This page has been archived and commenting is disabled.

My Analysis of the Election

madhedgefundtrader's picture




 

Won the World Series, but lost the Speaker of the House. I guess San Francisco can’t have everything. My expectation that demographic trends would limit Democratic losses turned out to be wrong. The kids stayed home and texted each other, partied, or watched MTV, and didn’t go to the polls. I thought that if the Republicans won the House of Representatives, it would be by handful.

They ended up taking 62 seats. Good thing my market calls are better than this, or I’d be washing windshields for a living at Park Avenue and 42nd Street. I nailed the Senate, which I correctly predicted the Tea Party would blow for the Republicans. I even called the spoiler states, Delaware and Nevada.

The West coast turned out to be a clean sweep for the Democrats, as I expected. Meg Whitman spent $35 per vote, versus 60 cents for Jerry Brown, and still lost by 13 percentage points. She probably would have done better if she just sent everyone a check. The sleeper that no one is paying attention to here is that simple majority rule for the legislature passed, dumping the 2/3 requirement. California taxes are about to go up a lot.

Still, without the presidency and the Senate, all conservatives have really won is the right to determine the House agenda, make speeches, and conduct investigations, which I am sure there will be a lot of. One newly elected conservative has even promised to hold McCarthy style un-American activities hearings. You can forget cooperation with the administration. These are not your father’s Republicans. They have been rewarded for obstruction, the Senate setting an all time record for filibusters, so you can expect it to continue, or intensify. Bring on gridlock.

Let’s put the economic polices the voters chose under the microscope and see what we got. It is not a pretty picture. The bottom line is that my scenario of a lethargic 2-2.5% GDP growth rate continues for the foreseeable future. Here are the reasons why:

1) The party with the worst job creation record in a century is now in charge of job creation. There were 23 million jobs created from 1992-2000. There were only 1 million created during 2000-2008 when the population grew by 22 million.

2) The party that presided over the biggest increase in the deficit in history, from $5 trillion to $10 trillion during 2000-2008, is now charged with reducing the deficit.

3) Republican deregulation policies favor large multinationals that have been the most profitable, because they have been the most aggressive exporters of jobs. Small businesses that generate the most jobs don’t show up anywhere in this picture.

4) Without any further assistance from Washington, the states and municipalities are going to have to take an extra sharp hatchet to budgets for teachers, police and firemen, the most junior claims on local resources. The drag on the healthy parts of the economy increases.

5) Much of the campaign focused on cutting the deficit by reducing spending. Below, please find the six largest expenditures in the $3.5 trillion 2010 Federal budget:

$687 billion - Social Security
$655 billion – Defense
$564 billion – Unemployment and Welfare Payments
$448 billion – Medicare
$287 billion – Medicaid
$162 billion – Debt service

Notice, first of all, that you did not see these numbers anywhere during the campaign. They should have been posted at every ballot box along with a Sharpie marking pen. Looking at the list, I see three untouchable Republican sacred cows, social security, defense, and Medicare, taking up the bulk of the spending. Debt service is untouchable. That leaves unemployment and welfare payments and Medicaid as big fat targets.

But even if you completely end this spending, close the agencies involved, and sell off the buildings, as many conservatives have proposed, you have only cut spending by $851 billion, or 61% of the current budget deficit. Some $549 billion of deficit remains. And this assumes the tax rates remain the same. Cut taxes, and the Medicare, unemployment, welfare-free budget deficit rockets to $1.2 trillion, while at the same time slowing GDP growth substantially further. Did I mention that falling spending causes job losses? Talk about jumping out of the frying pan and into the fire.

The mostly closely guarded secret of this election is what spending the Republicans cut in their first budget. I am waiting with baited breath to see how they do this.

Who really won this election? I did! It is setting up trends in the global financial markets that will be easy to identify and cash in on. If you want to jump on my bandwagon and get a peak at some market timing, then keep reading this letter.

