The Pivot Point Will Likely Be Election-Based

[excerpted from Bill Cara's Daily Report]

I am not yet convinced the U.S. market is ready to soar, but the pivot point is looking more and more like it’s based on the election results. As I stated Wednesday, “I think the real big money is staying on the sidelines until the managers see the results of the U.S. election next Tuesday. A 60 seat win in the Senate would help along with wins in the House and Presidency. Then the regulatory-crazy Democrats (assuming they win) will be able to bring in legislation that radically changes the regulatory landscape that has led to the problems in markets today… As you know I am all for that. But the public must still be concerned that the Dems don’t over-do it. Ultimately, even with radical surgery, the market still needs less regulation. What the market needs is something akin to significant breast reduction.”

The bankers will likely not start lending to one another until they see the election outcome and make a decision then to act in their best interests. They may even want to see who the next Treasury Secretary will be. I imagine they are pining for a return of their hero, Mr. Moral Hazard, to that post. Hopefully, we’ll never see that day.

So, the only aspects of the market that interest me until election day are precious metals and the dual-listed equities from countries like Brazil, South Korea, Singapore and Mexico. If the prices of Crude Oil and Gold continue lifting, then Canadian, Australian and Russian equities will also benefit.

Comments

[winslow:]

The democrats will win by an unprecedented margin and the stock market will skyrocket. A new era will dawn. However, the long-term outlook for the US is not encouraging. Let's face it, we can't get out of a paper bag.

2008 Oct 30 11:36 AM

[User 68127:]

The canard that too little regulation is the source of the lending crisis has been convincingly rebutted over and over.

So a Dem sweep would be GOOD for the markets? Sure, more regulation, higher taxes, bigger government, less free trade and more unions are probably just the recipe for the next boom--NOT!

2008 Oct 30 11:39 AM

[debtacid:]

The fact that our economic fortunes depend so heavily on what the government does speaks volumes about how we got in this mess in the first place.

2008 Oct 30 12:15 PM

[Brice Timmons:]

I'd like to see some support for this assertion. I'm going to avoid the more vs. less regulation argument. It's silly. We do not need *more* regulation. We need *effective* regulation. Reining in the debt:equity ratio would be smart. We've been operating with a 2.44% margin of error on heavily leveraged investments. Couple that with the post-Volker fed funds rates and you get overreach. That's absurd, and it ensures that credit markets will eventually contract sharply. Further, it virtually guarantees that the longer the period between contractions, the nastier they'll be.

Increasing burdens on directors and CEOs while simultaneously decreasing their ability to assert the business judgment rule as a defense in shareholder derivative suits seems like government trying to tell officers and directors how to run a company. That's heavy-handed and requires massive government oversight. Foolish.

We know from recent experience that Republicans will not regulate smart. We believe that the Democrats are as bad at business as they were in the 70's and 80's. Maybe they are, but maybe they can learn to regulate smart instead of regulating more.

2008 Oct 30 12:45 PM

[Doc 224899:]

A win by the Democrats will severely damage the US economy, and the market will tank even worse than it's tanked already. Here's why -

1) The Dems are utterly hostile towards corporations, and the hostility is greatest towards the the bigger and more profitable corporations. Even though the American economy needs corporations that make profits and hold cash reserves, the Dems will target those same corporations for investigation by congressional committees and target them for taxing.

2) The Dems are tools of the trial attorneys' lobby, and their favorite programs for social reform all seem to lead towards litigation against any corporate entity with deep pockets (i.e., corporations that make profits and hold cash reserves). Obama's initiative for equal workplace conditions for women, for example, makes it easier for female employees to sue their employers (as though America needs more litigation, especially in the Healthcare sector).

2) Our current war effort is preventing our economy from tanking worse than it has tanked already, and Dems reduce the size and cost of the military whenever they have the chance (eg., the Clintons reduced our military by about 40 to 50% in the 8 years they held the White House).

2008 Oct 30 12:49 PM

[CrisisTheory:]

You will note, of course, that " more regulation, higher taxes, bigger government, less free trade and more unions" were exactly what set the stage for the long post-WWII boom in the united states. Please take a look at aggregate profit, growth and wage rates from 1945-1968 (liberal period of dominance) and compare those with 1980-presetn (period of conservative dominance).

