A huge realignment in the House, and a possibly stunning victory in the Senate will be driving trading today, and most likely, the economic and political agenda for the next 2 years. The surprises were everywhere.
CNBC is claiming the election turned on Scandals and Iraq. Media coverage on the Middle Class has been spotty; they are still missing the big picture as to what has been happening economically. As we noted on Monday, Its Still the Economy, Stupid. And with all due to respect to my pal Larry — THATS the greatest story never told.
Yesterday’s RR&A discussed some of the implications of this, and since the election is over, I can post here: Election Day (finally!)
While the Political futures got the House right, it appears they were wildly wrong about the Senate. That would be quite a blow to these thinly traded, tiny markets. And of all the things they tend to get right, elections are their forte. If it turns out they blew this, I would venture to say it would lower their profile dramatically. This is not a "told-you-so" — but one will be forthcoming if GOP control of the Senate falls.
For those who believe markets are perfect prognosticators of the
future, you are strongly advised to reread The
kinda-eventually-sorta-mostly-almost Efficient Market Theory.
~~~
Also worth noting: Now we’ll find out if some of the more experienced than I market watchers (Jeff Saut, Bill King, John Succo, J) have been right about who/what’s been driving the
stock market futures for political purposes. Indeed, its now in their
interest to let markets slide as a rebuke to the Dems. Negative futures and market dips have been bought in the past; I suspect that pattern may not continue.
I suppose the political futures are about as accurate as the bond futures. How many times this year have the bond futures “got it wrong”. If there were never any surprises, what fun would the reading of the tea leaves be?
Winners and Losers secondary to Democratic Rout
(Source: Merrill Lynch).
Winners
Defense Technology
Homeland Security Firms
Alternative Energy Producers
Generic Drug Makers
Stem Cell Research Companies
GSEs
Life Insurance Companies
Losers
Traditional Defense
Big Oil Companies
Electric Utilities
Coal
Pharmaceuticals—Drug Makers
HMOs
Student Loan Providers
Commercial Banks
Retailers (especially high-end)
Manufacturing Companies
Insurance Companies (ex life insurance)
Tobacco
Congratulations. Welcome to the trade protectionist nightmare. Giving Pelosi, Waxman, et al control for Bush’s gaffs is like kicking the dog when you’re mad at your wife. Better get a bucket…I’m gonna puke.
Ugh
Trade protection? As in steel tariffs? Cotton subsidies? Lumber quotas? That sort of thing?
Republicans have alienated the middle class of this country by ignoring the real problems, corruption and getting America deeper into debt (out of control borrowing and spending, pork and corporate welfare); moreover GOP denying that the problems even existed has angered many folks. Americans feel that GOP is out of touch and they kicked them out.
When will the Republicans wake up and get it?!?
P.S. I just wonder what will happen to already high inflation when the minimum wage increases to $7.25
C’mon VL – all politicians of both parties at that level are out of touch with their electorate. They are in touch with $1000 per plate dinner guests.
Just another symptom of our decaying system. Gridlock is the only hope remaining for the moderate majority.
Barry, you’re right and you’re wrong about the senate futures. there was a huge political futures market inneficiency just as voting started because the “GOP holds senate” futures were not consistent with what the state by state futures were saying.
MO, MT and VA single state senate futures were all accurate. that was a nice opportunity to short the at the time likely mispriced GOP holds senate contract. and in fact, unless recounts show otherwise, the contract was indeed mispriced relative to the state by state futures.
One possibly huge win: PayGo (new expenditures in bills must be offset with funding increases or cuts in other programs). That sounds like a big win for the future of the country’s fiscal situation, considering what six years of the alternative has gotten us.
“Now we’ll find out if some of the more experienced than I market watchers have been right about who/what’s been driving the stock market futures for political purposes.”
really Barry, an overnight blip in the futures market has been proof positive all along of a grand manipulation scheme? just how long have you been trading, and just what exactly are you trying to hide yourself?
the market will tank alright, but it’ll be due to talk of “windfall profit” taxes, wealth redistribution, “affordable” healthcare
btw- if 1 of my money managers sent me a monthly letter pointing to the “obvious” market manipulation as reason for his underperformance, not only would i redeem my capitAl, id help the guy out and call the men in the white suits
Mark, now that you’ve discovered “The Truth”, you can stop torturing yourself by reading and posting on this blog. And maybe you can start your own to help those of us who are not as attune to the market as you. LOL
What’s really funny is to see them say ‘this was predictable’ on Fox News.
