Bond Expert: Election Day Outlook

Prices of Treasury coupon securities are registering, on balance, small losses in overseas trading. The yield on the benchmark 2 year note has climbed 4 basis points to 1.48 percent. The yield on the 5 year note has edged higher by a basis point to 2.71 percent. The yield on the 10 year note is unchanged at 3.92 percent. The yield on the Long Bond has posted an increase of 2 basis points to 4.34 percent.

Equity markets around the globe are, for the most part, posting solid gains. The Nikkei in Tokyo surged 6 percent as Tibor posted its largest daily decline since December 1999. Stocks in Australia are posting small losses, in spite of a greater than anticipated 75 basis point cut in the base rate by the central bank. The Hang Seng climbed about 0.3 percent as borrowing costs declined and stocks fell in Shanghai as commodity prices slumped.

Stocks in Europe have surged 2 percent. Bloomberg cites better than expected results from Clariant AG (which I have never heard about until this moment) as well as better results from UK clothing manufacturer Marks and Spencer. That seems to be a rather slender reed to credit for the early price action but that is the most informative little nugget that I discovered as I scrolled through the news.

Equity futures on US stocks have climbed more than 2 percent and indicate a robust opening when the trading day begins in New York.

I must confess to being thoroughly flummoxed by the price actions and once again suffer for viewing the world through the prism of a bond market operative. I am not about to list each of the recent data points which suggests that this recession is shaping up as the most serious decline in output since the Volcker engineered recession of the early 1980s. I can understand and comprehend some recovery in stocks from oversold territory but I can not fathom the follow through buying which continues as we speak.

I am convinced that this recession will be deeper than the conventional wisdom posits, and the recovery when it comes will be feeble. The appetite to take risk has been fundamentally altered and changed. Old business models have been destroyed. A new and radically different model must emerge to replace it. That enterprise is akin to turning a supertanker in the ocean. The turn is not tight but is a long looping exercise.

So I suspect that when the recession ends, the return to growth will be slow and rates of growth will be less than the 3 percent to which the economy has geared itself during the years of boom and financial obfuscation.

There is very little economic data on tap today as only the report on September factory orders will undergo investor scrutiny.

Today is an historic election day in the US. Many will follow the exit polls to garner a glimpse of vox populi. I will wait for the polls to close and for the results to roll in.

Virginia has been a reliable Republican state every year since Lyndon Johnson won his landslide in 1964. Polls show Senator Obama leading there. If the polls are accurate and he does break the Republican stranglehold on that state in Presidential politics, it is likely to be a long and unpleasant evening for the GOP as a political exorcism chases the ghosts of Barry Goldwater and Ronald Reagan from the stage.

If Senator Obama does triumph in what was once viewed as quixotic crusade against the Clinton regency, it will close a seminal chapter in the very long book which is American racism. Race has been the 1,000-pound gorilla in the American living room since the first slaves were impressed and inhumanly floated across the ocean as cargo in the 17th century to Virginia.

Race bedeviled the founders and framers of the Constitution who crafted a scheme which counted slaves as 6/10 of a person for apportionment purposes. In spite of their allegedly enlightened outlook, the crafters of the Constitution presided over a world in which many African slaves felt that they would receive a better shot at freedom from King George than they would from one George Washington.

There was a constant tension between the Free states and the slave states and gifted legislators such as Henry Clay cobbled together compromises which saved the Union for a time. Inevitably, the compromises failed and a bloody war settled the question.

Or did it, as recalcitrant losers institutionalized racism via Jim Crow and the tortured logic of jurisprudence which sanctioned the concept of “separate but equal”?

If Barack Obama completes his remarkable journey with victory this day, it will close the grand and glorious chapter in American history which began with the bold decision of the activist Warren Court in the Brown case in 1954. That activist court overturned settled law and defenestrated the concept of stare decisis when they overturned the Plessy precedent. Among other issues, it troubled the court that African Americans in the States were denied many freedoms here for which they had fought and died in the struggle to unseat Fascism around the globe during the Second World War. It was ironic that those veterans would come home and would be awarded a seat in the back of the bus.

Those justices ushered in the Civil Rights era of the 1960s with its many heroes and villains. But that court decision began and institutionalized social change which has allowed African Americans to be full participants in American society. Barack Obama stands as the fruition of the struggles of the last 54 years and his election would complete that chapter in the struggle for equality.

Racism will not be erased. Ignorant people survive and prosper. The struggle for justice and equality will continue. That struggle will never finish. It is a work in progress always. But the nomination (and possibly the election) of Senator Obama will mark an important punctuation point in American history. The chapter which recorded the struggle against institutionalized racism will close. The fight will continue in a myriad of other ways but a piece of Martin Luther King’s prophesied dream is no longer deferred but is attained.

In spite of its many faults, this America is a great country.

Vote!