While voters may be enthralled with empty promises, platitudes, spin, and sound bites, markets clearly aren’t. Like a huge, dumb animal, they respect only the remorseless mathematics of supply and demand. QEII is still the principal driver, the first $600 million of which we got today. This promises to lift all boats, especially the yachts, to year end, and possible through Q1, 2011 (click here for “Contemplations on Risk” at http://www.madhedgefundtrader.com/october-28-2010.html ). When it ends, the full impact of this election will bite. This will be the outcome:

1) There will be a major sell off next year, not just in stocks, but in all asset classes. The election results increase the certainty and the severity of this event. Volatility (VIX) will rise across the board.

2) The deficit will rise faster. The debt markets’ breaking point will be reached sooner. This means we will get a collapse in bond prices, no matter how much liquidity floods the system. Whether this happens with the national debt at $15 trillion, $18 trillion, or $20 trillion is anyone’s guess. We are headed towards all of those numbers trapped in a runaway Toyota with the accelerator stuck on the floor.

With the administration and congress gridlocked, the Federal Reserve is the sole functioning branch of government, and creating inflation is virtually the only thing they know how to do well. This nicely sets up my (TBT) trade, one of my core shorts for the coming decade.

3) A flight to safety will trigger an extended period of dollar strength. This is bad for stocks, commodities, emerging markets. Flip the “RISK OFF” button. This sets up the crash in the yen, my other core short of the decade, and bodes well for the (YCS).

4) Since many conservatives believe that global warming is a leftist hoax, you can expect more favorable policies and tax treatment for oil, natural gas, and coal. Expect dependence on foreign energy sources to rise and crude prices to rocket. The congressman who apologized to BP for it harsh treatment is now the chairman of the House energy committee. The Bush administration took oil from $20/barrel to $150. Expect something similar going forward. The giant target on our backs in the Middle East stays there. Buy your electric car now.

Sorry, guys, but read it and weep. As with a World Series umpire, I call them as I see them. This is the letter where hard data and facts trump uninformed opinion every day of the week. There are thousands of letters out there whose primary goal is to make you feel better. This isn’t one of them.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 11/10/2010 - 06:09 | 715574 cheap uggs for sale
cheap uggs for sale's picture