One more loser: Fast Food
I’m sure the great “Fast Food Settlement” can’t be more than 18 months away. (Now that the Trial Lawyers are back in town.)
I am not sure how you can say the political markets got the Senate wrong. With two races in pure toss up, its impossible to predict the exact outcome. At 70% chance of Republicans retaining control it was a pure odds play and I think they had it rated about right.
If the odds on a football game are 70% for a team to win and they lose that doesn’t mean the odds got it wrong. 1 in 3 times the team with 30% chance will win and the odds can still be correct.
Wanted to remind all in these testy times that the poster formally known as “Mark”, keeper of the faith regarding The Sweater, is now “MarkM”. Just so I avoid the shell hits intended for someone else.
Seems Brian Wesbury ought to stick with economics and stay away from political prognostication. Check out his brilliant election calls over the last two weeks:
http://www.ftportfolios.com/Retail//Research/ViewResearchArticle.aspx?ID=182
http://www.ftportfolios.com/Retail//Research/ViewResearchArticle.aspx?ID=185
BTW, by no means am I endorsing his economic outlook. This guy is second to only LK for top cheerleading honors.
“who are not as attune to the market as you”?
Weren’t you the poster who said yesterday that it was international bankers paid actually paid Greenspan’s salary and he may not have an allegiance to the American people? Uh huh. Is this from someone who believes one of those racist theories that a certain ethnicity runs the central bank and controls the world? Or would it be something more “attuned” I was misreading?
1 more winner -HP
There’s been an incredible run on paper shredders in Washington the last 24 hours….
Oh, and, the post-mortem on the Reicht says they lost because they “nice guys finish last” and “Republicans were too accommodating, deferential and timid”!!!…
Bizarro world
I would add that the house futures market was also off by quite a lot. Practically every poll called for a democratic majority, and by quite a few seats. But until a week before the election, it was still giving the republicans a 30% chance to win. I made a decent amount of money shorting that bit of sucker odds. It just seems there was a lot of right wing money holding up the odds of republican majorities.
So I have to agree that the tradesports futures markets were not very accurate this time around. Here’s to hoping they stay that way!
Isn’t it possible, just very slightly, that markets have rallied because with the Democrats taking control of the HoR and very possibly Congress, one set of myopic cretins will now ostensibly offset the other set of myopic cretins?
I believe the futures market of these events are manipulated but only as much as the public’s perception of those events are manipulated.
For example, if the media began pumping out stories of Iraqi pullout rumors, those futures would increase the more those stories are printed no matter if they are rumors. More and more people would believe this and the futures would gradually reflect this.
it’s comical or sad, unsure of which, how the pelosi demonisers never read her voting record.
i thought the election results were clear… most dont want to listen to humans walking and talking like car bumper stickers….
Spud dude and Macro Man I vote with you. Just keep in mind those “myopic cretins” are running the show in Washington and we elected them.
BDG123, please check out my posts! There was never any hint of racism on my part, but I think you have accused others on this blogsite of the same. I know from your previous posts that you are in denial about inflation and about the debt this country owes foreigners. I don’t think that you are dealing in reality.
I imagine this has been posted elsewhere on this site, but in case it hasn’t….
Since 1963 (when I first have quarterly data), the average annualized nominal return of the SPX during single party government has been 3.7%, with an annualized standard deviation of returns of 13.25%, for a ratio of 0.28. Every decade but the 80’s featured at least some period of single party rule.
Since 1963 (the average annualized nominal return of the SPX during split government has been 8.75%, with an annualized standard deviation of returns of 17.4%, for a ratio of 0.50. Every decade but the 00’s has featured at least some period of split rule.
Verily, a ringing endorsement of the ‘quality’ of American politicians. The only consolation is that they aren’t noticably better elsewhere….
When someone says the world’s woes are because of Zionism, the only person I singled out on this blog, that is racism.
Might you care to enlighten me what this statement means then? Because I’ve only heard this from one group of people and it has had only one meaning. I didn’t call you a racist. I asked if this was a racist statement. Enlighten me as to its meaning.
