Kerry By a Landslide
May 8, 2004
I felt I needed to say this before it becomes obvious to a lot of people. I am predicting that Kerry will win the US presidential election of 2004 in a landslide victory. And yes, this has relevance to the markets. Here me out for a second.
First, I will recognize that this could be one of those "so what" predictions. After all, out of all the predictors out there, someone is bound to declare a landslide victory for Kerry. If I am right, I am a genius. If I am wrong, I was nuts in the first place. Looks like I have little to lose in making such a bold statement. So, let's more focus on the reasoning and see how it is related to the behavior of the stock market.
Bushie started off as a no-brainer for re-election. Since that "top" in opinion, Bushie has steadily declined in popularity, the conviction around his re-election chances has begun to waver. Just as Dean was done in by early ebullience, a contrarian has got to love the steady erosion in Bushie's prospects. Indeed, one must wonder why Kerry has not already zoomed to become the clear favorite. I will save that explanation for his advisors who seem to be incapable of swinging for the fences on the fat pitches that Bushie is lobbing right now.
Now, let us note that Bushies numbers were looking quite good even as louder and louder doubts were being sounded on his economic policies as report after report came in showing disappointing job growth (if any). As these jobs numbers finally come in positive, Bush's numbers have started to decline. Back in the dark market days of late 2002 and early 2003, people fretted that we were heading for a double-dip recession. When the economic outlook seemed at its bleakest, the market began a vigorous rally and has not really looked back. Now that the economy is finally hitting on just about every cylinder and delivering the numbers people have longed for, the stock market is struggling and looks like a lock for an extended downturn. While higher interest rates represent the largest fear dragging on the market, we should also consider that the market is matching the psyche of the nation. The continued worsening of the morass in Iraq is weighing on everyone and undermining confidence in the Bushie team. The Bushies have also staked much of their rep on the strong stock market recovery. In this sense, the market is becoming a forward indicator on how the public views Bush's election prospects. And it ain't looking good!
What is also hurting the market is that as investors and traders look forward, it is hard to see how much better things can get. Jobs numbers should not get any better than now. Earnings growth has peaked. The deficit is probably one area that could be improved by leaps and bounds, but correcting the budget deficit will cost heavily as the economy will not grow fast enough to allow us to outgrow the deficit anytime soon. The war on terrorism MIGHT get better, but there is plenty of reason to believe that things will get worse before getting better as we give our enemies plenty more reason to hate us. The market then faces serious headwinds and the bias is now to sell, not buy, good news. Same with Bushie. His best days are behind him. He just happened to be sitting in the White House as the country faced some of its darkest moments. Since things did not get any worse from there, Americans can be forgiven for assuming that Bush, and only Bush, could have saved us. The harsh reality is that almost any of our past presidents would have served just fine to see us through our recent crises. And as more and more people realize that there is nothing special about Bushie, indeed much to dislike about him, giving him another four years to potentially make things worse hardly seems worth the risk. Better to bring in some new blood and let hope spring eternal again. This election is Kerry's to lose (and again, I have to wonder whether he is truly up to the task of skating into victory).
If the market has not already made a top, it will make a top shortly before the election, and Bush will lose handily. No holds barred. Down in electoral flames. Not even a compliant Supreme Court, a generous brother, or a well-connected father will save poor Bushie this time.
One last word on this amazing and tragic scandal of abuse of Iraqi prisoners. I think it is quite symbolic of the ironies in America. This nation was built on the blood, sweat, and tears of many oppressed, enslaved, and slaughtered people. From this despair has sprung forth one of the greatest democracies the world has ever known (I will let historians determine whether the cost was worth it). Iraq is no different. America will show its best and worst there. The main difference is that we are not colonizers, we are occupiers, that is, invaders with intent to depart at some point (who knows when). So, we will not be destroying a civilization to make room for our own (although I am sure there exist some very hawkish right-wingers who wish we would). We will do our business and leave one day. Iraq is no Japan or Germany. Iraq was a weak and dysfunctional tyranny before we got there, and we are doing little to truly help things in the long-run. When we do leave (and likely under the ugliest of circumstances), we will leave behind a huge mess that no democracy will overcome. Instead, we will see civil disorder, civil war, and a civil distress that will cry out once again for a single authoritative figure to enforce "peace and prosperity." And perhaps THIS realization will tragically keep us in Iraq for decades to come. What a scary and sobering thought --- more and more fodder for our bitter enemies.
Be careful out there!