Monday, November 01, 2010

All aboard the QE2

This is likely to be the most volatile week in the markets in recent memory, but with everyone expecting volatility we might just get the opposite effect :)

The markets are poised to benefit from the perception that a Republican sweep of the House and/or Senate will mean a stalemate in Washington and that will be good for the economy (again, this is the conventional wisdom but I couldn't disagree more. We are facing once in a century challenges and gridlock in Washington likely seals our fate).

The Fed apparently went to the banks last week and quietly asked "Well, WE know how much easing would be the right number, but just for our own information what are you guys expecting us to say?". The banks apparently replied --- $1 Trillion. So, while I've seen numbers ranging from $100 billion to $4.5 Trillion, I think the number on Thursday will probably be in the billions with an open-ended guarantee that the Fed will do more. This could lead to a sell the news moment, but it's going to be hard to fight all of that extra cash sloshing around the world. Again, easing from the Fed weakens your dollars and makes everything more expensive - stocks, grains, oil, copper, gold, etc.

Check out this chart plotting the Dow vs. the US Dollar (or proxies of each). They are mirror images of one another and if the Dollar keeps falling you can expect the Dow to keep rising.

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Election day is tomorrow and if the robo calls, attack ads and constant mailers haven't turned you off totally, please go out and exercise your right to vote.

One of the most interesting phenomena I've seen in recent years is the rush of people that seem to want vote against their own self-interest. People that are increasingly on the public dole (food stamps or unemployment insurance) seem to be the first in line talking about cutting spending. Well, someone finally put some data behind my anecdotal observations and it's really eye opening.

According to the Big Picture the states with the highest Tea Party affiliations - CO, KY, AL, AZ and GA - have seen higher than average growth rates in numerous government programs like SNAP (food stamps), medicare, family assistance and unemployment benefits. They even broke down some of the data by county to reveal even more surprising voting trends.

" And the winner — giving astounding 93% of its vote to Bush in 2004 and 85% to McCain in 2008 — is Madison, ID. These counties would seem to be the poster children for COPB — Cutting Other People’s Benefits — because the numbers clearly indicate that they’re sure not cutting their own.

I hope to spend a bit more time analyzing the seeming hypocrisy of voting for small government, cutbacks, deficit reductions, “personal responsibility,” etc., while simultaneously milking the very system against which one rails."

Consider for example that growth in Medicare payments in Jefferson and Lewis county were in among the highest 20% of counties in the US from 2007-2008. Will the people of NNY vote against their own self-interest and try to shrink Medicare? Maybe.

Just another note on polling data - I think we saw during the last election cycle just how flawed the data can be because the polling techniques can't keep up with the new ways we communicate. Traditional polling uses landline phone polling but since the percentage of voters age 18-30 with a landline is probably under 20% there is a meaningful flaw in the data. I've read that in some parts of the country the swing in the polls can be as much as 5-10 percent because we fail to poll youth properly (I'm a dinosaur that still has a landline and I've received calls from both Siena and Quinnipiac in recent weeks. I hung up on both :). This is a particularly large problem in the Northeast population centers.

Just keep in mind that if an election doesn't go the way it was polling there isn't some insidious plot to "steal an election", it's much more likely that the polls were never accurate to begin with.

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Cheers!

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