There are far more accurate polls out there than Gallup, CNN, and Rasmussen, when it comes to predicting the outcome of the presidential election. That is the one where those polled are required to put their money where their mouth is, and being wrong costs them a bundle of money.
I’m talking about the market for the U.S. dollar. Take a look at the chart below for the PowerShares DB U.S. Dollar Index ETF (UUP), a basket of short positions of foreign currencies against the greenback. When president Obama began his surge in the polls in the aftermath of the flaccid Republican National convention in August, the (UUP) broke to a multi-month low and then accelerated its downturn.
When Mitt Romney delivered his unexpected, come from behind performance at the first debate, it delivered a smart rally. It then quickly gave back that rally in the wake of Obama’s debate win on Tuesday night. It is safe to say that the dollar likes Romney and dislikes the president.
The individual foreign currencies reaffirm this analysis with even more extreme moves. The euro (FXE) clearly thinks that Obama is the greatest thing since sliced bread, spiking to a one-month high after the debate. The move in the Australian dollar has been even more dramatic, popping 1.5% overnight.
Which asset likes the president most of all? Gold. In fact, the barbarous relic might even be a died in the wool, card-carrying Democrat of the kind we have in abundance out here in California. It hit an eight-month high going into the first debate, and then quickly deflated in response to the Romney win. It has been up sharply over the past two days.
These are not just random moves. Traders are exercising a careful logic behind these gyrations. Mitt Romney has made clear his antipathy towards the monetary policies of Ben Bernanke. He has said that he would fire the Chairman of the Federal Reserve on day one of his administration. No Ben Bernanke means no quantitative easing. No quantitative easing means that most asset prices drop by half. Only the U.S. dollar and Treasury bonds will prosper with a Romney monetary policy.
You can use these arguments to explain the movement of stocks this year as well. Obama has delivered one of the best stock market performances in history, with the S&P 500 up a stunning 120% from the March, 2009 667 bottom. The market seems to be telling us that an Obama win means more of the same, fueled by four more years of QE Infinity.
The basic message is to “buy stocks” or Ben Bernanke is going to take you out to the woodshed and beat you like the red headed step child that you are. This is why I think that the S&P 500 may close this year at its high, and may even power up to 1,600 by the spring. After that, watch out below.
When do we break out to a new four-year high and start our run to 1,500? How about when Obama wins the next and final debate on Monday, October 22? It will be held at Lynn University in Boca Raton, Florida. Now that the president has his mojo back, the betting is that he can deliver a repeat performance.
Hey Barack, if this president thing doesn’t work out you could always consider becoming a hedge fund manager. I would kill for that performance!