The election cycle has started again. In the 40 years I have been an investor, I noticed a pattern that often repeats itself in the run up to the election.
What does this mean to the average American? It is an opportunity to partake in the profits resulting from political manipulation of the free market. From my observations, I determined that the stock market may fall between June and Labor Day in the year prior to the election. When I say fall, I mean a significant drop! This year the ever-looming debt ceiling, the price of oil, or some other serious event will likely cause the sell-off.
For several weeks, I have been told that the sky would fall by Timothy Geithner. Monday was the day Financial Armageddon was to occur. Now that this day has passed without the sky falling, the modern day Voice of Doom is predicting that our nation will default on our debt August 2. Further, he publicly stated it would be the Republicans' fault if we default! Clearly, throwing stones is more important to him than working to solve the pending financial crisis. He finds manipulating numbers to be a more acceptable technique. He can use federal pension money and fuzzy accounting to fudge the debt limit.
As August approaches, investors will realize that they are at the height of the investment cycle and will take profits. Or they will fear the impact of the pending default and sell off their stocks to buy gold and other commodities. I believe that either of these events could be the cause of the next big drop in the market.
Stock markets that fall usually rise again. After Labor Day, we will see the market picking up steam. Politicians in both parties will tell us that the worst is over and we are moving into prosperity. The Democrats "saved the day" when they used the economic stimulus to create or save hundreds of thousands of jobs. Republicans "saved the day" when they voted for the economic stimulus that protected our jobs and created the economic recovery.
As the market rises and the American people begin to feel better about their personal financial position, the economy will gain more steam. As the economic improvements sputter out in the spring, the numbers will be tweaked again to show that we are in a sustained recovery. The same people who tweaked the numbers to show that our inflation rate is slightly higher than 2% (when it is really over 20 % if you count gas and food) will now say that the economy has recovered and job growth has improved as jobs were created.
But in reality, the unemployed will remain jobless. Currently, our unemployment rate is 9%. This number excludes those who have given up or those who have taken early retirement. It also excludes those who have accepted positions far below their actual capabilities, as they needed a job to keep their house and feed their children. As spring approaches more and more people will fall off the unemployment rolls as they give up and are added to the welfare roles. Others will become underemployed workers who skills are wasted as they perform tasks far below their actual capabilities.
The "good news" is that as the unemployment rate goes down the politicians' rhetoric will increase. They will take credit for the improvements they made and most will be reelected. Our President will spend over $1 billion in his reelection campaign. By providing bread and circus, he will buy the poor vote just as the Romans bought the vote in the time of the Caesars. This morning, I was listening to Rabbi Shmuley Boteach. I think he is a brilliant man and a highly respected scholar. He stated that in the last election over 75% of the Jewish population voted for Obama. In the next election, he expects the Jewish vote to drop to 60 % or even less. I believe this will force President Obama to increase the effectiveness of his minority campaign and ensure that stimulus is directed to those whose votes can be bought.
If there truly is an economic recovery that reduces real unemployment below 14% and reported unemployment below 6%, then the President will be reelected by the fools who first put him in office. I still question that the Republicans can select a presidential candidate who can both win the vote and put our nation back on track financially.
No one wants to admit that the deficit is the ten thousand pound gorilla in the room. While there will be rhetoric about reducing the deficit, the debt ceiling will go up and it will go up repeatedly as both parties recognize that balancing the budget and reducing the deficit requires serious cuts. If they make the required reductions, they know they will not be reelected.
So what am I going to do? Having seen the cycle repeat itself many times over my lifetime, I am going to use this as a chance to invest what few dollars I have when the market bottoms. By investing in America I hope to be part of the recovery as the economy blossoms at the dawn of this new politically manipulated financial recovery. Once the election process is complete, I will take a look at the impact the winner will have on our economy and decide whether to hold my investments or sell them. It is quite possible that the feigned recovery could in fact create a real economic revival.
I look at the election cycle as an opportunity to kick-start our economy and put some of our citizens back to work. But I also believe that this recovery could have started earlier. If our politicians used the same budgetary constraints that each and every one of us uses in our personal finances, the recession would have ended a year ago. Simple concepts such as not spending more than you earn, investing carefully for the future, cutting your losses when you recognize them, and moving forward in spite of all the difficulties. Many of us had to make critical choices in the last few years concerning our lifestyle. Some of us lost jobs. Others lost homes. But We The People never gave up and we never will!
Over the last few weeks, I chatted with several unemployed people. They were not giving up; rather they were using this "opportunity" to determine how our country could be improved and what they could do for their country. My face-to-face conversations with those between jobs has enlightened me. Some are looking to get a job as the economy recovers. Others want to open a small business if they can get financing. Some will retire if they cannot find a job and spend time with their grandchildren. These people are winners!
I hope that as this election cycle progresses, the unemployed, those on government entitlements, and retired folks like me will not be caught up by carpet bagging, chest-thumping candidates. Instead we will vet each candidate carefully and select only those who are dedicated to making America great again. This time, it will not be the ringmasters who control the circus. It will be the citizens who will determine which politicians survive the gladiatorial contests and the public spectacles to come as we approach Election Day.
Trivia Question: Who was the original Voice of Doom? Answer: Lorne Greene, a broadcaster on CBC radio who read out the lists of Canadian World War II casualties at noon each day. He went on to become Ben Cartwright in the TV show Bonanza. http://en.wikipedia.org/wiki/Lorne_Greene .
2011 by Gordon Smith All Rights Reserved