective action spawns.

If we are right, 2026 becomes the year when America’s economic debate stops pretending that growth alone resolves distribution — and starts fighting openly over who pays, who benefits, and who decides.

Either way, the markets will not like the latter outcome. The global economy is on the brink.

~ Addison

Next up: Grey Swan #2 — The Crack-Up Boom Reaches Terminal Velocity.

P.S. from Addison: We’ve got two more Forecasts for 2026 to go — what thoughts do you have thus far? What forecasts do you think we’ve missed and will be valuable to members? Send them here.

Consider your email a warm up, early in the new year, we’re going to be launching the second phase of our fraternity upgrade. First the patented AI-driven trading tool for the Grey Swan Trading Fraternity (details below).

Second a community forum to discuss investment trends, trade ideas, thoughts about economics, politics, the Fed… you name it. We’re testing the forum out behind the scenes now… we’ll update you as soon as we’re ready to release it into the wild.

Yesterday, we unveiled the AI-powered patent we acquired to use in our Grey Swan Trading Fraternity.

This patent allows us to harness knowledge about what’s moving in the options market – filtering out a lot of the typical “noise” in unusual options activity to detect actual big-money moves.

Big moves in the options market often precede a big move in an underlying stock – providing better opportunities.

With a contentious year ahead, we expect more volatility – and plenty of opportunities to profit from the market’s ups and downs.

Our research going into more details on this new tool, and how we’ll use it to rack up more wins in 2026, goes live tomorrow – click here for a replay.