Posted on 10/13/2010 5:54:17 AM PDT by Kaslin
The American public seems ready to vote “Stop!!” and the markets, at least for now, are loving it.
Since September 1, the stock market has been on an upward tear. This is happening when the economic news (jobs numbers that sucked on Friday, reports of consumer behavior spending shutting down, etc.) continues to suggest nothing but doom and gloom ahead. What is going on in the markets?
Stock markets, while they trade on news that comes in from publicly traded businesses, political and economic events, government intrusion and spending patterns (including levels of public debt), currency exchange rates and, among many other reasons, perceptions of inflation and other pricing indicia, are essentially forward looking. The markets price all available information that is available to them into literally millions of competing worldviews about the future. Some of these worldviews are optimistic, some are pessimistic. Since Labor Day, the worldviews are turning optimistic.
What’s impacting the market in such a way that we’ve seen a roughly 10% increase in the value of the Dow Jones Industrial 30? This is an astonishing increase in a month (and, for that matter, a 10% increase in any twelve month period exceeds the long term average rate of return in the stock market and is actually understating total returns because it excludes dividends), particularly after a summer of discontent and decline, marked by substantial volatility.
Here’s another chart. This is the Intrade chart of the political market’s belief that the GOP will wrest control of the House of Representatives in the coming November elections. The corresponding chart for control of the Senate shows a similar trend.
One more chart:
This is telling us that the reports of government debt are weighing heavily on the dollar. This is a near complete collapse in the short run of the value of the dollar in the period shown (you can see that it took nearly 8 months to go from high to low on the chart) with an acceleration that began at the same time the equity markets began to rise, signaling an evaporation in confidence in U.S. debts and a flight to equities to reprice returns.
In the short run, fear over debt and currency valuations support the prevailing political view. However, there is a fundamental incompatibility between the two (if the political calculation is correct, then the future will hold much slower growth, indeed, maybe even decline, in government spending, which will strengthen the dollar and curtail the flight into equities). In the long run, there will be a tug-of-war to see which trend is stronger, but for now, the two reinforce each other.
There is no doubt that the political market’s forecast of a coming rout in the political scenery is cheering the stock market up; the stock market is pricing in the prospect of an opposition party throwing sand in the gears of the most profligate spending we have witnessed in years. The American public seems ready to vote “Stop!!” and the markets are loving it.
Keep your eyes on earnings reports this week and also on the polls. The tea (party) leaves will continue to set.
Most people who deal in finance for a living—as opposed to politics—attribute the recent rise to the anticipated QE2. It’s basically fed-induced asset inflation. If such is the case, it means the markets believe that the fed will continue its policies regardless of who wins the midterms.
The market is banking on hope and change, and if the Republicans do not take the House, it will crash.
This is where the pessimist in me comes out. The American people want to vote "Stop!" in theory but as soon as the GOP is in charge and starts cutting spending to a sane level, the MSM will start running the "Republicans are killing children and the elderly" stories and the public may swing against the GOP. The GOP will then retreat and turn back into the GOP of the early 2000s and the country will sink further into Socialism.
My small business has confidence things will change for the better next month. We made the purchase of new wheels that we needed, but sat on for a year. A Ford for the first time in my life. Love it and it felt good.
You are 100% correct. Just mention changing Social Security payout schedules on FR and watch the Socialists come out of the woodwork even here.
Last but not least. How do you spell disaster?
Answer: D E M O C R A T
No, it’s rising in reciprocal lock-step with a weakening dollar, alluded to in the last chart.
There’s a good chance of that. Then again, in my state of NJ, Christie’s numbers are supposedly rising, so you never know. Christie, as far as I can tell, is a superior executive. He has all the traits one looks for: strong character, clear vision, solid strategy and the ability and will to execute it, combative without being offensive or alientating, a good salesman who comes across as honest, forthright, and knowledgable. We’ll need such leaders on the national level to prevent the moody pendulum-swings you fear. Do we have such leaders? Time will tell.
The government stole my money from me at gunpoint, but promised to repay some of it in the distant future.
Now that the future has arrived and it is time to collect on that promise, they want to default. Is opposition really socialist?
One of the ways they want to change payouts is to add a means test. This is even more socialist than what we had before when there was at least some relationship between pay-in and pay-out. The fact is we already have a means test for SS. Way back when there was no tax on SS payments, now 85% of it is taxed. If that isn't a means test, what is?
I don't think it is particularly socialist to want the payback that was promised when the money was stolen.
You want the government to take care of you. I understand that. Vote Democrat.
The market is moving sideways or is really flat. There is no volitility or volume in the market. When you read that Soros has pulled 40% of his portfolio out of the market you have to wonder why? Yes, there have been some up days and some down days but nothing really but a propped up market hoping to bring in the odd lot buyers because there seems to be confidence that the market is going to continue to go up.
It is obvious, not pessimistic. So the chances of 0 being reelected is very strong for that very obvious observation.
You ae correct. The market is falling forward.
I agree with some of you that what the market sees is the Republican takeover of the house, which should result in resolution of the tax issue, and the associated fiscal uncertainty. Eradication of this uncertain climate can unleash a medium-sized up-tick-because:
Banks and corporations are flush with cash, and lean. In order to ditch employees, many organizations have done so by embracing technology-thus productivity is accelerating. We now have four years of cumulative pent-up demand in the auto sector. I admit housing is still a huge drag, but damage should be mitigated somewhat by all of the above.
If the Republicans can succeed in privatizing Fannie and Freddie.....there’s a great deal of public support for this.....then we’ll then have a HUGE uptick, IMHO.
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