It’s a interesting news,i like it.Additionally,wellcome to my website prettyboots.org ,here are so many UGGS On Sale such as:UGG Elsey wedge|UGG Elsey wedge black|UGG Elsey wedge chestnut|UGG Elsey wedge espresso|UGG Langley|UGG Langley black|UGG Langley chestnut|UGG Lo Pro Button|UGG Lo Pro Button black|UGG Lo Pro Button blue|UGG Lo Pro Button cream|UGG Mayfaire|UGG Mayfaire black|UGG Mayfaire chestnut|UGG Mayfaire chocolate|UGG Mayfaire sand|UGG Mayfaire red|UGG Nightfall|UGG Nightfall black|UGG Nightfall chestnut|UGG Nightfall chocolate|UGG Nightfall sand|UGG Sundance II|UGG Sundance II black|UGG Sundance II chestnut|UGG Sundance II chocolate|UGG Sundance II sand|UGG Ultimate Bind|UGG Ultimate Bind black|UGG Ultimate Bind chestnut|UGG Ultimate Bind chocolate|UGG Ultimate Bind sand|UGG Ultra Short|UGG Ultra Short chocolate|UGG Ultra Short sand|UGG Ultra Short black|UGG Ultra Tall|UGG Ultra Tall chestnut|UGG Ultra Tall sand|UGG Ultra Tall balck|UGG Ultra Tall chocolate|UGG Suede|UGG Suede black|UGG Suede chestnut|UGG Suede sand|UGG upside|UGG upside black|UGG upside chestnut|UGG upside mocha|UGG Roxy Tall|UGG Roxy Tall black|UGG Roxy Tall chestnut|UGG Roxy Tall chocolate|UGG Roxy Tall sand|UGG seline|UGG seline black|UGG seline chestnut|UGG Corinth Boots|UGG Liberty|UGG Liberty black|UGG Liberty cigar|UGG Highkoo|UGG Highkoo amber brown|UGG Highkoo espresso|UGG Highkoo grey|UGG Highkoo black|UGG Knightsbridge|UGG Knightsbridge black|UGG Knightsbridge chestnut|UGG Knightsbridge grey|UGG Knightsbridge sand|UGG Knightsbridge chocolate|UGG Adirondack|UGG Adirondack brown|UGG Adirondack chocolate|UGG Suburb Crochet|UGG Suburb Crochet black|UGG Suburb Crochet chestnut|UGG Suburb Crochet chocolate|UGG Suburb Crochet grey|UGG Suburb Crochet white|UGG Kensington|UGG Kensington black|UGG Kensington chestnut|UGG Roseberry|UGG Roseberry black|UGG Roseberry sand|UGG Gaviota|UGG Gaviota black|UGG Gaviota chestnut|UGG Gaviota chocolate|UGG Desoto|UGG Desoto black|UGG Desoto chestnut|UGG Desoto chocolate|UGG Brookfield Tall|UGG Brookfield Tall black|UGG Brookfield Tall chocolate|UGG Gissella|UGG Gissella black|UGG Gissella chestnut|UGG Gissella espresso|UGG Payton|UGG Payton black|UGG Payton chestnut|UGG Payton red|UGG Bailey Button Triplet|UGG Bailey Button Triplet black|UGG Bailey Button Triplet chestnut|UGG Bailey Button Triplet chocolate|UGG Bailey Button Triplet grey|UGG Bailey Button Triplet sand|There are so much style of cheap uggs for sale ,so once you go to my website you will be very surprise.

Thu, 11/04/2010 - 22:04 | 701702 Prescient11
Prescient11's picture

Mad Hedge Fund Trader is a fucking fraud.  How's the TBT trade working out for you, eh?

 

Some of his macro thoughts are ok, but this guy is dangerous for you and your money.  all imho.

Thu, 11/04/2010 - 20:49 | 701538 economicmorphine
economicmorphine's picture

I have to laugh.  Hedgie lives in Kalifornia, the state that has already gone over the brink and yet they elect the same retreads that took them over the cliff and he thinks this is a good thing because he's gonna use it to make money?  Huh?  Come on Hedgie, tell the truth.  You're trolling for customers here because the lease payment on the Jagrolet is due and you're FICO score is south of Guatemala,  I'm getting warm, right?

Thu, 11/04/2010 - 20:05 | 701471 lolmaster
lolmaster's picture

dumbhedge, you are a moron

Thu, 11/04/2010 - 15:21 | 700532 gibbs
gibbs's picture

Every day I give thanks to the powers that be that I do not think (or trade) like you.

 

 

Thu, 11/04/2010 - 15:08 | 700471 the grateful un...
the grateful unemployed's picture

that's a good read. to add something to that, note that the house can write bills all day, but the Senate has to pass them. However the Repubs have two years to test the public reaction toward various legislation. They have the bully pulpit so to speak. The problem with the global economy is more apparent, the American consumer has to pull back.

There needs to be some way to get money into their hands. The plan to put free money into everyones 401K is a horridly inefficient way to accomplish that, as the HFT, and the market traders, and the brokers, and then the tax man, all suck that rock dry before anyone can carve it up for dinner. If Bernanke really thinks blowing a stock market bubble is the right thing to do, the man needs to be guillotined.

But BB is just a bureaucrat, beholding the political party in power. Which party is that? Stand by, Ben might make a hard right turn.

 

 

In the end his balance sheet will blow away like some much dust in the wind. Gold is taking another ride today, the hard asset people are gaining strength, the debt machine is weakening.

 

 

 

Thu, 11/04/2010 - 15:00 | 700427 pazmaker
pazmaker's picture

This guy is a whack job still seeing the world through his blue colored glasses.

