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Sy Harding founded Asset Management Research Corporation in 1988 for the purpose of providing stock market and economic research to institutions and serious investors. Harding’s engineering background, coupled with his experience in operating high-tech businesses through numerous economic... More
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  • What? A Democrat In the White House is Better For Stocks? November 11, 2011.

    Being Street Smart

    By Sy Harding

    What? A Democrat In the White House is Better For Stocks? November 11, 2011.

    The lead-up to next year’s election will bring a lot of claims from both parties. I thought I’d check some likely ones to make sure I don’t fall into the ‘lazy trap’ of repeating popular beliefs as fact when they might not be.

    I was more than mildly surprised by my research.

    It’s common knowledge, popular belief, historical fact, that the Republican Party is better for business, corporate profits, and the stock market – isn’t it? Democrats are more interested in pushing socialistic programs at the expense of business – aren’t they?

    But wait a minute!

    The following table shows the Dow’s gains and losses under Republican and Democratic Presidents over the last 50 years.

    Over six Democratic terms the Dow gained 247.9%, or an average of 41.3% per term.

    Over seven Republican terms the Dow gained 147.1%, or an average of 21.0% per term.

     

    President

    R/D

    Term

    Beginning

    Dow

    Ending

    Dow

    Gain/

    Loss

    Kennedy/

    Johnson

    Dem

    1961-65

    615.9

    874.1

    + 41.9%

    Johnson

    Dem

    1965-69

    874.1

    945.1

    + 8.1%

    Nixon

    Rep

    1969-73

    945.1

    1020

    + 7.9%

    Nixon/

    Ford

    Rep

    1973-77

    1020

    1005

    - 0.1%

    Carter

    Dem

    1977-81

    1005

    964.0

    - 4.1%

    Reagan

    Rep

    1981-85

    964.0

    1211

    + 25.6%

    Reagan

    Rep

    1985-89

    1211

    2168

    + 79.0%

    Bush Sr.

    Rep

    1989-93

    2168

    3301

    + 52.3%

    Clinton

    Dem

    1993-97

    3301

    6448

    + 95.3%

    Clinton

    Dem

    1997-01

    6448

    10786

    + 67.3%

    Bush Jr.

    Rep

    2001-05

    10786

    10783

    -

    Bush Jr.

    Rep

    2005-09

    10783

    8776

    - 18.6%

    Obama

    Dem

    2009-11*

    8776

    11955

    + 36.3%

    *To October 30, 2011.

     

    Could it be? Over the last 50 years investors, their portfolios, 401K and IRA plans, have made almost double the returns under Democratic Presidents as under Republican Presidents?

    I then went back 110 years to 1900. The same pattern emerged, although the difference was not as striking as it has been for the last 50 years. From 1901 to 1961 the Dow increased an average of 36.7% per term when the president was a Democrat, and 32.1% when a Republican was in the White House.

    The influence of one party or the other on the strength of the economy, business prosperity, and the stock market has clearly not been as popular wisdom suggests.

     

     

    Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

    Nov 11 2:16 PM | Link | Comment!
  • While DC Fiddled The Economy Burned! July 29, 2011
    Being Street Smart
    Sy Harding
    While DC Fiddled The Economy Burned! July 29, 2011
    While media focus has been almost entirely on the short-term debt ceiling foolishness in Washington, not much attention has been paid to the more serious worsening of the six-month recessionary trend in the economy.
    Yet that information and how you handle it will almost surely have more influence on your well-being going forward than Washington’s short-term political game-playing.
    As I’ve noted numerous times over the last six months, Wall Street economists and the Federal Reserve have been woefully behind the curve on what is going on with the economy and inflation, even as the reality has been clear enough to those on Main Street.
    The latest evidence of that can be seen in the Commerce Department’s release Friday morning of the GDP growth report for the second quarter.
    There’s no way to sugar coat it, although Wall Street will no doubt try.
    The economy grew at a 3.1% rate in the December quarter, not robust but reasonably solid. The consensus forecast of economists and the Fed was that under the influence of QE2 stimulus, growth would improve to 3.5% in the March quarter and for the rest of the year, with the economy’s underpinnings improving so it could stand on its own when QE2 expired in June.
     Instead, March quarter GDP growth declined to only 1.9%. Economists and the Fed were sure that was only temporary and left their forecasts for the June quarter and rest of the year at 3.2% growth. Continuing negative economic reports in May and June forced them to scramble to lower their June quarter growth forecasts dramatically, to 2.8%, 2.6%, 2.0%, and finally to 1.8%.
    Not enough. They were still way behind the curve.
    Friday’s report was that the economy grew only 1.3% in the 2nd quarter, worse than the 1.9% originally reported for the 1st quarter.
    But there’s more. These numbers are subject to revision as later information comes in. And in Friday’s report GDP growth for the 1st quarter was revised down to, if you can believe it, only 0.4%.
    That is bad enough. But what are the odds that the 1.3% just reported for the 2nd quarter will also have to be revised dramatically lower as later information comes in?
    I would say quite high given the evidence.
    For instance, consumer spending accounts for 75% of the economy, and tepid consumer spending was cited in Friday’s GDP report as one reason for the dismal growth in the first half.
    Unfortunately, it was also reported Friday that the closely watched University of Michigan’s Consumer Sentiment Index plunged from 71.5 in June to only 63.7 in July, the first month of the third quarter. It’s the lowest level of the consumer sentiment index in more than two years. That does not bode well for consumer spending going forward.
    Meanwhile, small businesses account for most of the jobs in the U.S., and the National Federation of Independent Businesses (NFIB) reported last week that its Small-Business Optimism Index dropped in June for the fourth straight month, and “is solidly in recession territory.” That does not bode well for an improvement in the jobs picture going forward.
    Those aren’t the only recent troubling reports. The Fed’s own National Activity Index, released by the Chicago Fed on Monday, is an index compiled from 85 monthly economic reports. It remained negative in June for the 3rd straight month, and its 3-month moving average declined to minus 0.6, perilously close to the minus 0.7 level that has marked the beginning of the last 7 recessions since 1970.
    I don’t like to be the bearer of bad news, but this looks like another of those times when facing reality and making preparations could be of utmost importance.  
    Everyone is looking for relief from the stalemate in Washington, and it will be a relief to get that additional worry behind us.
    But the fact is that an agreement on raising the debt limit will not change what is happening in the economy.
    In fact, no matter which way it is resolved, it will likely add to the economic weakness.
    An agreement to raise the debt ceiling would likely include long-term government spending cuts, basically a withdrawal of the stimulus that a high level of government spending has been providing to the economy. And failure to raise the debt limit would create serious problems for the U.S. in global financial markets, and raise interest rates in the U.S., both of which would be serious additional negatives for the economy.
    As far as markets are concerned, my technical indicators remain on the sell signal of May 8. I expect brief rally attempts will continue, as was seen a few weeks ago in relief that another bailout effort for Greece was produced. There will probably be similar brief relief when the stalemate in Washington is resolved. But if so, when focus then returns to the economy, the market correction is quite likely to resume, with profits most likely for some time yet from downside positions against the market, and select safe havens.
     
