Tuesday, June 15, 2010

Will Wall Street Go Democrat?

Wall Street political contributions are going more to Republicans today than Democrats. That's hardly surprising, considering the bashing the big banks have taken from the Obama administration and the inevitability of greater regulation. This trend, however, may not last. Wall Street has strong reasons to go Democrat in the fall.

The Republican Party has been ambushed by Tea Partiers and is making a hard right turn. Only in California, it would seem, could a billionaire moderate Republican, Meg Whitman, survive a Tea Party onslaught--and that required spending tens of millions of her own dollars. The distinctly populist tone forced on the Republicans will compel them to keep Wall Street at arms length, while clamoring for sharp cutbacks in the deficit spending that may be the primary reason the economy keeps growing. In other words, the Republican policies of "No" and "Hell No" could push the stock market down.

The Obama administration and some Congressional Democrats, however, still see the virtue of big federal budgets. The latest measure is a relief package for overly leveraged states and muncipalities. Some members of Congress, with the administration's support, are maneuvering to extend unemployment benefits and health insurance subsidies for the unemployed. Although not necessarily destined for passage, these measures will if enacted help prop up the economy and the stock market. Of course, the Dems have taken up the populist mantel as well. Financial services regulatory reform is almost a certainty this summer, and BP, which should consider more often taking its point of aim off its own feet, makes an easy target for an administration that needs someone to castigate. But Democratic fiscal proclivities may better serve Wall Street's needs than bug-eyed bashing from blame-casting Tea Partiers.

The Dow Jones Industrial Average jumped 213 points today, on a mix of mostly positive, but some negative, news. A lot of the jump seems due to technically driven trading by market pros. Mom and Pop in Sioux City are still sitting on the sidelines. The market pros and the rest of Wall Street need the big budgets of the Democrats to keep today's liquidity fueled stock market propped up, lest the leverage implosion in Europe and wackos in Iran and North Korea unleash bears. The fall campaigns won't begin in earnest until after Labor Day. At that point, the increasingly populist rhetoric from the right may well lead ever pragmatic Wall Streeters to apply some of their trading strategies to politics and hedge their bets with generous contributions to the Dems.

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