Sunday, September 26, 2010

Wall Street's Contribution to the Democrats

Business interests evidently are contributing more money to Republicans than they did in 2008. Cash flow to Democrats from people who might pay estate taxes has fallen sharply. But the financial markets have been kind to the Democrats. The stock market has bounced up nicely thus far in September, and bonds continue their improbable two-decade bull market. Gold is flirting with new highs on almost a daily basis. Silver has rallied. Oil has edged down, as it usually does following the end of the summer driving season. But it hasn't edged far. One can hardly find a financial investment that isn't doing okay or better than okay in September.

Republicans might claim that the cheery financial markets are the result of their resurgence. But good news has a thousand parents, and political incumbents generally get some credit when investors benefit. Most of today's boat rockers are middle or moderate income folks living outside the Beltway, who feel they are about to lose the little that they have after years or decades of work. There are about as many investment bankers among Tea Partiers as Zionists in Iran.

The middle of the road voters who will decide the outcome of the mid-term elections will think about their 401(k) accounts as well as their taxes. Five weeks remain until the mid-term elections. October has been an unpredictable month for the stock markets. There is certainly reason to wonder if the markets won't fall. Corporate earnings announcements, set to begin next week, aren't expected to glow. Banks may report lower earnings, from a drop in stock market trading volume. Tech companies earnings could stagnate, as consumer demand has drifted. Trade skirmishing is flaring up. The U.S. is jawboning China about the yuan, and China has slapped tariffs on American chicken parts. Japan is trying to weaken the yen in response to the weakening dollar (something that may affect China and its dollar-linked yuan more than America, since China is Japan's largest trading partner). The European debt crisis is rumbling again. Portuguese and Irish debt are losing favor, and Greece's likelihood of defaulting is growing (although no default appears imminent).

Nevertheless, the financial markets have spent the last four weeks looking at silver linings, not clouds. That's not likely to change, unless something big and bad breaks in October. Otherwise, the financial markets, still holding a 60% stock market gain since the March 2009 low, will give a nice gift to the Democrats.

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