Monday, July 19, 2010

Republicans - A Nightmare for the Stock Market

This is not meant to be a political post. I typically vote Republican, lean Libertarian, and abhor free spending. But, in my opinion, this Bloomberg article has it 100% wrong.

From Bloomberg

Growing dissatisfaction with U.S. President Barack Obama before this year’s elections is good news for stock investors, if history is any guide.

The Standard & Poor’s 500 Index has surged 48 percent on average starting in the second year of each U.S. presidential term, measured from its lowest level through the high the next year, according to data going back to 1928 compiled by Bloomberg. That compares with trough-to-peak gains of 38 percent in other years.

An advance this year would come after Obama already presided over the biggest rally during the start of a presidency since Franklin D. Roosevelt in the 1930s. Bets on Intrade show a 54 percent chance Republicans will take control of the House, enabling them to block Obama’s policies. That may help prevent a bear market after equities tumbled as much as 16 percent in the past two months, says billionaire Kenneth Fisher.

“I envision a rally from before the midterm elections,” said Fisher, who oversees $35 billion in Woodside, California, as chief executive officer of Fisher Investments. “Markets love gridlock. What the market wants to see is no change: less legislation that engages in changes in taxes, spending, regulation or property rights.”

Wow. Talk about relying on an old playbook losing all sense of context. I have never really liked Kenneth Fisher, and like the last several years believe he is wrong here also. Republicans winning in November has been one of my catalyst for a big stock market meltdown. I professed this theory to several investors back in February and stand by it. Republicans take over Congress and I think the market tanks (it will tank before that leading up to the election). The reason has to do with the only thing that had been holding up the market was free spending by Washington and other world governments. The MASSIVE shift in market sentiment back in June surrounding the IMF and the global move to austerity. That is extremely deflationary and very stock market negative.

If the Republicans win Congress it will be because of the tea party movement type candidates who will feel like they have a mandate to cut spending and watch over the Fed. For the stock market I think there couldn't be a more negative scenario. We need to go through a depression (actually we don't need to but it is inevitable) and that would greatly quicken the process. Right now Intrade is putting it at 57% that Republicans take over the house. That started moving up big time in May ish which is when the US markets started rolling over. If that becomes more certain, I think the stock market will head lower.

No comments: