This is the fifth edition of our new feature: Blogger's Take. The US Elections are the talk of the globe. A huge victory in the House, and the huge surprise in the Senate made the pundits look foolish.
Today's Question: What does the elections mean -- to the markets, to bonds, to housing, stock sectors, markets, economy, consumer spending, US global reputation?
Here's the Blogger's Take:
"One US oddsmaker put the over/under line for three-day takings of the new Borat! film just opened at $11m. This is the comedy in which Borat praises President Bush’s “war of terror”; and it ended up taking over $26m.
Dems were forecast to gain 15 seats by most professional pundits in the midterms. The Borat result was one unscientific anecdotal reason to believe anti-war sentiment would swing voters harder than these forecasts; and so it has proved with Dems taking the House, as this is written, with over 20 seats gained. The Senate is within 2 seats of Dem hands also and awaits recounts.
The result most desired by the markets is gridlock on the assumption that no great legislative change is good. Unfortunately, that expectation is a pipedream. Divided government has nearly always proved cheap as both sides act as spoilers to the spending plans of the other. Coupled with anti-war sentiment it is probably the Pentagon that will take the brunt of such fiscal restraint, albeit over time. That appears likely to translate into a significant fiscal drag on the winds currently blowing the US economy along.
Of course, Democrats might end up taking both Houses. That sharpens the focus on more than dwindling war funds and simple control of the legislative agenda: it brings into stark relief the potential Dem agenda items of minimum wage hikes, protectionist measures and drug price-controls. The extent of their impact on the slowdown that is approaching (anyway) is more difficult to gauge; but it does not look a positive."
As I'm writing on Wednesday AM, the index futures are lower on news of the Democratic victory in the House and uncertain outcome in the Senate. But some of those favorites of alternative energy, Ballard Power Systems (NASDAQ:BLDP) and Plug Power (NASDAQ:PLUG) are up nicely--over 3%.
The emerging zeitgeist for the Democrats is that of energy independence. That will drive the policy toward the Middle East, and it will become an important investment theme. Talk of alternative energy becoming the next big thing has been around for a while. But that wasn't going to happen in an administration dominated by oil guys. With the election results in hand, the means for alternative energy investment may have come closer to the ends. Lots of small players chasing a flood of excited capital: it could be the Internet boom all over again.
-Brett N. Steenbarger, Ph.D.
The significance of this election is not about the markets but about possibly taking the country back from the extreme radical right. Whether or not Democrats will be able to force an agenda to stop wasting money in Iraq and bring the troops home remains to be seen. It is also too early to tell if right wing legislation on the Patriot Act, wiretapping, holding prisoners without trial, and torture will be repudiated or not.
As for the stock market, there will undoubtedly be some winners and losers. One possible winner is stem cell research and two possible losers are big oil and big pharmaceuticals. Under the Democrats there is a better chance that drug imports from Canada and other countries will be allowed. If so, it will be good news to senior citizens. Unfortunately money will still be wasted, but probably in different ways.
Other than that, little has changed in regards to the stock market and almost nothing has changed in relation to the treasury market. This economy is simply too over leveraged on debt, consumer spending, and negative savings for this election to matter. Regardless of who won we were headed into the mother of all recessions as I outlined in Global Economic Trainwreck. Batten down the hatches, this recession will hit in 2007.
Mish's Global Economic Trend Analysis
~~~Two points come to mind when discussing yesterday’s elections. The first is that despite a dramatic change in composition for both the House and Senate the market’s reaction (positive or negative) can best be described as blasé. Our opinion is that this is due to the information effects provided by the so-called prediction markets, like the Iowa Electronic Markets. Even if the markets got the Senate call wrong, we disagree with Barry that their profile will be reduced in the future.
Prior to Election Day at the IEM the market had a 30% probability that the Democrats would take the Senate. Markets are wrong every day, but that does not diminish their capacity to aggregate opinion (and capital) in the most efficient way. Absent these markets how would we get a handle on the state of hundreds of races spread across the country? The bottom line is that the market collectively yawned this morning because they were able to incorporate prior to Election Day the potential for a Democratic sweep.