I’ve often wondered whose best interest Alan Greenspan represented when he was Fed chairman, the people of the United States of America or the global world bankers, who believe it or not, paid his salary every year!
Posted by: Teddy | Nov 7, 2006 12:05:15 PM
I get most of the winner/losers in the list VL posted, except life insurance. Huh?
Hilariously, Big Oil is up today. Look at XLE. The short side of that trade too crowded and obvious?
I hope the markets close green, even slightly green, just to see the look on Kudlow’s face. Please Jebus.
BDG123, get real. Didn’t Greenspan tell us in 2000 that the stock market was priced correctly because of extraordinary gains in productivity? Didn’t he tell us that in this knowledge based economy that we didn’t need manufacturing? Didn’t need copper? Didn’t he tell us recently and 2 years ago that there was no housing bubble and for homebuyers to take out adjustible rate mortgages? The only thing that he promoted was asset inflation and the parabolic creation of debt. I don’t think history will judge him kindly.
Not only is the EMH mythical, so is the concept of economic equilibrium.
I recently started reading, “Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics ” by Eric D. Beinhocker (Harvard Business School Press).
It’s a fascinating book!
One of the mind-bending figures he presented was the time it would take an economy as complex as the U.S.’s(his operational measure of complexity is the number of SKUs in an economy) to reach equilibrium from a single exogenous shock (like a hurricane). It would take 4.5 million, trillion (4 x 10^18) years!
I don’t care what the markets do. I’m happy the Dems are in control. With a Republican rubber stamp congress, one of our branches of government had essentially disappeared. And that could never be a good thing.
Nice. You won’t answer the question because what I surmised is correct. Doing a little deflecting there? Skirt the answer by taking me somewhere else?
You answered my question. First off, Alan Greenspan is a noble patriot. Secondly, I could argue everything you just typed including the words you put in his mouth that you cannot back up with a quotable source. Thirdly, I won’t because that’s not really the issue now is it?
You know, you would have been better not to respond. Have a great day.
Since we’re doing a sidebar on our political process, what do you think of the prospect of creating a fourth branch of the government (mixture of appointments and elected officials) to handle the Federal Outlays and Receipts.
Combine the IRS, GAO and some savy finance people to really manage the Federal Government’s budget. Give everyone appointed a 15yr term so there is no need to work for the next election cycle.
My concern is that no member of Congress can make the hard financial decisions we need to make on Social Security, taxes, debt, etc if they have to face the electorate every 2 yrs.
Congress would still legislate, but we could take the power of the purse away. It’s a $2.8 trillion dollar question. Thoughts?
Brian;
Yeah, XOM got another upgrade today to stem the impending sell-off. Had 1 yesterday too. Then mad dash between 9:35 and 9:45 this morning to run it up another $1. This can only mean that the game’s just about over. I give it another week.
Now that the election “noise” is over I’ll be watching Dr Oil to see who is right => rally back to the mid 60’s (stocks) or fall to the mid 50’s (bonds)
Barry;
How about an immediate ban on any dipstick playing the race card. Just no place for it. The last time I checked “International Banker” was not an ethnic group.
Throughout u.s. history, the House has rarely treated the Minority party kindly or had much use for it….
It’s part of the checks and balances design. The House is a churning parliament with 2 year turnover vs. the Senate’s gracious and deliberative 6 year tenure.
The Republicans (when they showed up) didn’t even bother to consult with Democrats this last Congress. I trust (& hope) the Dems will return the favor in equal measure. (equal measure because Dems really were completely shut out)
I praise jaysus that W. has had a bell hung around his retarded neck.
I don’t get this gridlock thing. Congress has been debating immigration forever and all the only thing they have to show for it is a fence. I can’t wait to see the debate over what color it should be :)
As an aside, I love the jokes too. Like where are we going to find the mexicans we need to build the dam thing.
Back to being serious. I can’t see how congress could be less effective. Not that I oppose the past gridlock. Who knows how much worse they could have made things without gridlock.
I don’t believe in conspiracy theories in general. It is hard though not to agree with BR that there was some effort by certain groups with the ability to have influence within their own sphere or speciality. Hoping that if enough groups influenced their small little sphere that this could end up having a great influence.
One of particular dissapointment to me was Barons. I think very highly of this publication in general. The cover story several weeks ago about how the Repubs would maintain control of congress was clearly out of whack with the prevailing data. I can’t help but wonder if it was not editorially motivated.
