Showing posts with label Investing. Show all posts
Showing posts with label Investing. Show all posts

Friday, October 26, 2018

Investors Love Divided Government
- The "Will a Dem House Crater the Market?" Edition -

[SPOILER ALERT: No]

Divided Government and Markets
  Graphics from Oppenheimer Funds 

President Trump Makes a Market Prediction

On Tuesday, November 6,  voters will decide whether to buy a slightly dented, partially corroded and corrupted two year-old One Party Rule Republican Government or a shiny new Divided Government. Our Used Car Salesman In Chief is turning up the pressure for one last hard sell to close the midterm deal:

Trump Used Government Salesman
But Wait! There's More!
Not a surprising pitch given that President Trump has taken credit for every upward tick in the stock market since he was elected. It is a bit surprising that he has the time to single-handedly drive the stock market higher while the Colossus of Trump simultaneously stands astride the southern border to protect us from an invading caravan of middle-east terrorists, migrant Democratic voterswomen, kids, and babies in strollers. But I digress.

Focus Dividist! Focus! This post is about how the stock market is affected by the party in power, and the 2018 midterms...

Sunday, October 30, 2016

Investors Love Divided Government
- Algo Enhanced 2016 Edition -

UPDATED: 02-Nov-2016 
High Frequency Traders Love Divided Government
 Algos For Hillary 
So this happened. Last week the stock market was percolating along with moderate gains on the back of positive economic news and earnings results. Then, on Friday (28-Oct-2016) FBI director James Comey released a letter to Congress indicating FBI investigators found additional Clinton private server e-mails. The new e-mails may or may not have any relevance to his prior testimony but, in an abundance of caution, Comey informed Congress. The DJ Industrial average immediately dropped almost 200 points. 
Stocks love divided government

This NPR story was typical of business media coverage: "The Stock Market Stumbles After Friday's Clinton Email News."
"Around the time that the email news broke, the Dow Jones industrial average plummeted from a peak of 18,255 to a trough of 18,097. That's not quite 1 percent, but the sharp drop, albeit small, is a sign of a broader storyline that has persisted through this election: that investors are scared of a Trump presidency."
Partisan bluster aside, after it became apparent that breathless mainstream and social media reporting was less than meets the eye or that can be supported from the actual content of Comey's letter, the market recovered most of the midday losses.
CNBC Kelly Evans - Markets move on Clinton Probe
 CNBC "Closing Bell" wraps it up:

Saturday, May 03, 2014

Investors Love Divided Government
CNBC 25th Anniversary Edition

Amanda Drury on CNBC 25th Anniversary
This week CNBC celebrated their 25th anniversary on the air. The Dividist finds a higher signal to noise ratio at CNBC than most cable news networks, so it has often served as a primary source on this blog. We would be remiss if we let CNBC's 25th anniversary pass without taking note and highlighting a few of the Dividist Paper's Greatest CNBC hits.

CNBC 25th anniversary

Thursday, August 02, 2012

Rise of the Algos - Knight Capital and the Inevitable Catastrophic HFT Triggered Market Meltdown In Our Future

The HFT Algos Strike Back

It happened again on Wednesday.  A High Frequency Trading  (HFT) proprietary algorithm crafted by highly compensated brains-on-sticks and nurtured in the bowels of an investment bank escaped into the wild. From its carefully co-located massively parallel high speed trading computer it emerged to wreak havoc on the financial markets.  In this case, it was a happy ending. The algo turned on its master and sucked the very life blood out of the firm that deployed it.

The incident is yet another lights-flashing, klaxon-blaring warning signal that competing HFT algorithms operating with the speed, size and complexity that are commonplace today cannot be adequately regulated, tested, or managed. Their interactions with each other cannot even be understood  or predicted.

Wednesday 8-1-12: The Knight Capital Algo Clusterfrack

Sunday, April 01, 2012

Carnival of Divided Government LII
Duo et Quînquâgintâ
Special April Fools Edition

Welcome to the 52nd edition of the Carnival of Divided Government - Special April Fools Day Edition.

April Fool's Day - The Dividist can think of nothing more foolish than permitting either major party to govern and legislate without the moderating effect and enhanced oversight found only within the constraints of divided government.

With over 80% of our fellow citizens voting along pure party lines in federal elections (regardless of what they tell you, what they tell pollsters. or even what they tell themselves), asking the few true Independents to cast their vote based on the situational partisan landscape in any given election may indeed be a fool's errand.  No matter.  The Dividist embraces the iconography of the "The Fool" Card in the Tarot Deck:
"Think of The Fool not so much as naive as open-minded and optimistic. The Fool is hopeful and positive, and he's doing his best to shine a light on new beliefs, innovative and shocking ideas and the unpredictability of life."
Indeed.

As explained in earlier editions, we have adopted Latin ordinal numeration to impart a patina of gravitas reflecting the historical importance of the series. In this the Carnival of Divided Government LII (Duo et Quînquâgintâ), as in all of the CODGOV editions, we select volunteers and draftees from the blogosphere and main stream media writing on the single topic of government divided between the major parties (leaving it to the reader to sort out volunteers from draftees).

Consistent with this topic, the primary criteria for acceptance in the carnival is to explicitly use the words and/or concept of "divided government" in submitted posts. A criteria that, to our endless befuddlement, is ignored by many of the bloggers submitting posts, which sadly results in The Dividist reluctantly ignoring their fine submissions. Among the on-topic posts, essays and articles we choose our favorites for commentary and consideration. We hope you enjoy these selections, and without further foolishness, we submit for your consideration  this month's selections (actually published on April 2nd - gotcha!) .

Tuesday, March 06, 2012

Investors Love Divided Government
2012 Super Tuesday Edition

CNBC reporter Amanda Drury breaking a story on Super Tuesday

In general, the Dividist prefers CNBC for his daily news fix, as there is a better signal-to-noise ratio at CNBC compared to the usual mainstream broadcast and cable news suspects. On this Super Tuesday, the Dividist was less interested in projections of GOP primary results than a discussion on CNBC about the intersection of the general election, investors and the economy. We have explored the theme of investor reaction to national elections since the inception of this blog, including editions in 2006, 2007, 2008, 2009, 2010, 2010, and 2011.

Each time, the Dividist has offered this caveat: Over the long  or medium term,we do not think any attempt to correlate political parties in power and stock market performance should be taken more seriously than the Hemline Index or the Super Bowl Indicator. The reason is simple. The federal government does not and can not control GDP, private employment, corporate profits, and/or the stock market as much presidents or presidential wannabes would like us to believe they can.

Thursday, November 03, 2011

The Corzine Caper

Corzine and Obama - joined at the wrist?
Does this sound familiar? - A high risk "bet the company" culture, huge leverage, "smarter than you" corporate arrogance, regulators asleep at the switch, a"rock star" CEO cozying up to the President of the United States, questionable accounting, bankruptcy, investigations, and criminal prosecutions.

How about Enron, "Kenny-Boy" Lay, and the Bush administration?
-or-
How about MF Global, "Jonny" Corzine, and the Obama administration?

Most of the mainstream media coverage of the MF Global failure has focused on the leverage and the highly speculative bad business bets made by CEO Jon Corzine. But with the SEC and FBI looking under the covers, Dan Primack of Fortune Magazine goes where the NYT fears to tread:
Is Jon Corzine going to jail?
By Dan Primack November 2, 2011: 2:57 PM ET

This may just be the beginning of Jon Corzine's troubles.

Jon Corzine is unlikely to ever again work in finance, after overseeing this week's collapse of brokerage MF Global. But he may have much bigger things to worry about. Like going to jail.

Federal officials reportedly say that MF Global (MFGLQ) has admitted to transferring hundreds of millions of dollars of client money into company accounts, perhaps to cover investment losses. This is on top of Craig Donohue, CEO of the Chicago Mercantile Exchange, saying that MF Global wasn't "in compliance" with the CMOE's cash management regulations.

"The first thing you learn on the first day of your first financial job is that client money is not to be mixed with corporate money," says a source familiar with MF Global. "Nobody could have done this by accident."...

"If this was a former Republican senator and governor, the press would be all over it," argues a GOP-affiliated investment professional. "They'd be talking about how it is emblematic of corruption on Wall Street. But because it's a Democrat, everyone keeps focusing on bad investments rather than the possibility of fraud."
CNBC talks to Primack about his column:



Curiouser and curiouser. As mentioned in a comment on Tully's recent post:

Dipping into the client's funds to backstop the firm's heavily leveraged and high risk bets on European debt is about as serious as it gets. We're talking - Federal Felony / Criminal Fraud / Grand Theft / Go To Jail / Do Not Pass Go / Do Not Collect $200 / Throw Away The Key / - that kind of serious.

This is where the special relationship with the President and the related special provisions of the "Investment Grade" debt offerings from MF Global only two months ago get interesting:
"The futures broker sold $325 million of five-year unsecured notes, the company said today in a statement. The notes will pay an extra percentage point of interest if Corzine is named to a federal post and confirmed by the Senate before July 2013, New York-based MF Global said yesterday in a regulatory filing.

“That seems crazy,” said William Larkin, a fixed-income portfolio manager who oversees $500 million at Cabot Money Management Inc. in Salem, Massachusetts, and has 22 years of experience. “I’ve never heard of something like this.”...

A Democrat, Corzine is among the biggest fundraisers for President Barack Obama’s 2012 re-election campaign. He has been the subject of speculation about administration jobs such as Treasury secretary or White House economic adviser, said Christopher Allen, an analyst at Evercore Partners Inc. in New York...

Corzine’s employment contract is written with a view to future government service. It stipulates that he’ll be paid his $1.5 million retention bonus on a pro rata basis if he leaves to work for any “U.S. federal, state or local government” before March 31, 2014."
I wonder if Corzine's retention bonus and the bond interest kicker will be invoked if it turns out that Corzine's federal employment is working in the laundry of a Federal Prison?

Meh - probably not worth worrying about that "Investment Grade" Bond Interest kicker. These bonds (sold last August and having yet to pay a coupon) were trading at 40 cents to the dollar on Monday. BTW - Thank you S&P for another great call. In the same time frame that S&P was downgrading US Debt early this summer, they rated this MF Global bond offering "Investment Grade". U.S. Treasuries have increased in value since that rating. The MF Global bonds? Not so much.

The Bush Justice Department prosecuted and convicted Ken Lay. Let's see what happens to Corzine.

UPDATE: 11-5-11
Jon Corzine resigned, lawyered up, and as of today, the missing money is still missing.


Wednesday, February 02, 2011

The Carnival of Divided Government
Sêdecim et Quadrâgintâ (XLVI)
National Dividism Month Edition


Welcome to the 46th edition of the Carnival of Divided Government - The Special "National Dividist® Day of Celebration" Edition. OK - So we missed posting this on the actual National Dividist Day of Celebration which occurred on January 5th - the first day of our recently divided brand spanking new 112th Congress and government. Your loyal blogger was distracted by other pressing issues, so this carnival was delayed and subsequently renamed to the "Special National Dividist® Month of Celebration - A Nostalgic Look Back" Edition.

Carnival of Divided Government
As explained in earlier editions, we have adopted Latin ordinal numeration to impart a patina of gravitas reflecting the historical importance of the series. In this the Carnival of Divided Government Sêdecim et Quadrâgintâ (XLVI), as in all of the CODGOV editions, we select volunteers and draftees from the blogosphere and main stream media writing on the single topic of government divided between the major parties (leaving it to the reader to sort out volunteers from draftees). Consistent with this topic, the primary criteria for acceptance in the carnival is to explicitly use the words and/or concept of "divided government" in submitted posts. A criteria that, to our endless befuddlement, is ignored by many of the bloggers submitting posts, which sadly results in The Dividist reluctantly ignoring their fine submissions. Among the on-topic posts, essays and articles we choose our top ten favorites for commentary and consideration. We hope you enjoy these selections, particularly in this, the first edition of the Carnival to be posted under a Divided Government since the 28th edition was posted on October 31, 2008 . We look forward to enjoying at least two years of a noisy, fractious, bickering and bitterly divided federal government, just the way the founders intended.

