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Dick Bove, an analyst at Rochdale Research, released an alarming report earlier this week detailing the dangers of a politically driven market. In his opinion, we could be on the verge of a market crash driven by the President’s financial reform bill and growing anti-business sentiment:

“The United States financial system and its economy are at a critical juncture. Actions being suggested in Washington have placed it on a precipice. If the President and Congress continue down the path that each has indicated, in my judgment, the equity markets will crash. Moreover, the financial system will have to be rebuilt on a new base. Shareholders simply refuse to accept what is happening in Washington at the present time.”

Bove attributes the recent equity market volatility to two alarming political trends:

  • Venezuelan style Democracy, i.e., socialist trends in government.
  • A “party first, nation last” approach.

Bove is very concerned about the growing anti-business trends in the administration and attacks on the wealthy. Bove is even more concerned with the recent uprising against Bernanke:

“This party is now seeking to remove the Chairman of the Federal Reserve the only man in the country left in Washington who has any credibility in the financial markets. Press reports suggest that there is more than a 50% chance that the head of the Federal Reserve will not be renominated. By eliminating this man the opposition party presumably believes that his policies can be wiped away and the monetary ease of the past 15 months can be reversed.”

Bove is increasingly concerned about this trend in populism and against Wall Street. He thinks the blame for the financial crisis goes far beyond Wall Street and the Central Bank and the bankers are not the only ones to blame. He says the markets have spoken with their downturn last week and we now sit on the precipice of a politically driven stock market crash if the current political rhetoric continues:

“In sum, the market is appalled at the lack of understanding being demonstrated by the nation’s two political parties. It is appalled at the rabble rousing based on half truths and deceitful statements. It is appalled by the willingness of placing party above the nation. Therefore, investors are voting. The election today is not at the poll booths, it is in the stock market. The decision is one of no confidence. The fear being expressed is that these politicos in their drive for personal power will destroy the financial system and drive the economy back into recession.
We are on the edge of a politically driven stock market crash.”

As of late Monday it looks like Bove and the banks can breathe a deep sigh of relief as a Bernanke reconfirmation appears to be a certainty.

Source: Rochdale Research

Source: Dick Bove: On the Verge of a Politically Driven Equity Crash