Bob A’s post on Fox’s note about how predictable it was put a smile on my face, you? But Barry’s list of historical quotes on the crash of 29 ( that poor man Irving PhD in Economics!) in an adjacent thread is something of a major restraint on those grinning muscles, yes?
How is the MSM going to intrepret this result for us? How much do blogs count in keeping them a little more honest than they were say 75 years ago? Some (only noise according to that other some) people feel that since Reagan, GOP penetration of the MSM has been a major factor in the Right wing (such extremist language those wings, no?) slant of American politics of late. Hard to believe that this slanted media is going to follow that (so fickle) public it purports to serve just over night, no?
I expect MSM apologies for w and this administration to continue for months, if not years. Vested interests are not so fickle.
my bet is the market closes higher today…it has too. give up on the short side… the boys want it up and it will be up. forget about the the bigger perspective, it is very interesting to shoot the bull about it but it is another thing to try and make money off it, case in point, the last year and half. there is always time to reposition, just follow the flow…and the flow now is up!
Rumsfeld’s resignation rally?!?
Gee, this market is schizophrenic, trying to find any reason to rally.
Next, we will get there are no news rally.
criticizing Zionism is not racist in itself. Someone can object to Zionism and still support Jews. There is a lot of correlation between Zionism and being Jewish but it isn’t 100%.
i thought this market was “pumped” to held the republicans…. well, they got crushed and we’re still higher… maybe they’re “pumping” for 2008. LOL
inflate or die!
Now that Rummy is out, I expect Bush to escalate big-time in Iraq.
Listen to what McCain had to say last night on Fox: “Tell the American people the truth. The present strategy isn’t working. The going is going to get tough. We need more troops in Iraq.”
I don’t know where Lieberman stands on all of this, but the fact he won big with (mostly) Republican support is a portent.
Oh, sure, the Demos will try to stop Bush by cutting off funding, or whatever. But as long as the Repos stay united behind the war effort, the end result of their efforts will be to split the Democratic majority in Congress between the “old lion” liberals in their safe districts and the more “moderate” recent arrivals who will not want to be booted out of their swing districts for being weak on Iraq.
Then, the 2008 Presidential election will be all about whether escalation was right (McCain) or wrong (Hillary?).
For me, the question now is: what are the investment implcations of the coming escalation.
The problem is, it is good begin “weak” on Iraq because everything has gone helter skelter. Iraq and the guns/butter it has added to offset weakness in private industry to the economy can’t be understated. It is no surprise when Vietnam spending began to lax in 1973, the economy sank the following years.
Removing guns and butter from Iraq will be a drag on the economy. The Democrats will force Bush to drop his debt levels weakening growth even more.
Democrats arrival was bad for the short term economy though may be good for the long term(years later).
I HAVE A CONFESSION TO MAKE….
I VOTED FOR KATHERINE HARRIS….
I felt sorry for her. I guess that you could call me a “bleeding heart liberal”. She doesn’t have a friend in the world, she’s mentaly challenged and she was so desperate. Anyway, I knew she couldn’d possibly win and I was pissed at Bill Nelson for voting to abolish Habius Corpus.
Other than that, I voted straight for the “CUT AND RUN PARTY”.
There I feel better now, it was good to get that off my shoulders.
Economista Non Grata — You have a big heart!
The women pols did quite well up here in Michigan, by the way. Also, Michigan got even bluer, as the state house swung to Dem control.
Is the “ownership society” on the way out? If so, what will be the implications for our 401k’s?
Brian asked:
“I get most of the winner/losers in the list VL posted, except life insurance. Huh?”
With the Dems in a position to shape tax policy, it’s not likely that the Federal estate tax will be repealed. Therefore, life insurance products will remain a popular tool to fund irrevocable life insurance trusts.
IT’S “MEDAL OF HONOR TIME” FOR RUMMY.
Think of a clock face with a pendulum hanging at 6.
If that’s a political spectrum with 6-12 representing leftist sentiment and 12-6 representing conservatism and right wing sentiment… then we’re all much safer when the pendulum swings at 6.
Yesterday the pendulum swung a bit from being too far to the right back toward the center, and that’s a good thing.
Mankind can be enslaved from either extreme swing.
