Election Post-Mortem
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.
Wednesday, November 08, 2006 | 06:52 AM | Permalink
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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?
Posted by: Leisa | Nov 8, 2006 7:25:48 AM
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
Posted by: V L | Nov 8, 2006 7:28:12 AM
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
Posted by: Wellblowmedown | Nov 8, 2006 7:30:37 AM
Trade protection? As in steel tariffs? Cotton subsidies? Lumber quotas? That sort of thing?
Posted by: Idaho_Spud | Nov 8, 2006 7:55:08 AM
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
Posted by: V L | Nov 8, 2006 7:59:15 AM
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.
Posted by: Idaho_Spud | Nov 8, 2006 8:05:48 AM
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.
Posted by: charts | Nov 8, 2006 8:07:31 AM
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.
Posted by: Scott Teresi | Nov 8, 2006 8:12:07 AM
"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
Posted by: Mark | Nov 8, 2006 8:23:46 AM
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
Posted by: Teddy | Nov 8, 2006 8:39:42 AM
What's really funny is to see them say 'this was predictable' on Fox News.
Posted by: Bob A | Nov 8, 2006 9:03:45 AM
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.)
Posted by: tjofpa | Nov 8, 2006 9:07:37 AM
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.
Posted by: Q-Ball | Nov 8, 2006 9:34:30 AM
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.
Posted by: MarkM | Nov 8, 2006 9:41:44 AM
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.
Posted by: glenn_in_MA | Nov 8, 2006 9:45:21 AM
"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?
Posted by: BDG123 | Nov 8, 2006 9:56:29 AM
1 more winner -HP
There's been an incredible run on paper shredders in Washington the last 24 hours....
Posted by: brion | Nov 8, 2006 10:11:20 AM
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
Posted by: brion | Nov 8, 2006 10:17:18 AM
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!
Posted by: Alex | Nov 8, 2006 10:34:06 AM
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?
Posted by: Macro Man | Nov 8, 2006 10:58:34 AM
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.
Posted by: Michael C. | Nov 8, 2006 11:05:27 AM
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....
Posted by: martin schmidt | Nov 8, 2006 11:07:32 AM
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.
Posted by: lurker | Nov 8, 2006 11:12:36 AM
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.
Posted by: Teddy | Nov 8, 2006 11:39:26 AM
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....
Posted by: Macro Man | Nov 8, 2006 12:02:22 PM