Apparantly socialism for the middle class works a lot better for the WHOLE ECONOMY that the socialism for the rich of conservatives which HOLLOWS OUT the economy through government transfers to the elite.

Corporate welfare, speical tax treatment, government union-busting so the workers never get a fair share of the wealth they were equally responsible for creating.... all this does is manufacture an oversupply & distorted (luxury) supply situation. Too bad some investors are so deluded they act against their OWN INTERESTS by constantly attacking those whose predominant income is from WAGES, who are actually the basis of the whole of the economy, and thus aggregate profit rates.

Who will buy all the products if american workers are back on the true "free market" of 6 day work weeks, child labor, "The Jungle" like working conditions and Chinese (if not Colombian) wage rates !?

Ironically, it is the interventionists from FDR to Bernake/Paulson who save the "goose that laid the golden egg" of capitslism from its ostensible, purist, ideological proponents.

2008 Oct 30 03:33 PM

[DougM:]

To be fair, the Clinton-era defense wind-down was the "peace dividend" from winning the cold war, not a Democratic attack on defense. Re. the war, if we need some government spending to help keep the economy from tanking, wouldn't it make more sense to spend the money on productive US infrastructure than on warfare abroad?

My main beef with the Democrats' economic plans is that they want to ramp up taxes for the minority of people who pay most of the income taxes now, while issuing checks to people who don't. This is like making the "stimulus check" idea a permanent, annual event. It may be an effective way to spread the wealth, but it won't be an effective way to stimulate more savings and investment, just more consumption. If we return to a 1970s-era taxation regime, I anticipate more malinvestment in relatively unproductive assets (like residential real estate) and less productivity from high-income producers (like doctors) to result. 60 votes in the senate would all but guarantee this outcome.

2008 Oct 30 03:41 PM

[DougM:]

"more regulation, higher taxes, bigger government, less free trade and more unions" created post-WW2 prosperity? ROFLMAO. Maybe the fact that the US was the only industrialized nation still standing at the end of the war had something to do with that - it created a situation where US unskilled labor could earn wage rates that weren't supportable long-term in a truly global market. Even Obama's economic team recognises this.

2008 Oct 30 03:44 PM

[Robert Radano:]

This post is ridiculous. Cara, you have been sucked in by political rhetoric. A cloture proof Senate will be a disaster for the country. Here's my prediction. When portfolio managers realize that its not simply that Democrats control all three branches of the federal system, but that the leaders of the House and Senate committees are convinced that the solution for any problem is a "federal" solution, the market will sell-off and remain down. The only hope for reasonable public policy comes from a minority of US Senators. On election night watch the Senate races. If the Democrats get cloture markets will have two years of hell that will make Sarbenes Oxlely look like a day at the beach.

2008 Oct 31 10:01 AM

[ksmithdc:]

Interesting at how each time the market drops, Obama's poll's skyrocket. So are we to interpret this as = bad economic news for the country = good news for the Obama camp?

2008 Oct 31 11:17 AM

[dr.doolittle:]

barak obama as bullish is possible. he has stated that the decline in the stock market is the objective reason for calling George Bush a "failure." Since George Bush has done nothing but move heavan and earth to prop up the stock market since 9/11, well, that says to me "change my ass." In other words, Barak Obama has said his plan will be more effective than George Bush's at propping up the stock market, by which I imagine he means more long lasting. George Bush's was quite effective after 9/11 and it is interesting that Barak will be starting from almost the same starting point with the added bonus of a conquered Iraq. What I find interesting is that America has moved from "what's good for GM is good for the nation" to "what's good for Wall Street is good for the nation." In spite my personal interest in this outcome I'm not so sure I would agree with that. To paraphrase the movie Patton, "wars are important, so long as you win them." BO doesn't sound like a guy who likes losing to me. Like "change" as a slogan. Still see a guy more George Bush than George Bush, though. In that way, yes I can see Barak Obama as bullish. In other words, he's not George Bush, he's GEORGE BUSH!

2008 Nov 02 01:43 PM