First up - Mike Dorning reviewed President Obama's State of the Union address for Bloomberg, who chose to feature our happy new governmental state in their headline - "Obama Ushers In Era of Divided Government With Appeal for Unity, Progress":
"In a State of the Union address marked by the symbolic comity of Democrats and Republicans sitting next to each other instead of across the aisle of the U.S. Capitol, Obama asked for bipartisan cooperation with the opposition party now in control of the House. Two years into his presidency, his appeal signaled an effort to reclaim the promise of his historic campaign in 2008, in which he asked Americans to embrace a less-partisan approach to governing that set aside old arguments... After two years of battles over his health-care overhaul and other major initiatives, and the rise of the opposition Tea Party movement, Obama again offered the possibility of greater cooperation."
The Dividist is reminded that the SOTU is mosly theater, and also just noticed that he neglected to post his traditional SOTU show tune linkfest this year. As pleasurable as the lyrics may sound in the speech, the real governing tune is yet to be heard and only to be revealed in the actions of the administration leading the 112th Congress band in the upcoming legislative parade. Perhaps it is not too late to continue the series... perhaps with something from The Music Man. Stay tuned.

A recent edition of The Economist also reflected on the SOTU speech and the challenges President Obama faces during "Crunch time - America’s president faces a divided government and a mountain of debt:"
"Welcome to the masochistic pleasures of divided government in America. For two years the Democrats controlled both ends of Pennsylvania Avenue. That did not give Mr Obama the power to enact every measure he wanted (an energy bill and immigration reform were two that fell by the wayside), but the 111th Congress was indeed extremely busy. The Democrats poured hundreds of billions of borrowed dollars into efforts to stimulate a sagging economy, bailed out Detroit’s failing carmakers and passed scores of laws, including one to reregulate the financial sector... Polls show that Americans like divided government. Its fans say that it forces politicians from opposite ends of the spectrum to seek common cause in the centre. “We will move forward together, or not at all, for the challenges we face are bigger than party, and bigger than politics,” said Mr Obama in his speech. For the time being, however, the parties are preparing for battle, not discussing peace terms."
As it should be. With both parties firmly holding a grip on real power, we will enjoy better, more fiscally responsible governance as a consequence. As well as a lower probability of purely partisan legislative abominations like the Porkulus and Obamacare legislation.

Speaking of con-games and Obama's Healthcare Reform, Michael Tomasky of the Guardian offers some insightful observations and a dubious premise while looking at the shifting attitudes among the populace since divided government was restored in - "Healthcare and divided government":
"Passions have subsided, I suspect, because conservatives are less enraged now that they feel they have a voice in the government. Independents repeatedly say in polls that they are fine with divided government. So that leaves only liberals who are really unhappy, witness the 43% who want more changes.

I wasn't happy on election night, Lord knows, but I guess in many ways Obama is better off with a divided government. If the Democrats ran everything, the Republicans, so expert at whining in opposition and ginning up phony accusations, could continue blaming every single bad thing that ever happened on the Democrats. And now, in independent voters' minds, the suspicion that Democrats are going to try to jerk the country to the left are null and void. They know it can't happen. The president and the GOP House have to fight over the middle, which is how the middle likes it, and which is probably on balance good for the country.

The problem is that the middle is way to the right of where it once was, even 15 years ago. Remember, just 15 plus three years ago, Republicans were solidly behind a healthcare plan pretty much just like the one they're going to vote to repeal tomorrow. Divided government has its upsides, and seeing Obama fighting harder for the middle, as we'll see this year and next, will be good. But at some point, the Democrats have to think of something to do about the fact that the middle keeps moving right."
The Dividist is not sure Mr. Tomasky could get any more convoluted here. He acknowledges that divided government is good for the country but complains that it prevents passing legislation like Obamacare, which is wildly expensive, incomprehensibly complex, does not do what it's proponents set out to accomplish, increases the burden on employers, increases the cost for individual policies, shifts an enormous financial burden to cash-strapped states, and is an all-around terrible piece of legislation. Not to mention - unconstitutional.

The Dividist is also not sure what 1993 Republican supported legislation Tomasky is referencing. Whatever it was, neither that legislation nor Hillarycare passed in either the united 1992-3 nor the divided 1994-2000 government. It took an overwhelmingly unified Democrat government and a purely partisan vote to cough up the Obamacare hairball. 'Nuff said.

Sean Patrick Hazlett blogging at Reflections of a Rational Republican, digs into a favorite Dividist topic - the frequently cited meme that Investors Love Divided Government. His analysis contradicts some conventional wisdom in "Think You Can Make Money Investing When Your Party is in Power? Guess Again":
"I have always held the notion that a divided government, in which the President’s opposing party controls at least one house of Congress, is better for economic performance than the alternative. I held this view because in a divided government, nothing gets done... However, it turns out that my intuition proved to be wrong, at least over the time periods I observed. The 10-, 20-, 40-, and 60-year average returns all show that the market outperforms during a period in which one party controls both the White House and Congress and underperforms during a period of division. I do not understand why this is the case. I can only speculate. Perhaps one-party control provides investors with more certainty over future fiscal and economic policies, whereas a divided government generates more uncertainty. One way to test this hypothesis would be to measure the S&P 500’s average volatility each year. If volatility were higher during periods of divided government, this observation might support this hypothesis."
The Dividist is impressed with the analysis, but Sean gets a few things wrong. As he is not very specific about his methodology, the Dividist is not sure how he is coming up with comparable 10, 20, 40, and 60 year averages for divided vs. united government over presumably the same time periods, nor does he identify the dates he is using for periods of divided and united government.

More significantly, by utilizing only these undefined long term averages as the basis for his comparison, he is missing the most important and possibly only market effect one should expect in divided vs. united government stock market analysis - to whit: short term swings based on investor sentiment. The stock market is a discounting mechanism - which is another way of saying that the market is a reflection of what investors believe today about what will happen tomorrow - maybe 3, maybe 6, maybe 12 months down the line.