>Second, while we are usually big fans of academic research on all manner of financial topics, the research on the role that political affiliation of Congress and the Presidency on the stock market leave us cold. This is due in large part to the fact that the future is largely unknowable. We know what the Democrats plan to due in the first “24 hours” but outside of that the impact of this election will be unknowable for quite some time. We need only look back to the last change in Congressional control or any recent Presidential administration to see that exogenous events can have a major impact on any so-called ‘agenda.’ The point is that investors should try to look forward and not be burdened by political bias, one way or another, when making investment decisions.
My view of what will happen to the economy is in an econoblog I did recently for the Wall Street Journal: Econoblog: How Much Do Election Shakeups Affect the Nation's Economy?
I know the elections are supposed to mean something profound, but I just don’t see it. As I read it, the American people have delivered clear a mandate against pro-Parkinson’s gay pedophiles. Oh, and Guam has gone Republican. Maybe Parkinson’s plays big out there, it’s hard to say.
In the Senate the swing vote has shifted from Olympia Snowe to Susan Collins. Sorry, folks but that’s not big news to me. It’s not like we’ve elected a bunch of radical Socialists here. OK, except for Vermont but you know what I mean. Check out Madame Speaker’s financial disclose form. She’s frickin loaded. I’m guessing Eugene Debs was never part owner of the Auberge du Soliel Hotel.
My advice is to not read too much into these results. Remember, Sarbanes-Oxley passed the Senate 99-0. Nothing happened yesterday that would have changed that. Actually, nothing will happen for quite a while that will change that. Goldilocks meet Gridlock.
-Crossing Wall Street
The stronger the economy, the less important the election results. The question here is if the election will matter and if so how much it will matter. The few Dems willing to admit they want to let the tax cuts expire say that the market and economy did great under
Clinton without those tax cuts. The Republicans say how great the economy did with those tax cuts under Bush. The economy was strong enough ten years ago that we did not need those cuts. When Bush tax cuts were enacted the economy was weak enough that we did need them.
Looking forward, how strong do you think the economy is? The data, as always, is mixed but as the expansion is long in tooth now the data seems to be generally favoring a slowdown of some magnitude which leads me to think that the election has the potential to matter some. Some sectors seem to have more potential to be impacted but that impact is likely to be shorter term in nature. I don’t believe that longer term, politicians are bigger than market forces. Your own investment time horizon will dictate what is more important to you, short term politics or long term investment themes.
One last point, the Dems taking the house has been expected for quite a while and the market rallied into the election. I do no think the market is afraid of the Dems running the house. The senate was less expected and so the final outcome there could result in some sort of short term reaction but shortly thereafter the market will go back to worrying about the economic cycle,
Iraq and everything else that used to be on the front burner.~~~-Roger Nusbaum
Random Roger's Big Picture
Over the short-term, I expect mildly negative effects, particularly if the Democrats wind up winning the Senate too. Certain industries will be bought and sold based on perceived party friendliness to them, but overall the market will be down slightly due to worries about minimum wage increases, weak international politics, and potential tax increases. By year end, though, Wall Street will have realized that gridlock can be good, and markets will be strong in early '07.
Consumer spending for the '06 holiday season will be up on the assumption that things are changing, even though most consumers won't have any particular expectations of what it is that will change. The US global reputation will improve, possibly leading to more exports and more capital inflows. Wall Street will be happy with corporate profits and improved forecasts of government financials. The upward bump in the economy will temporarily stall falling real estate prices. This could be the catalyst for that soft landing everyone hopes for.
If the Democrats are smart, they'll spend a fair amount of time in the next two years making it clear that:
a) they didn't cause the housing bubble
b) they can't stop it from bursting
It will likely take another year or so, just when things are starting to heat up for the next general election, for most homeowners to realize that much of their wealth has again evaporated.
Look for the Dems to try to fix the housing problem over the next two years.
The Mess That Greenspan Made
Fantastic job guys -- thank you much!