Thu, 11/04/2010 - 14:51 | 700384 Ripped Chunk
Ripped Chunk's picture

Repubs. look all happy.

But they are standing on the tracks fighting amongst themselves. By the time they turn around and see the debt ceiling train coupled with plummeting tax collections train bearing down on them it will be too late.  SPLAT !!!!!

Thu, 11/04/2010 - 14:34 | 700318 Rick Masters
Rick Masters's picture

MHFT great job, as usual. Fuck the naysayers, they don't mean a thing; you could write an article that AAPL had a great year and they would preach some shit about Steve Jobs banging Bernanke and that's why. Nothing to do with supply and demand.

Thu, 11/04/2010 - 18:37 | 701284 ATG
ATG's picture

See above analysis of MHFT track record as opposed to his testimonial claim of +450%

Thu, 11/04/2010 - 14:13 | 700239 Cpl Hicks
Cpl Hicks's picture

Obama-pumped in 2008 and dumped (at least the first step) in 2010.

Bring on 2012!

Thu, 11/04/2010 - 14:55 | 700402 Ripped Chunk
Ripped Chunk's picture

You mean the Sarah P. vs. Mormon Tabernacle Chior show, winner to face the Obama/Hillary ticket.

Sounds like the end of the world to me.

 

Thu, 11/04/2010 - 18:36 | 701281 ATG
ATG's picture

Perry Palin?

Thu, 11/04/2010 - 16:06 | 700759 Cpl Hicks
Cpl Hicks's picture

I don't care if it's Sarah or Scott Brown or a random grunt selected out of a foxhole in Afghanistan.

And who says it's Obama/Hilary? John Dean/Barney Frank! Bring 'em on!!

Thu, 11/04/2010 - 13:53 | 700169 XPEH BAM
XPEH BAM's picture

Garbage

Thu, 11/04/2010 - 13:42 | 700121 geno-econ
geno-econ's picture

Perhaps we are at a point of no return and there are really no politically or practical ways of reversing a downward trend towards a financial collapse. If there was a solution at hand would we not have heard a clear concise suggestion from any of the candidates instead of diatribe and dirty politics ?  Even economists are silent on solutions for fear of being ostrasized by the establishment{except on ZH}. So the election results are really meaningless as we blod towards disaster with the Fed down to its last QEII package that is already being critisized by the IMF as ineffective with only modest results.  Only ray of hope is for White House meeting with leaders of both parties to face reality or face disaster where everyone loses .

Thu, 11/04/2010 - 13:49 | 700151 Jim in MN
Jim in MN's picture

The Administration and its predecessor never explained their Ultra Top Priority of no bond haircuts.  Is this because there is no explanation other than corruption?  Or is there a good reason, say that the health care system would collapse if their invested premium cash disappeared? 

Let's face it, the single most important thing here is the bond protection racket/policy.  And it is not even discussed.  That is why all of this zombification and consequent need for Fed printing/buying/mattress padding is even happening.  It's disgusting as well as hyperJapanese.

Why???  Greed or policy need?  That it is apparently secret bespeaks a great fear on their part.

Thu, 11/04/2010 - 13:38 | 700102 augmister
augmister's picture

I agree only on the most important point... the flight to the safety of the dollar as other currencies implode before it, will kill all the commodity bubbles. 

Thu, 11/04/2010 - 22:18 | 701717 Bananamerican
Bananamerican's picture

flight to safety of the dollar!?

"fool me once...."

flight to PM's this time

Thu, 11/04/2010 - 13:26 | 700048 expatincentam
expatincentam's picture

And this San Francisco lefty sells his investment advice... and finds buyers!?!  Look, here is a 5 word summary of the above "opinion"... and all for a Lucy-like price of 5 cents.  ...it's all the Rethuglican's fault.  What a "Progressive" elitist tool!