To the extent that a change from a united to divided government - or a Republican to Democrat switch in power - 0r a Democrat to Republican switch in power - or any such partisan variation is at all useful to an investment thesis, the most opportune time to take advantage of it is probably months before the change actually occurs in an election. Any such change is likely to be a short term rather than long term effect (measured in months not years and certainly not in decades) and based on sentiment - not logic. The important point is that the effect will be seen in the stock market long before the change actually takes place.

That said - the Dividist absolutely agrees with Sean's conclusion that "Investors are better off following key economic indicators that have more impact on stock fundamentals rather than chasing gusts of whatever foul stench the political winds blow their way." Our view was best summarized in The Dividist's July post - where a potential pre-election future divided government bet was noted during a period of united government and a full six months prior to the eventual divided government being sworn in. That bet paid significant profits:
"I am reluctant to link longer term market behavior to any policy or partisan mix in Washington. I've not seen any studies that show a believable, statistically significant correlation between long term market direction and Republican, Democratic, or divided governments. That said - in the short term it is less important whether there really is a correlation so much as whether investors believe there is a correlation. My sense is that most investors believe the stock market will benefit from Republicans taking control of either the House or Senate in the fall. With that expectation, a rising market could very well be a self-fulfilling prophecy."
And yes... The Dividist made that bet last July. Thank you very much.

Jonathan Strong at The Daily Caller reviews a recent Cato Institute study authored by Marcus Ethridge on the beneficial effects of gridlock in "Cato study bucks conventional wisdom, and instead touts cantankerous divided government:"
"Despite the many calls for civility, bipartisanship and a go-along-to-get-along spirit, is a cantankerous, divided, partisan Congress the cure for what ails us? Channeling both James Madison and public choice theory, the Cato Institute’s Marcus Ethridge says yes. “A large and growing body of evidence makes it clear that the public interest is most secure when governmental institutions are inefficient decisionmakers,” Ethridge says in a new paper. In other words, the political process works best when it’s slow and difficult to pass new laws...

The messy lawmaking process envisioned by the Founding Fathers, and championed in the Federalist Papers for the difficulty it created in adding new laws, makes it more difficult – and expensive – for special interests to have their say, argues Ethridge. “The Constitution’s most important innovation — the separation of legislative and executive powers — was based on the framers’ understanding of how political interests behave,” Ethridge says, “The gridlock that progressives abhor neutralizes some of the political benefits that producer groups and other well-heeled interests inherently enjoy.
The Cato study is a well written, interesting and important analysis that I'll be posting about separately and adding to the scholarship links in the sidebar. In the meantime, for a similar and somewhat more succinct analysis...

Justin Harter of America is tweeting his affection for gridlock and divided government:
"I'm a big fan of divided government. R's and D's can crow all they want and it doesn't matter because we have sweet, sweet gridlock."
Well said Justin. Hmmm... Perhaps there is something to this 140 character business after all. The Dividist notes that he now has 13 followers on Twitter and still has yet to send a single tweet. Perhaps the time has arrived. Perhaps he should retweet Justin's pithy and profound sentiment. Perhaps... not.

Rick Sincere blogging at Rick Sincere News and Thoughts is thinking about the ramifications of a divided Virginia legislature as well as a divided federal government after the 2010 census "Legislative Redistricting Under Conditions of Divided Government":
"For the first time in Virginia history, legislative redistricting will take place in 2011 under conditions of divided government: the state Senate is controlled by Democrats, while the House of Delegates and governorship are under Republican control. In an interview, political scientist Michael McDonald discusses the implications of those circumstances... Whether the redistricting process will fall victim to partisan bickering, or whether conditions of divided government actually make the process fairer and more transparent, both remain to be seen."
The Dividist tends to focus primarily on the Feds but, as Rick points out, there are some really interesting ramifications to watch at the intersection of the census, redistricting, and 2010 election results. Although we now have One Party Democratic Rule in California, the redistricting process was stripped from the legislature by voter proposition. The Dividist can't wait to see how that turns out. Get the popcorn ready.

The Big Tent Democrat blogging at TalkLeft (among others) quotes Ross Douthat's NYT Opinion piece to advance a pessimistic outlook on entitlement reform in "No Touching The Third Rail":
"None of this was particularly surprising. It’s clear that both parties have decided that a period of divided government twelve months before a presidential election is the wrong time to make big moves on entitlements and the deficit. Better to wait, jockey for position, and hope that the correlation of forces after 2012 will be more favorable to their preferred solutions. And it’s clear, too, that they’ve decided (with honorable exceptions) that it’s too risky to even begin building support for the unpopular cuts or tax increases ahead. The bet, on both sides, is that there’s still time to work with, and that the other party will blink, or at least give ground, before the real crunch arrives. Let’s hope they’re right."
I can't help but think that Big Tent and Matt Yglesias are hoping against hope that Ross Douthat is right. The Dividist thinks they are all wrong. There are enough newly elected Republicans who (like President Obama) recognize that their reelection prospects are significantly enhanced by getting on the right side of history with some tough decisions on spending and entitlements. The Dividist optimistically believes we are going to see meaningful change in the next two years. To paraphrase the political sage Mick Jagger, it won't be what we want, but it'll be what we need.

J.T. Young, opining in the Washington Times, gets it absolutely right in "Gridlock: Better for Budgets":
"Gridlock is better; at least that’s what history shows for the budget. In contrast to all the handwringing that a divided government is bad for getting things done, it has a far better record for balancing the federal budget than does one-party control in Washington. This, in turn, points to an inescapable fact: Washington’s budget problem is spending, and spending does not happen on its own...

