Musings Report #28 07-7-12 The Economy and the Presidential Election
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The Economy and the Presidential Election
I know some readers hope for occasional guidance in terms of navigating the economy's erratic devolution, and so today I will share a few preliminary thoughts on the direction of the U.S. economy and the upcoming Presidential election.
In my view, it's increasingly likely President Obama will lose his bid for a second term by a landslide. Why? because the economy is starting to slide just like an avalanche, and there is nothing the President or the Federal Reserve can do about it. After everything is said and done, Americans vote their pocketbooks, and by any measure their pocketbooks are not much thicker than they were in 2009.
Even worse, Obama failed to take the side of the American people against the bank cartel. He did not need Congress's approval to do so. If he had tried with all his powers to truly reform the corrupt and corrupting banking cartel that was insolvent when he took office, he would still have core supporters. Even if his efforts had failed due to congressional meddling or resistance, he could still rightly claim to have taken the public's side. Instead he basically took the bank cartel's side against the people.
As a result, even his core constituencies's support is now a tepid "lesser of two evils" sort. Every constituency he needs to win has lost faith in his ability to deliver any value to them or the nation.
Americans easily tire of people, wars and problems, and voters are tired of Obama. Even though they are fully aware of Romney's limitations, they are culturally inclined to "give a new face a try." That was largely what boosted Obama to the presidency in 2008.
The economy is sinking fast, as four years of extend-and-pretend has failed to fix what is broken. The timing could not be worse for a sitting president with a poor track record of understanding economics. Romney doesn't need to be anything other than "not Obama" to win.
Here is a chart of leading economic indicators. Note the giant megaphone topping pattern, and the downtrend since 2008. Extend-and-pretend bought some time but did not repair the economy or our crippled, destructive financial sector.
Here is a chart comparing the S%P 500 stock index in 2011 with the present (2012). We are now at Point 16, right before the market crashed in 2011. Every possible "save" has already been tried this year, with the exception of the Fed's "QE3" quantitative easing, but the Fed cannot launch this when the market is down a mere 5% from its highs, and in a highly partisan political campaign for the presidency.
I've marked up this simple chart of the S&P 500 (SPX). Notice the 1-2-3 pattern top in 2011. 2012's 1-2-3 is not quite as pretty, but the pattern still holds in my view. Note how the MACD indicator looks almost exactly the same as last year.
A number of technicians and analysts have come out saying that stocks always rise strongly in the presidential election year, but our longtime correspondent B.C. broke out the years that were in Bull markets and those that were in Bear markets. In structural Bear markets like the one we're in, stocks tanked hard into October, just ahead of the election.
Based on this and some other charts, I suspect the market will repeat 2011--drop hard and fast here in July, chop around with extreme volatility in August and September, and fall again in October. After Romney wins, the market will explode in a powerful Bull rally from November into January 2013 that could reach new highs for the year.
The market will weaken or roll over in January 2013, and start a massive, sustained decline in May or June 2013 that will last, with the usual fits and starts and counter-rallies, until June-July 2014.
That is my "most likely scenario" guess at this point in time. I will of course adjust it as events play out.
The Power of Conformity and Misplaced Self-Interest
A recent report issued in Japan found that the Fukushima Dai-ichi nuclear power plant accident was “was a profoundly manmade disaster that could and should have been foreseen and prevented.”
The report found a “multitude of errors and willful negligence” that left the power plant unprepared for the earthquake and tsunami. It blamed the “ingrained conventions of Japanese culture,” such as “our reflexive obedience, our reluctance to question authority, our devotion to ‘sticking with the program’, our groupism, and our insularity.” The report laments that “nuclear power became an unstoppable force, immune to scrutiny by civil society,” where regulators and promoters were one and the same.
A “tightly knit elite with enormous financial resources” and “the collective mindset of Japanese bureaucracy” conspired “to resist regulatory pressure and cover up small-scale accidents.”
This describes the U.S. financial sector prior to the 2008 meltdown with uncanny accuracy. The financial meltdown was totally predictable, but those serving the Elites chose to protect their own position in the machine in what they perceived as their self-interest. Their pursuit of self-interest and obedience to conformity brought the entire system down. What failed was not allowed to fail, but it also wasn't repaired. The failure has simply been delayed four years.
From Left Field
Let's start with two fun videos:
"On December 21, 2008, the Hydroptère briefly reached 56.3 knots (104.3 km/h; 64.8 mph) near Fos-sur-Mer. The following year, she broke the 50 knot barrier for a nautical mile with a speed of 50.17 knots (92.91 km/h; 57.73 mph) in Hyères, France."
Why Our Innovators Traffic in Trifles: An app for making vintage photos isn't exactly a moonshot. Are we too obsessed with 'tools of the self'? This is a reflection of what I call "100 million channels of Me."
Professors without borders: Will online learning spell the end of universities? “Massive online open courses” (MOOCs) are clearly faster, better, cheaper and they will dismantle most of the educational bureaucracy in short order: a classic example of disruptive technology.
"Most companies don't get murdered, they commit suicide." Ester Dyson
Thanks for reading--
charles