     
    Sy Harding is editor of the Street Smart Report, and the free market blog, www.streetsmartpost.com.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jul 29 3:39 PM | Link | Comment!
  • Why Foreign Markets Are Better Bets Than US! July 22, 2011
    Being Street Smart
    Sy Harding
    Why Foreign Markets Are Better Bets Than US! July 22, 2011.   
    It has been my expectation that slowing global economies, rising inflation, record government debt, austerity measures being undertaken globally, and the end of the Fed’s QE2 stimulus, would result in stock market corrections in this year’s summer season before the global bull market resumes in the fall. My downside target has been a decline of 17% or so for the Dow and S&P 500.
    After only a mild 7% pullback in May and June the U.S. market has bounced back to within 1% of its April peak.
    However, it’s a quite different picture outside of the U.S.
    Markets in most of the other major world economies have been in fairly significant corrections for several months. Quite a number of them have reached my downside projections of 17% declines, and are potentially bouncing off those lows.
    I’m not convinced the many global economic negatives are going away just yet, not convinced the ‘soft spot’ in global economies in the first half of the year are about to quickly reverse to robust growth in the second half, which is the popular opinion.
    But if we have seen the worst of it, and markets are ready to factor an improving global economic picture into stock prices, betting on that scenario by buying foreign markets may have more upside potential and less downside risk than betting on the U.S. market.
    The most obvious reason is that many global markets have been in corrective declines for several months, and have come down from their previously overbought levels to potentially oversold levels, whereas the U.S. market remains near its April peak and is potentially due for such a move itself.
    In addition, in many global economies, their central banks have raised interest rates and tightened monetary policies significantly, in deliberate efforts to slow their economies and ward off inflation. That leaves them in a position of being able to lower interest rates and loosen monetary policies again if need be to get their economic growth going again.
    By comparison, the U.S. Federal Reserve has kept its key interest rate, the Fed Funds Rate, near zero percent, and monetary policies very accommodative for an unusually long period of time. That leaves very little, if any, room to make conventional moves like lowering interest rates or loosening monetary policies if needed to get U.S. economic growth going again.
    China, India, Brazil, have all been aggressively raising interest rates and tightening monetary policies for well over a year, leaving them plenty of room to reverse course if their economies slow too much and need the stimulus.
    Meanwhile, their stock markets have been in corrections since November, with declines of 17%, 17%, and 19% respectively. So in rallying in recent days along with the U.S. market they are potentially bouncing off important lows (although we don’t have buy signals on them quite yet).
    Japan is an even more promising situation. Its economy took a serious hit from the earthquake/tsunami disaster, which plunged its stock market 21%. Four months later its factories are getting back up to speed, and reconstruction activity is expected to give its economy an extra boost going forward.
    Japan’s initial plunge in reaction to the disaster had the Nikkei very oversold, and traders jumped in quickly, trying to catch the bottom. The first two rally attempts failed but the new declines found support at higher lows, and our technical indicators then triggered a buy signal on June 30. The Nikkei has been in a nice rally since. And unlike most of the world’s other major economies, economic reports coming out of Japan have begun to turn positive. Its export/import ratio improved more than forecasts in June, and its Diffusion Index of business conditions also turned positive in June, confirming the recovery from the earthquake/tsunami disaster is underway.
    I question whether the global economic slowdown (including in the U.S.), record government debt, rising inflation, deteriorating employment, plunging consumer and business confidence, etc., are ready to reverse any time soon, as the resilience in the U.S. market seems to be predicting.
    But if you want to bet on that I suggest there are significant reasons to prefer selected global markets over the U.S. market. I’d rather take my chances with markets that have already had corrections and seem to be oversold, rather than one that faces the same kinds of problems but has remained near its previous peak.
    In the interest of full disclosure, I and my subscribers have a sizable position in the Japanese market taken at lower prices in late June, via the iShares Japan etf, symbol EWJ.
     
     
    Sy Harding is editor of the Street Smart Report, and the free market blog, www.streetsmartpost.com.
     


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jul 22 2:01 PM | Link | Comment!
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