Our deficit and debt problems are the result of conscious and continuous actions - and yes, consensus ones. The media currently bemoaning gridlock as an obstacle to solving our current deficit predicament at the same time refuse to acknowledge what got us here in the first place. Spending is the cause of the budget problem, and it was consensus that was the cause of the spending. America’s political history is of a government operating under checks and balances. Regretfully, its budget history is one of operating out of balance, owing to the writing of checks. Balance in the government is the better alternative to achieving balance in our budget. And it is because that it is the better check on writing checks."
So true. The Dividist wonders if this former GWB administration Treasury official will still feel this way when he realizes that the only way to maintain a politically balanced and divided federal government in 2013 will be by reelecting Barack Obama in 2012.

Since the restoration of divided government last November, President Obama has not suffered for lack of advice on how his administration should deal with the divided 112th Congress. Prior Presidents are often invoked as models for Obama to emulate., presidents Clinton and Eisenhower being notable examples. Writing in the Washington Post, Dan Balz finds another former president from which President Obama might extract a teachable moment in "Lessons for Obama in Truman's divided government":
"If President Obama and new White House Chief of Staff William Daley are looking for advice on how to think about dealing with the Republicans in Congress, they might consider a virtual visit to the Harry S. Truman Library and Museum. There, in the archives, is a nearly 10,000-word memo, dated December 1946, written by presidential adviser James H. Rowe Jr. Truman reportedly kept a copy of the memo in his desk for reference as he battled the 80th Congress, where as a result of the 1946 midterm elections both houses were newly in the hands of the Republicans. "Presidential leadership, if it means anything, means no more than how to lead the people only as fast as they will follow," Rowe wrote. "The history of every administration shows that in the final analysis, a president has but one weapon - public opinion."...

Those insights could be particularly useful to Obama over the next two years. If there was one overarching miscalculation during the president's first two years in office, it was the assumption that he could lead the public faster than the public was willing to be led. Whether on health care or the economy, Obama acted boldly - and in his view out of necessity - but failed to persuade the public of the rightness of his actions.
Daley warned of this danger more than a year ago, anticipating the losses the Democrats suffered in November. Rowe's memo is a powerful reminder of what Obama should expect from the new Congress, why confrontation is to be expected and why winning the battle for public opinion should always be in the forefront of his mind. After all, the 1948 elections turned out well for Truman."
The bucks stops here... or over there... or somewhere. Good Luck Mr. President.

Miscellany
Traditionally, we conclude this Carnival by including one "off-topic" submission, as a grudging acknowledgment and proxy for the many off-topic submissions received. Off-topic in this context means - no mentions of "divided government" or gridlock.

For this edition, we offer Dr. Robert Muller presenting The Right/Left Hoax posted at Global Freedom Strategies wherein we find some useful links to on-line political tests and a curious mix of insight, naivete, dusted with a light touch of paranoia.

With that, we'll conclude this edition.

Look for the next edition of The Carnival of Divided Government Septem et Quadrâgintâ (XLVII) - Special Dividist® Ides of March Edition - on or about March 15th, unless we decide to move it up to the Special Presidents Day Edition, or delay it until the Special April Fools Day Edition, or All of The Above. Submit your blog article at carnival of divided government using our carnival submission form.

Divided and Balanced.™
Now that is fair.


Carnival of Divided Government

Monday, October 25, 2010

Markets, Economy, Gridlock and Maria Bartiromo

After the market close on Monday, Maria Bartiromo led a panel discussion on the long and short term implications of a GOP victory and divided government for the market and economy.

First up, looking at the long term, she interviews Brian Belski of Oppenheimer Asset Management. Belski pontificates on in-house analysis looking for correlations between parties in power and divided vs. unified government, with economic metrics like GDP, personal income, employment, corporate profits, and stock market performance.













Frankly, I don't understand why anyone would take this kind of analysis any more seriously than the Hemline Index or the Super Bowl Indicator. The flaw is easy to see. The federal government simply does not control the GDP, private employment, corporate profits, or the stock market. So why should there be any expectation that there is something meaningful to be learned by trying to correlate with parties in power? Yes, the government can certainly have an effect, even large effects on the economy and these metrics. Still, looking for a correlation on this one parameter among all the myriad macro-economic factors that determine economic performance is like trying to determine the relative effectiveness of redheads vs blonds emptying the ocean with a pail in the middle of a hurricane. It's just silly.

OTOH, studies that look for correlation between parties in power and those things that the federal government does directly control (spending, deficits, legislation, armed conflict, and currency) are interesting and informative. For that we can look to political scientists and economists like Niskanen, Van Doren, Mayhew, and Slivinski for answers.

Short term market effects around the catalyst of an election are a different story. Investor psychology and emotion (whether driven by fear or greed or both) can certainly drive market movement in the short term. As I've noted before, if a preponderance of investors believe that divided government is good for the markets, than it can become a self-fulfilling prophecy. That may be exactly what has been happening to push markets higher in recent weeks.

Maria leads a panel discussion exploring whether this expectation is already baked in the market and how long it might last.












If the GOP fails to take back at least one house of Congress, there are likely to be a lot of fearful and disappointed investors.

Perhaps it is worth considering a hedge position on election day. God knows the GOP has disappointed before.

UPDATED: Fixed spelling and typo mistakes. I cannot seem to fix the embed formatting for the CNBC videos. Oddly, it formats correctly in Chrome, but not in Firefox or Explorer. This is beyond my ken. Added more gratuitous Maria pics to go fishing for a Rule 5 link.

Divided and Balanced.™
Now that is fair.

Wednesday, October 13, 2010

Investors still love divided government. A lot.


Last July 7, we took note of CNBC's Amanda Drury worrying about double D's and Ron Insana offering an explanation for a stock market rally in the midst of unrelentingly bad economic news.
"All of a sudden there are some reports coming out saying the politicians are underestimating the possibility the Republicans take either one or both house of Congress. If that political uncertainty disappears and you get a Democratic President and a Republican Congress - that is the best combination for stock prices." - Ron Insana
On that day the Dow closed up 276 points at just over 10,000 with the S&P 500 up 30 at 1060. Since then, the Dow and the S&P have each added another 10%+. As I have said before, I do not believe there is any case for a statistical correlation between market direction and political parties in power that will stand up to rigorous mathematical scrutiny over the long term.