-At 5 o’clock, it’s religious intolerance; at 4 it’s maniacal adherence to the state, the flag, financial capital and tradition; at 2 it’s betrayal of ideals and then the brownshirts take over; and at 12 it’s slavery.
-At 7 o’clock it’s a reckless disregard for government; at 8 it’s a maniacal adherence to self, party and organized labor; at 10 it’s betrayal and a shifting of power to the super commisars; and at 12 it’s slavery.
You get the same slavery whether the pendulum swings too far either to the right or to the left.
Our great fortune in this country is that from it’s birth the nation has managed to always swing the pendulum reasonable close to 6.
Such a comforting allusion Eclectic, and especially thinking that we (mankind and possibly womankind too) have narrowly avoided that other extreme (dare I just come out and say it at a time like this? Leftist).
Think of that clock face hanging at another angle by the invisible hands of the MSM. Yes, think of how much support those auto workers received from that liberal press, and what a close shave it was for all of us from being over-run by…face it: communism.
But we are a great (and sometimes punishing) country with great (and usually wealthy) leaders and great (and always expensive) elections and great (but not exactly clocky-balanced) coverage of elections. But some blogs help, somewhat. Like this:
So what does Karl have to say and what was the participation rate?
BR,
A trailing word on the recent BLS labor report:
I had used an illustration of approximately 1,000 children being counted in a playground, in which the count could only be conducted once; the counter could not corral the children or meter them though a gate, nor could the children be required to sit or stand still for the count.
There, illustrating the similarity between that example and the BLS count for October, the BLS claims a 90% confidence of plus or minus 437k jobs within a national tally of over 137 mil (an accuracy of approximately 3 observations in 1,000). Pretty good, I said.
Let’s compare that to the Senate race in VA.
This is a statistical illustration, not a political statement.
In VA, it’s reported that Allen may concede the election results Thursday without requiring a recount… He’s a pretty smart and practical fellow for making that decision. Why?
It’s now reported that the difference in favor of Webb is just 7,200 or so votes in a total vote of over 56.6 mil. Previous VA elections demonstrate that no election recount has ever yielded more than a few hundred vote corrections. Here, we have a total differential of 7,200 votes approximately, prior to any recount.
Consequently, Allen may decide to forego a recount based on a vote differential of approximately as little as 1.3 votes in 10,000 (7,200 divided by 56.6 mil = .00013), under the further assumptions that the observation of true error in a recount might be even less than 1/7th of that figure (since VA says, historically, corrections are in the hundreds and not as high as thousands). That would put the true error in a recount at something like less than 2 voters in 100,000 (.000018).
So, why would a rational person forego a recount when so tiny an error might have swung the results to his opponent and might be corrected in his own favor instead?
Because… here, the voters’ ballots a-r-e corraled. They have already been counted once and the subtotals recounted at least a second time in a precinct-by-precinct canvas of election officials.
The ballots, unlike the children of the example or national job holders/seekers in the BLS survey, c-a-n be made to stand still; c-a-n be metered through a ‘gate’ repeatedly if required; and can be tallied as many times as the law and procedures for recounts would allow.
However, it’s not a re-Vote, only a re-Count. The results of a revote could only be known to God. Nobody can know at present if a revote would favor Webb or Allen, just like nobody can know the second a BLS survey is completed what the results would be immediately upon conducting a follow-up. In the BLS survey, they are liable to criticism for both tally error and flux in the survey. In an election recount, they are only liable for tally error, because flux is ignored. It’s already ancient history at that point.
An election is a snapshot when a snapshot is all that is needed. A BLS survey is a snapshot when the demands of it are for more than a snapshot can deliver.
The BLS has been criticized for making what some conclude are politically motivated changes in techniques in order to demonstrate better job tallies than would otherwise be made without the changes.
I doubt it. I figure they’re constantly striving for improvements in techniques that make their snapshots more accurate. The timing of changes are simply coincidental.
In my prior illustrations, I erroneously used a dramatically incorrect figure for the total vote count in VA for U.S. Senator.
The most bizarre oversight of mine was to illustrate over 56.6 mil voters in VA (haha!).
The correct figures were for a total vote of approximately 2.3 mil and a margin for Webb of 7,236, a differential of just .003, or 3 votes per 10,000… a figure much more dramatically hard to reverse with a recount.
I think the remainder of my observations regarding BLS hold however.