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Monday, November 1, 2010

Midterm Manny Mondays: So Who Wins on Tuesday & What are the Ramifications (if any) on the Market and Economy?

I realize that most of us want to stay away from political discussions on this board, but I don't think we can ignore this week's mid-term elections and the potential effects the outcome of them might have on our markets and economy (and country) going forward. The bottom line is it seems that from a perception standpoint, there are a lot of market players waiting to see how the elections will play out before determining how to position themselves. Trading and what little is left of true "investing" is all about playing what many of us think the Fed and government will do to keep this thing aloft.

So, what I'd like to do is have a little fun with this and run an informal poll on how each of us think the elections will shake out and the potential effects on things after Tuesday's results are in.

Nate Silver over at his political elections forecasting blog at the NY Times is calling for some very significant gains by the GOP in both the House, where he has them taking over the majority by a wide, and Senate, where he has them coming very close. Take a look:

Five Thirty Eight, Nate Silver's Political Calculus

First of all, what do you think the final tally will be on Tuesday after all the results are in? And, second, what effects, if any will they have the markets and economy in the short and long term? If the GOP takes over at least the House, will the plug be pulled on Bernanke's QE-4-eva strategy? If so, will the plug also be pulled on our markets and the remains of our sluggish economic recovery? Or, as some people tend to believe, would the GOP retaking at least the House, be good for the markets, if not the economy, because it will hamper their ability get anything done at all over the next two years, thereby freezing everything in place for the president and his agenda? Or will something completely different and entirely unexpected happen?

I'll go first:

House:
GOP - 224
DEM - 211

Senate - DEM - 53
GOP - 47

I say that if the GOP does indeed at least retake the House, the market in the short term sells the news, coinciding with the Fed's announcement of more QE, but that drop will probably be bought again, taking us to new year highs (a little "Santa Rally", if you will), and causing more pain for those bears and bulls alike who aren't very nimble in their approach. Longer term, I see the market then selling off in a big way in Q1 or Q2 in 2011, in the face of slowing economic activity, a continually slowing housing market (and declining prices), not to mention the ongoing foreclosure fiasco with a very unclear end game that could well cause yet another banking crisis, and our political leaders' inability to do more to continually support asset prices. As a result, any remaining confidence that the recovery is real will likely start to erode in a big way, leading to some interesting political wrangling by both parties, while an aghast, and increasingly frustrated populace looks on.

What say ye?

On a lighter note, for your football peeps, here are a few pics from our journey to Lambeau Field last Sunday:








74 comments:

  1. don't really care about numbers, but it will end in some sort of gridlock.

    GOP won't get as many seats as forecast. If they gain a majority, it will be slim. No Mandate.

    Just grind on until the next crisis whenever that may be.

    Right now I'm anti-everything. I'm Anti-incumbent, and at the same time Anti-the Anti-incumbents. They both look the same to me.

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  2. @ Jeff,

    Great post! Waiting for Godot. Which one - the U.S. election, and the Fed ?

    I Can

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  3. I hear you, Todd. I'm pretty much in that camp, but I still might hold my nose tightly tomorrow and vote.

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  4. Meanwhile, it's that day again, Mo-Mo Monday.

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  5. Mannwich - I do not think I am voting for any candidates this year (And if I wait much longer that choice will be made for me)

    But there are few issues on the ballot this year, like stopping state run liqueur stores, which I will be voting for.

    I don't know why it is, it just does not seem like there are many good candidates out there.

    Mutt

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  6. Mannwich - It looks like you had a great time at the game, it must be kind of crazy to have that many people in one small spot, the noise and energy must have been off the charts.

    Mutt

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  7. Morning all - great post! Will comment when I get into the office

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  8. Yeah, Lambeau was a really unique experience, like no other in the NFL, for various reasons. Felt more like a college atmosphere than anything. It's also a family affair where entire families go to the games, so although there's definitely drinking going on, it felt less boozy than other games I've been too. We had pre-game sideline passes, which made it all the more unique, because we got to walk around the sidelines for about a full hour before the game and watch warm-ups. It was a lot of fun.

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  9. Thks Manny. As far as I'm concerned (not at all), I'm convinced the big winner will be our worldwide master:Money.