However, in the short term, if investors believe that divided government is good for markets, then that expectation can be a self-fulfilling prophecy. That may be what we are seeing now in anticipation of the November results. Apparently the investor class really believes that divided government is good for the market.

On Friday, in the face of yet another bad jobs report, the market rally continued, prompting an interesting segment on the Larry Kudlow Report. A panel consisting of Steve Moore (who worked for Dick Armey in '95); Jeff Matthews (investment manager); and David Goodfriend (who worked for Bill Clinton in '95) discussed whether the market's continuing strength was attributable to an anticipation of the return of Divided Government:











Money quotes:
Why did stocks rally though 11,000 today? on this poor jobs report? Might it be hope for Republican tsunami in November? ... I have this suspicion that the stock market is mightily rooting for a Republican tsunami on November 2nd. - Larry Kudlow
"I am not saying this as a Republican - I just think that the financial markets want to see divided government. One party control has not been good for financial assets and it has not been good for workers. " - Steve Moore
The most interesting exchange is between Goodfriend and Moore (around the 5:30 mark) arguing whether Republicans or Democrats could take credit for the prosperity and relative financial sanity that prevailed during the Clinton/Gingrich divided government. I am happy to give credit to both, and to the benefits that accrue when divided government keeps the worst impulses of both parties at bay.

Lest anyone think that Republican Kudlow is being disingenuous when he asserts that the investor class prefers divided government and is not just flogging self-serving Republican spin - let me reprise one of my first YouTube efforts. This from from four years ago, shortly before the 2006 mid-terms. Here we see the selfsame Kudlow noting a rally and wondering if the markets are anticipating the Democrats taking the majority, restoring divided government, prompting what he called the Pelosi Bull Market:


Is 2010 like 2006? Kudlow thinks so. Intrade is giving the Republicans better odds now than they gave the Democrats in 2006.

We can only hope.

And the Dividist is fully invested.

So far, so good.

Divided and Balanced.™
Now that is fair.


Wednesday, July 07, 2010

Investors Love Divided Government -
Perception is Reality

The correlation (or not) of divided government, market performance, election expectations and investor psychology has been a recurring theme on DWSUWF since the beginning of this blog (see 2006, 2007, 2008 , 2009).

In yesterday's post, I quoted a couple of articles speculating on how markets might react should the Republicans retake either the House or Senate majority in the 2010 midterms. This was my comment on the articles:
"I am reluctant to link longer term market behavior to any policy or partisan mix in Washington. I've not seen any studies that show a believable, statistically significant correlation between long term market direction and Republican, Democratic, or divided governments. That said - in the short term it is less important whether there really is a correlation so much as whether investors believe there is a correlation. My sense is that most investors believe the stock market will benefit from Republicans taking control of either the House or Senate in the fall. With that expectation, a rising market could very well be a self-fulfilling prophecy."
Today, the Dow Jones rebounded 274 points, leaving many analysts scratching their heads after the unrelenting doom and gloom of the past few weeks. CNBC preempted Jim Cramer's show to broadcast a one hour special analyzing the day's market action. In this excerpt Ron Insana echoes that sentiment:


Money quote:
"All of a sudden there are some reports coming out saying the politicians are underestimating the possibility the Republicans take either one or both house of Congress. If that political uncertainty disappears and you get a Democratic President and a Republican Congress - that is the best combination for stock prices. It might also clear up the uncertainty that will allow corporations to hire people." - Ron Insana

Indeed it might. And like in the 2006 mid-terms - perhaps happy days will be here again (at least as far as the market is concerned).

The full unedited clip from CNBC is linked here.

Postscript:
Yes - Amanda Drury did, in fact, turn to the panel and ask "Double-D or not Double-D? What do you think?" I thought Insana was going to lose it.

Divided and Balanced.™
Now that is fair.


Monday, March 15, 2010

The Carnival of Divided Government
Triginta Sedecim (XXXVI)
Special Ides of March Edition

Welcome to the 36th edition of the Carnival of Divided Government- The Special Ides of March Edition.
Beware the Ides
CAESAR: Who is it in the press that calls on me? I hear a tongue, shriller than all the music, Cry 'Caesar!' Speak; Caesar is turn'd to hear.
SOOTHSAYER: Beware the ides of March.
CAESAR: What man is that?
BRUTUS: A soothsayer bids you beware the ides of March.
CAESAR: Set him before me; let me see his face.
CASSIUS: Fellow, come from the throng; look upon Caesar.
CAESAR: What say'st thou to me now? speak once again.
SOOTHSAYER: Beware the ides of March.
CAESAR: He is a dreamer; let us leave him.
On this particularly ominous Ide of March we look forward with fear and loathing to the imminent passage of the Great Healthcare Hairball of 2010. We only have Democratic One Party Rule to thank for this monstrosity getting passed, but ironically, divided government may be restored in the 2010 midterms as a consequence of this bill.

If we had divided government now, if the Republicans had a seat at table, if they were more than an impotent irritant in this government, then the Democrats would have been forced to compromise with the Republicans. The result would have been a better bill, a less expensive bill, a bill less burdened with special deals, unrelated liberal pet projects, gratuitous pork, and (unlike this abomination) one that might actually reform the health care system and coverage problems in a manner we can afford.

On a positive note - the concept of and prospects for divided government is getting a lot more attention on the intertubes.

Carnival of Divided Government

As explained in earlier editions, we have adopted Latin ordinal numeration to impart a patina of gravitas reflecting the historical importance of the series. In this the Carnival of Divided Government Triginta Sedicim (XXXVI), as in all of the CODGOV series, we select volunteers and draftees from the blogosphere and main stream media writing on the single topic of government divided between the major parties (leaving it to the reader to sort out volunteers from draftees). Consistent with this topic, the primary criteria for acceptance in the carnival is to explicitly use the words and/or concept of "divided government" in submitted posts. A criteria that, to our endless befuddlement, is ignored by many of the bloggers submitting posts, which sadly results in DWSUWF reluctantly ignoring their fine submissions.

