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Politics tells you to love dollar

 The de-facto referendum(indeed) in Massachusetts senate election concluded yesterday, well, the Republican candidate finally won, now he will deliver his only promise(that got him this senate seat) that he’ll vote against the proposed healthcare bill that Democrats are promoting in Congress.


That is good, really good, because Democrats need 60 to pass that bill, now they only got 59. Not only that, it means the senate is divided with no super majority, and that means the speed for passing bills are ultimately impaired, at least before the mid-term election this Nov.


Democracy is weak in making decisions, sometimes it’s a good thing.


Let’s look at the strong Labor government in UK, I studied its pre-budget analysis in detail, they’ll cut the deficit in half by 2013, and doing that gradually. They got 180 bln deficit this year, doing a simple extrapolation will get you 500-600 accumulated new deficit by 2013 and that gets their national debt to 100% of GDP, to the level where Japan stands. Last Dec’s 2.9% inflation really gave the public a shock, well if you your home work, you’ll know 2.9%(not just by tail raising effect) is just the beginning, it will go all the way to 3.5% to 4% range by mid year and then the rate hike will begin, and that’ll go all the way to 3% by mid next year.


It’s all connected, US, UK, EU and China, as the west commencing on a big scale to save their currency, expecting a huge RMB appreciation seems naive this year. What China does is still within the business cycle of the world, how a rate hike is not possible? Aussie bank has done it. Many broker are expecting a rate hike in Q4 in China as the earliest, my guess is in Q3(early Q3 or late Q2 mostly likely) and that means the panic will comes early and go away early. Brokers are catching up from buy on dip to sell on rally.


Ok, a little off topic, basically a divided senate(government) means Obama will hold back some of his ambitious plans and really slow things down a little. Is that really good? See those measures are supposed to be creating jobs, but again, the timing for stimulus measures to take effect is long, don’t expect everything is like TALF.


JP Morgan have some statistics, take a look.

there are important implications for government spending.  Attached chart single_spending.jpg shows the rate of growth of government spending in the four years before and after all the shifts

from Single Party rule to Divided Government since 1946. “


A stronger pattern exists for Gold and the USD.  Gold significantly outperforms during Single Party rule and the USD underperforms. The likely reason is that Single Party rule, with its attendant ramp up in spending and fiscal deficits, causes investors to question the future purchasing power of money.”


Well, if we base on our investment just on that, it would be naive, but it correlates with many of my predictions, and that was just another reason.

Disclosure: None