    Also, a potential short recommendation, must read for Greg:A Long Term Bet Against Apple (Long DIA, Short AAPL).:p

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  10. I don't always agree with PK, but why doesn't he state the obvious? The reason that austerity is now also being discussed by Obama and the Dems is because the elites have already gotten their bailouts (no austerity or sacrifice for them, thank you very much, no sirrrreeee), so no it's time the Sheeple stand up and do what's right for America. Suck it up, chumps.

    http://www.nytimes.com/2010/11/01/opinion/01krugman.html?hp

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  11. Why do I get the sense that somehow the sentiment after tomorrow's elections will be bullish in the MSM no matter what happens? Dems win = more QE and endless games to prop up markets, GOP wins = well, we know that having GOP policies is "always good for the markets".........

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  12. Mannwich (10:59) - Great point, the big banks and elites allow their excess greed to get us into a mess, they cry "Bail us out or there will be blood in the streets"

    They get thier skin saved then, say we (Sheeple) are the bad guys.

    Oh well that's what I get for not having billionaires as my parents.

    Mutt

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  13. Everyone,

    If interested, read Barry Ritholtz's comment on that honour post by Bergsten.

    Here is what Barry said..

    "BTW, try to guess which identity I post under here that isn't my real name".

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  14. I think the R's are going to win big, but not as big as people think. Either way, they'll spin whatever their total number of gains ends up being as a mandate (whether they have one or not). I believe very strongly that this election is more of a repudiation of the D's. Not because they've strayed too far to the left, but because they haven't strayed far enough away from the corporate welfare BS they've been married to since the Clinton years.

    R's will do nothing but investigate and obstruct for the next two years - Palin, or someone as far to the right as she is, will win the nomination for 2012 and lose in a landslide to O.

    What the legislature will look like in 2012 is still up in the air. I think if the R's really do live up to the claims of Boener, they'll lose big.

    Also, how well are they going to be able to hold up the economy until then. Bernanke will always be the wild card I think.

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  15. Anonymous - I saw that! Funny isn't it?

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  16. What's this, anon? Where can I find it? Once again, Mannwich totally oblivious. A common theme these days, it seems.

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  17. So BR does indeed post on his own blog under another name? I'll bet he has several, actually.

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  18. @Manny, here, I think meant at TA. Which is bizarre. Hey BR, hope you made the transition to the new place!

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  19. Mannwich - Here is a link to BR's comments

    http://andytsgang.blogspot.com/2010/10/honor-and-trust.html#comments

    If you can not find it there go to the "Andysgang" web site, then the 3rd post from the top titled "Honor and Trust"

    Go wayyyyyyyyyy down to the bottom and there it be.

    Hope that helps.

    Mutt

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  20. Sock puppets are a very common thing on blogs. Used to be a bannable offense most places.

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  21. My little baby short now up 7%. Nice.

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  22. Wow, that is great! I had a feeling BR might have been lurking on the two sites. Which handle do you think it was? Anyone?

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  23. Manny - nice trade, congratulations! I'd bet BR is mostly a lurker.

    I can't recall anyone who I think might have been him. Denise, what's a Sock Puppet?

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  24. Not over yet, Thor. Still have to cover. Question is when?

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  25. Sock puppets occur on registered sites like TBP where you have to provide an email address to comment. People creat different identities using multiple email accounts, or different ip addresses from work, or home. Then they use these multiple identities (like Mutt and LB do innocently) to create the illusion that a certain poster has support for their usually inflammatory comments creating dissension which lead to flame wars.

    On blogger, there is the assumption that sock puppets are everywhere as there is no registering of email accounts in order to post.

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  26. I can't recall anyone who could have been BR, he might have been monitoring blogs that link from his for various reasons.

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  27. I should clarify my comment about sock puppets, I don't mean to suggest that there are sock puppets at TBP, only that the system of registering your email is like TBP rather than like ours where no email is necessary.

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  28. I am changing quote providers so I have no charts today until I make the switch.

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  29. @Manny,

    Nice post.

    I think that no matter who wins, there is more gridlock ahead. The wins and losses will be spun, it is the markets reaction after the election that is important, not the actual results.