First up - A short tribute to a DWSUWF friend and favorite blogger. While I was traveling last month, the blogosphere learned of the identity and untimely death of Al Weisel, more widely know by his blogging non-de-plume Jon Swift. You'll find many tributes to Al/Jon across the blogosphere. Like many bloggers, I exchanged e-mails and links with Jon over the last few years. His links to this blog helped us far more than our reciprocal links could ever hope to contribute to his. His was one of the very few talents in any medium whose writing could elicit a laugh out loud, can't catch my breath, side hurting, eyes watering reaction from this blogger. He'll be sorely missed.

Apropos to the Carnival, please consider this example of classic Jon Swift. Before the Carnival of Divided Government, - Before the DWSUWF blog - On January 29, 2006, Jon Swift considers the merits of divided government and clearly explains "Why Bipartisanship is Bad":

"But then I thought: Is bipartisanship really such a great thing? Aren't bipartisans a little like bisexuals--people afraid to make a commitment? I suppose it's better than President Clinton's "triangulation," which I believe is a translation of the French word menage a trois. Maybe such things work in France, but I don't think they work here. During the Clinton and Reagan administrations we had divided government, which I think was very confusing for people. Lobbyists had no idea who to give campaign contributions to and they sometimes had to split their limited resources between two parties."
When he wrote this, Republican One Party Rule controlled the federal government, and this blog was still a few months from being born. At the time, we were on the same team - arguing for Democratic victory, a return to the checks and balances of shared power and divided government in 2006. Jon's e-mails helped me learn about "carnivals" and launch the carnival you are reading now. So in his honor, we'll endeavor to follow the Jon Swift Blog Amnesty Day dictum of "Look up... Link down" and link primarily to small and medium bloggers. Blogs like DWSUWF.

Rest In Peace Jon Swift. Thanks for the help, thanks for the links, and thanks for the joy.

Brad Castro's Great Options Trading Strategies blog is focused on investments not politics, but he offers one of the most eloquent rationales for divided government I've read, exploring the relationship between "Divided Government, The Stock Market, and Long Term Investing":
"National politics is an ugly pastime at best, but when either party controls both branches of government at the same time, the outcome is certain – rampant arrogance, corruption, and hypocrisy... Americans are at their best when they choose divided government, when the politicians are forced to genuinely engage one another and actually work together to get anything accomplished. And, more importantly, when no single party can ram through their entire one-sided agenda... Checks and balances produce stability, and stability fosters an environment where growth, innovation, and the creation of value can flourish. It’s a gift that the founding fathers gave to a fledgling nation more than 200 years ago, and it’s one I sincerely hope we begin to enjoy again. "

The affection investors have for divided government has been a DWSUWF theme (and tag) since the beginning of the blog. With such incisive political acumen, I will have to take a closer look at Brad's investment strategies.

Fishermage is a little confused about the definition of divided government, but is in a celebratory mood at Fishermagical Thought exclaiming "Hooray for Divided Government":
"I'm no Republican, but the best this ole libertarian can ever hope for is divided government, and the Democrats' loss of their senatorial super-majority gives us that. Divided government helped make the Clinton years a success, as well as the Reagan Years. Checks and balances for the win."
Well, not exactly. To restore divided government the Republicans will have to claim the majority in at least one legislative branch in 2010, or retake the White House in 2012. While the loss of a super-majority in the Senate will add a speed bump to Democratic legislative plans, it won't force compromise, as we'll see when the Health Care Hairball becomes law later this week. While I appreciate the sentiment, there is still some work to do.

Matt Lewis notes that Andrew Sullivan, who claims to be a conservative, has changed his tune about Divided Government in "Andrew Sullivan Used to Like Gridlock":
"Sullivan had it right back in 2006. It seems, however, that he only liked divided government when Republicans controlled things. Now that Democrats control all three branches of government, he has changed his tune."
Uh Huh. During the election DWSUWF offered a somewhat wordier treatise on Mr. Sullivan's propensity to hoist himself on his own words and abandon this very basic cornerstone of limited government. I do wonder why he bothers to cling to the label conservative, if there are no longer any conservative principles he is willing to place above his loyalty to Barack Obama.

Jason Pye, writing on the United Liberty blog, answers the question posed on a now infamous billboard - "No, I don't miss George W. Bush":
"...while I’m no fan of Barack Obama, I don’t long for the presidency of George W. Bush. From a fiscal perspective, the Bush Administration was a disaster. Before you repeat the Dick Cheney talking point that most of the spending was for defense and two wars. Let me go ahead and tell you, that’s not true. Bush was the biggest spender since Lyndon B. Johnson, dramatically increasing non-defense discretionary spending. Remember, he is a “compassionate conservative,” which is apparently a nice term for “statist... So no, I don’t miss George W. Bush. I miss individual liberty, free markets, divided government and the Constitution."
Me too. Maybe we can start getting some of it back in November.

AD of Questions Presented quotes extensively from Ilya Solmin and Robert Kagan, then hupothesizes that libertarian support for divided government is misguided in "A Government Divided Against Itself Cannot Shrink":
"Perhaps the divided government theory overestimates the value of party affiliation as a determinant of individual behavior. Many political observers today note the similarities between the parties, especially when it comes to government size. Even granting the viability of the Blue Dog Democrats and the emerging fiscal conservatives in the Republican Party, in practice, politicians of all stripes seem to like power and act to enhance that power. If that’s the case, libertarians might find conventional political action in favor of candidates who support their views to be the best approach, however few of these candidates may exist."
AD offers an excellent read, but his musings fall far short on three counts-

First
is the erroneous supposition in the subject title. There is no presumption by libertarians that divided government will "shrink government". The immediate problem is to slow leviathan's explosive growth, and there is a great deal of empirical evidence that divided government does exactly that. Moreover, political scientists, historians, and economists have also shown that a divided government state reinforces other positive effects including:
* Restrained growth of spending.
* Better oversight.
* Less corruption.
* Less likelihood of war.
* More carefully considered major legislation.
* Greater fiscal responsibility.
* Reinforced Checks and Balances between the branches.
Whether you consider divided government to be better government depends on whether you agree the items in this list represent "better" government. DWSUWF does. Invoking an analogy I have used before, when bleeding to death one should apply a tourniquet before looking for a hospital. The divided government voting heuristic is a tourniquet, that has been shown empirically to slow the bleeding when nothing else does.

