September 9, 2010 – My Call on the Election

(SPECIAL ELECTION ISSUE)

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2) My Call on the Election. Like Sherlock Holmes, I like to consider every alternative, and eliminate the obvious. I think that if the Republicans take the House, it is unlikely that we will see any major legislation pass for the next two years. Gridlock will reign supreme.

While traditionally, Wall Street favors a new ice age in Washington,  I think things are different this time. The last time we had gridlock, Bill Clinton was president, the budget was near balance, unemployment was stable at 5.5% (click here for the raw St. Louis Fed data), and China was this far away place where you bought cheap suits and spicy food.

Gridlock today would mean that critical problems like high unemployment, failing wars, and soaring deficits would be ignored. Instead, a Republican majority in the House would bring control of every committee, which would launch into nonstop Congressional investigations of everything under the sun. At the top of the list: fraud and corruption in stimulus spending and the destructive aspects of Obama’s health care plan. Think of it as the Lewinsky scandal times ten.

Warning: this will not inspire the confidence of equity investors. It also might cause holders of the dollar and Treasury bonds to reassess their positions. When did equities peak this year and start their six month slide? April 25, about the time the Republicans began claiming victory in the November elections. A second decade of zero equity returns, anyone?

What do I think is going to happen? I’ll take the other side of the trade and bet that the Democrats suffer close to the average loss endured by every ruling party in the midterm elections for the past 50 years, which is 27 seats. Painful for the Dems to be sure, but below the 41 seats the right needs to achieve majority rule.

As for the Senate, the Republicans have no chance of winning whatsoever. In Nevada, Sharron Angel is trying to unseat the Senate majority leader with a plan to end social security in a state loaded with retirees. In California, where jobs is a huge issue with an unemployment rate of 12% and a broader jobless rate of 18%, Barbara Boxer is pointing out correctly that Carly Fiorina fired 30,000 workers, shipping most of the jobs overseas, then paid herself a $100 million bonus. This does not sell well in the populist Golden State. That’s two key seats thrown away right there.

The Republicans could have won the Senate, but blew their opportunity in the spring when the Tea Party forced the selection of candidates from unelectable extremes. Want to review the 1964 civil rights act? No problem. How many immigrant voters have they picked up, two million of which have joined the voter registration polls since the last election and have an extremely high election day turn out? I would venture to say none. How many millennials in their early twenties, which are devoutly pro environment and anti war? That’s another four million. Sure, a lot don’t vote, but enough may to make a difference in swing states like Ohio and Florida.

I have been scanning the horizon looking for a policy on which the Republicans could ride to victory. So far, I have seen none. They have become a single issue party, that of tax cuts for those making over $250,000 who on average own $7 million in assets. They say they want to cut spending, but won’t say where. Until other ideas are enunciated, voters will assume this is just going to be another Bush replay.

In an election where making jobs is the principle issue, the party has the worst job creation record since Herbert Hoover. According to the Bureau of Labor Statistics (click here for the link) during 1992-2000 Clinton created 23 million jobs, while Bush could only find 3 million from 2000-2008. Allowing for population growth, those missing 25 million jobs were created in China, stimulating their economy, not ours.

Even Obama’s vitriolic opponents concede that the guy is a terrific campaigner. To win elections in November, you want your opponents to peak at the end of August. Remember the Republican fanfare after Sarah Palin’s nomination in 2008 and the bleed that followed? We may be seeing a replay now. Look at Obama’s move today, which puts the Republicans in the awkward position of having to oppose tax cuts for small businesses and the middle class, a brilliant political pre election move. A time honored way to win elections is to steal your opponent’s issues, something Clinton was good at.

Having spent only a year in the White House Press Corp, after which I wanted to take the longest possible shower, I can’t pretend to ever know the ways of Washington and elections. Thank goodness my career led me out of the dreaded Beltway and landed me in the deep canyons of Wall Street. I wouldn’t write about politics at all if it didn’t have such a big impact on your financial future. A fact-oriented person like myself is uncomfortable in the world of pure opinion, spin, and hyperbole. But it does, so I must. I just look at the data, reach the obvious conclusions, and call them as I see them.

HolmesSherlock.jpg picture by madhedge

Eliminate the Obvious, and Consider Every Alternative


Umpire9.jpg

Calling Them as I See Them

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