    Obama and Democrats, true to form, will try to have the filibuster rule changed back to 51 for the senate, just in time for the Republicans to take over. You know, so we can claim "bi-partisanship". Why people think he is a socialist or even a liberal is beyond me.

    There will be no repeal of Obamacare because the insurance and drug companies won't allow it. They fought long and hard for their piece of the pie and bought enough of the congress that it will never happen.

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  30. Part of me thinks the O-man almost WANTS the GOP to take over at least the House. That will give him the cover he needs to ram through austerity on the Sheeple and then justify it. It's the perfect situation for both parties and the elites. He can say, "hey, we had no choice but to compromise here." It's perfect when you think about it. The man is not a fighter, but a reconciliator, a compromiser, which in normal times is a positive trait in a leader. These are not normal times. I was so wrong about this man.

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  31. Manny - me too. Very wrong.Talk about being sold a bottle of snake oil.

    Nevermind what this could do to a whole generation of voters.

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  32. Wow, this is quite amazing. I wonder how many other banking outfits are vastly overpriced?

    http://www.zerohedge.com/article/wilmington-trusts-384-take-under-catches-morgan-stanleys-pate-suntrusts-hodgson-and-9-other-

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  33. All of them, perhaps? Mark to fantasy uber alles?

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  34. @Manny,

    I totally second your thoughts.

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  35. Thor,

    I am thinking that you might have won the bet, anyway. The breakout has fizzled so far.

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  36. According to the media, no one need vote because it is going to be a landslide for the Republicans.

    Of course, the media needs eyeballs and ears so they are trying their best to hype any and all results, expected and unexpected as it drives their advertising income.

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  37. From PragCap - I hadn't looked at QE2 in quite this way but it makes sense considering the softening numbers of many of the banks lately.

    QE2 IS ANOTHER BANK BAILOUT & NOT A MAIN STREET RECOVERY PLAN

    I’ve shown in rather elaborate detail in recent weeks that quantitative easing does not help the real economygenerate a sustained recovery. This can be summed up as follows:

    QE did not reduce interest rates in Japan and was ultimately deemed a failure by the Bank of Japan:

    QE has been shown to have had little to no impact in the U.K. (also see here).
    While QE worked to ease the strains in the credit markets in 2008 and also improved bank balance sheets there was no change in interest rates during the entirety of the program in the USA and borrowing has remained very weak.
    Because the US has a demand side problem and not a supply side problem QE is unlikely to result in higher aggregate demand and revenues (see here).
    QE is likely to negatively impact corporate margins as investors falsely interpret QE as “money printing” and seek the safety of hard assets (see here).
    The “wealth effect” of QE is likely to fail. Attempts to keep asset prices “higher than they otherwise would be” will always fail (see here).
    Since QE has been shown to have no discernible long-term impact on interest rates or aggregate demand there is no fundamental reason for stocks to move higher due to the program (see here).
    All of my work regarding QE has me wondering why the Fed would implement such a policy when the evidence appears to point to little to no gain in economic growth? The only logical answer is that QE2 is really just another case of the Federal Reserve proving that this is a country centered around the bankers, by the bankers and for the bankers. Before you brush me off as some conspiracy theorist please consider the evidence.

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  38. Great call, Thor. That little bump now looking like a trap.

    This is eerily reminiscent of the sell off after Scott Brown won in MA. I think we get a sell the news event most of the week.

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  39. Manny & Denise. Yes, but this is why I don't gamble! See how easily I caved on the original bet? :-)

    I've been wondering about sell the news as well. On the one hand, Wall Street must want R's in control because they know that will take some of the heat off them. On the other hand, two years of gridlock and investigations is not going to be good for the nation if the wheels really do start to fall off this train.

    We went what, 7 or 8 years between crises last time around? Can we even make it to 4 years this time?

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  40. We might be coming out of the bottom of the triangle if this doesn't bounce off the bottom trendline @1175.

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  41. You must be pretty happy, Manny. And it might have been a trap but technically we are still in the larger trading range so this is really just more chop.

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  42. The crack team at the SEC investigating JPM Chase and Magnetar. I'm sure this was all just a big "mistake" too.

    http://www.propublica.org/article/sec-investigating-deal-between-jpmorgan-and-hedge-fund-magnetar

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  43. After reading "The Big Short", which revealed that many of the Wall Street firms finally got short on housing by late '06/'07, it seems obvious to me there was quite a bit of fraud going on whereby these firms KNEW they were selling toxic crap they and others were shorting themselves.