His second problem is an over reliance on Professor Kagan 's representation of the supposed law-making deficiencies of divided government. In fact, David Mayhew's exhaustive research on the quantity and quality of laws produced under divided vs. one party government is well documented in his book "Divided We Govern" which is considered the definitive work on exactly this question. Mayhew's empirical conclusion directly contradicts Kagan's less rigorous intuitive and anecdote based analysis.

Third
, there is nothing in the divided government voting heuristic that precludes libertarians from voting for candidates "who support their views". Voting for divided government is a tactic that yields immediate beneficial shorter term limited goals. In addition, it at least opens the door to the possibility that the generally self-canceling impotent libertarian minority voting constituency can be organized around a principle that could yield sufficient political clout to actually impact policy.

Other than that, it's a great post.

Speaking of out of control government spending - Redst8r shows exactly why a tourniquet would be quite beneficial right now in "Government Spending (post #3 of 3)":
"Note the sharp rise in combined spending beginning in the early 1930’s. This level of spending never declined to the pre-1930’s level again but became a base upon which all future spending growth has been multiplied. Post WWII spending never again was as low as that in the mid 1930’s and early 1940’s. There are clear periods of level spending (e.g., spending rising in concert with GDP) such as the post Korean war period through the late 1960’s, the 1980’s and a gentle decline in the 1990’s as a peace time economy combined with a technological revolution and a divided government controlled its innate spending impulse. "
Sometimes, if you don't apply a tourniquet nothing else matters.

Akiva of Mystical Paths guest posted at Dovbear and airs her lament "Oy, I miss Clinton":
" I'm a conservative but I don't want my party to control the Whitehouse and Congress. And my dear friendly Liberals, be honest, neither do you! Divided government forces everyone to compromise and be reasonable. Let's face it, we all want the middle of the road. A little right, a little left - hey whatever. But far right or far left, G-d help us all."
Amen.

Macaoidh at The Hayride quotes Larry Kudlow and Will Collier and concludes that they "Kudlow, Collier Socre with Defenses of Gridlock":
"It’s a narrative the Washington/New York legacy media can’t seem to understand, but America was designed to have a slow-moving, incrementalist government incapable of dynamic action to solve social problems. Dynamic action was meant for the private sector or, at most, local and state governments. This has been lost over the past 100 years, with those periods of divided government serving as interregna between the advances of the federal nanny-state. But as Kudlow and Collier suggest, better an interregnum than an Obama running roughshod over the economy and individual liberty in an effort to create a public-sector paradise."
Good stuff, but... Kudlow might run for the Senate against Chuck Schumer in New York? Really? Wow. I missed a lot while I was out of town.

Finally, I debated whether to include this next submission. It is - strictly speaking - not on topic. Moreover, I could not disagree with the premise more. But - in memory of the generous spirit of Jon Swift, who frequently linked to those who he disagreed with (even if they did not always understand that they were being skewered in the link) I offer this submission without further comment.

Randy Pope presents "America's State Established Religion, Secular Humanism, Cannot Achieve Unity out of Diversity" posted at Christian Worldview of History and Culture, saying:
"This nation was not founded upon the philosophy of Secular Humanism. It was founded upon the principles of Biblical Christianity. As long as the American culture was grounded in true Christianity there was a unity among the diverse peoples of this nation. The farther the culture diverts from a Christian worldview the more polarized the people become. So the answer to the question, “What has changed? And can unity be regained in such a vast nation of different peoples?” is that America has rejected the only philosophy that makes sense out of a unity in diversity, and a return to ordering society by a Christian worldview will accomplish the unity that Americans desire."
OK. I lied. I will make a comment. Randy Pope needs to do a little more reading about American History and our founding fathers. In particular I suggest he learn more about the philosophy of the author of the Declaration of Independence and our third president - Thomas Jefferson. He could start with this post, and the following quote from a letter written by Thomas Jefferson to Dr. Jacob De La Motta on the occasion of the dedication of a new synagogue in Savannah, Georgia:
"It excites in him [Thomas Jefferson] the gratifying reflection that his country has been the first to prove to the world two truths, the most salutary to human society, that man can govern himself, and that religious freedom is the most effectual anodyne against religious dissension: the maxim of civil government being reversed in that of religion, where its true form is "divided we stand, united we fall." - Thomas Jefferson
Sorry Randy - you are wrong about our history, wrong about the founders, wrong about what America is about, and just flat wrong.

Miscellany

Traditionally, we conclude this Carnival by including one "off-topic" submission, as a grudging acknowledgment and proxy for the many off-topic submissions received. Off-topic in this context meaning - no mentions of "divided government" or gridlock.

For this edition we offer Madeleine Begun Kane who practically has claimed a permanent status on this spot with her entertaining and profligate political poetry production. However, I am violating my usual rules for this spot, as she offers a submission where - as she states: "I even use the word gridlock. :)"

So without further ado - Senator Bayh, Buh Bye! posted at Mad Kane's Political Madness:

Sen. Bayh will not run again. Why?
Cuz there’s “not enough progress.” How wry!
He says partisanship
Is the cause. Here’s a tip:
Our problem is DINOS like Bayh.

On the other hand... thanks Senator Bayh. You've helped move the prospects for "10 in 10", a Republican majority in the Senate, and divided government incrementally closer.

With that, we''ll wrap up this edition. It is 11:55 PM and I am going to barely get this under the wire on the Ides of March. Thanks for stopping by, and thanks for all of the submissions (on-topic or not).

It looks like we need to pick up the Carnival pace in this election year as divided government content is on the increase. Look for the next edition of The Carnival of Divided Government Triginta Septendecim (XXXVII)- Special Four Year Blogiversary Edition on or about 4-23-2010. Submit your blog article at carnival of divided government using our carnival submission form.

Divided and Balanced.™
Now that is fair.


Carnival of Divided Government