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  44. What they didn't do was get short enough. Wasn't enough time for most of them.

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  45. Still a good profit though Manny

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  46. Damn - That was pretty damned flat.

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  47. Wish I could have shorted Randy Moss and the Vikings. LOL.

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  48. Mannwich - Bret Farve should have retired after last season. It would have been great for him to have gone out on a Super Bowl win, but that at this point I think it is more about him making 300 consecutive games then what is best for the team.

    Oh well... Take if from a Seahawk fan, there is ALWAYS next year and the year after that and...


    Mutt

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  49. Interesting debate at TBP - I'm dying to know who the hell Invictus is.

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  50. @Mutt: I predicted this outcome for Favre, but one year too early. Also predicted the Moss debacle but got the timing on that one right. Can't always nail them, I guess.

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  51. Anyone care to pick a six month target for GM?

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  52. Mannwich - Better to be early then late or not at all.

    Despite all his records, it is time Favre hung it up though.

    Mutt

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  53. PIIGS are back in the news.

    Greek 2 year bond yield above 9%
    Ireland 10 year around 7%

    NBG is having trouble staying alive.

    I Can

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  54. "Let's get real. The U.S. is bankrupt".

    One of the most read stories from the Globe and Mail.

    "The scary actual U.S. government debt". www.theglobeandmail.com/report-on-business/commentary/neil-renolds/

    Boston University economist Laurence Kotlikoff says U.S, govt debt is not $13.5 Trillion, but $200 Trillion, 840% of current GDP.

    The Fed can forget about raising rates. Revenue thorough taxes is not increasing. How the hell this debt will be paid.

    COUNT ON QEs to infinity.

    I Can

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  55. @wolfstreet...out all day but just now managed to catch the article you linked to re:Apple. Don't really understand the guys math as far as his market cap and PE ratios, and he looses some credibility by mentioning Microsoft mobile as a competitor, and by comparing Michael Arrington to Steve Jobs, however as he hasn't mentioned a time frame, he could be very right someday, way way off in the future. He makes the one crucial mistake many people make when analyzing Apple, and that is by comparing them to companies of the past, when I would argue, we have not seen a company like Apple before.

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  56. Thor..six month target for GM...$10.00. Is there some type of prize?

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  57. Greg - If you'd like - I have a box of white Apple stickers, and about 150 of those cloth wipes that come with the MacBooks and iMacs ;-)

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  58. Bill Gross warns that QE could crush the dollar another 20% and tells investors to look abroad for returns. www.businessinsider.com

    Bubble mania in Ems

    I Can

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  59. ICan - They're going to make us competitive with China if it's the last thing they do.

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  60. @Thor...I'll take them. I'll sell the stickers to the unwashed who have non Apple laptops.

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  61. Little Emperors - no more?

    From FT.com, two stories re China.

    "China threatned by shortage of workers and wives".

    "China bubble erodes preferrence for sons".

    The centuries old cultural preference for boys is being turned on its head as urbanisation increases the cost of raising male heirs.

    I Can

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  62. Next pomo dates - Nov.4, 8th.

    From NY fed site

    I Can

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  63. Does anyone ever feel like they pay a little bit too much attention to things? I've often though it might be really nice to be clueless. There's so little we can do to affect change anyhow. Ignorance is bliss?

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  64. Speaking of paying too much attention to things; When do we expect the impeachment trials to begin? The House will have to get to the bottom of this gosh darn birth certificate nonsense!

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  65. Thor,

    Don't remind me. Plus he is a socialist Nazi Marxist Muslim. And he is a negro.

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  66. Our poor country, it' heart breaking.

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  67. It is too depressing to contemplate.

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  68. Thor and Denise...might I suggest you perk yourselves up by watching Wolf Blitzer and "the best political team on TV" tomorrow evening.

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  69. Only with many cocktails and marshmallows to throw at the teevee.

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  70. FTAlphaville writes that trying to predict markets direction based on statistics from past results is useless(same goes for Presidential):Elections and the markets, avoid silly data-mining charts edition

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