Thu, 11/04/2010 - 13:16 | 700013 TooBearish
TooBearish's picture

What a tool - like the weatherman predicting - some day it will rain, otherwise the sun will rise...awesome, incisive analysis, thank gawd I only read the first 2 paragraphs....

Thu, 11/04/2010 - 13:01 | 699973 MrBoompi
MrBoompi's picture

Maybe money will matter when the Earth is no longer able to sustain its inhabitants.  Maybe the rich will be able to protect themselves.

 

But I doubt it.

 

 

Thu, 11/04/2010 - 12:46 | 699926 Bankster T Cubed
Bankster T Cubed's picture

elections matter not

bernanke is killing the nation

we won't even have a government soon

Thu, 11/04/2010 - 12:38 | 699908 davidbbrewer
davidbbrewer's picture

whatever happened to robotrader?

Thu, 11/04/2010 - 14:09 | 700225 Cpl Hicks
Cpl Hicks's picture

and whatever happened to the cheeky bastard?

Thu, 11/04/2010 - 12:12 | 699819 covert
covert's picture

this election doesn't mean much in the long run.

http://covert2.wordpress.com

 

Thu, 11/04/2010 - 11:20 | 699596 solgundy
solgundy's picture

maybe the Madhedgefundtrader is just plain mad

Thu, 11/04/2010 - 10:51 | 699479 RichardENixon
RichardENixon's picture

Boy when this guy calls himself "Mad" he isn't kidding around.

Thu, 11/04/2010 - 10:37 | 699424 Pat Hand
Pat Hand's picture

The Republicans start with the usual magical solutions, deregulation and tax cuts, completely oblivious to the damage that has done over the past thirty years.   Cartels now dominate most industries - food & agriculture, finance, oil & energy... 

The party of Lincoln ignores his dictum, “A legitimate object of government, is to do ... protect the weak from the strong.”

Oh, wait - that was Hamilton, sorry.  Go ahead and prey on the middle class, then, no worries.

Thu, 11/04/2010 - 10:37 | 699412 t0mmyBerg
t0mmyBerg's picture

Sigh.  Whatever your politics, this piece is a smug sneering political puff piece (congratulations on seeing the obvious - wow, what a bold call on the Senate).  The poster seems to suffer the common viral logical illness known as post hoc ergo propter hoc, without analysing or understanding why anything happens.  The only good idea I see here is to post the components of the budget so they can be debated in the open light of day.  I would avoid madhhedgefundtrader.com.

Fri, 11/05/2010 - 08:55 | 702251 t0mmyBerg
t0mmyBerg's picture

Thanks.  I meant in the context of political debate.  In other words to actually have political debate.  Something that is not going to happen.

Thu, 11/04/2010 - 10:35 | 699408 drchris
drchris's picture

Here is what I don't get.  Republicans now have the House, but the Democrats still have the Senate and Executive.  How is it that people are saying "Republicans are now responsible for jobs, economy, etc."?  It doesn't make any sense.  Democrats had the House from 2007-2010, and they don't want to take responsibility for anything that happened during those years.  How can you have it both ways?

Thu, 11/04/2010 - 18:33 | 701264 ATG
ATG's picture

All revenue bills originate in the House

Except this year when the Ds did not pass a budget

As when Pelosi was DNC chair she did not certify 0 a citizen

Thu, 11/04/2010 - 11:00 | 699515 InconvenientCou...
InconvenientCounterParty's picture

you disconnect your brianstem and plug it into Faux News. Get your fitted black leather before the run.

Thu, 11/04/2010 - 10:59 | 699511 Common_Cents22
Common_Cents22's picture

DEMS get it both ways with the help of the lame stream media as propagandists spewing out mindless biased drivel brainwashing the public.

Thu, 11/04/2010 - 10:32 | 699392 Dr. Engali
Dr. Engali's picture

I didn't realize that the federal reserve was a branch of government. I always thought it was an illegal private entity with "oversight" by congress. Maybe you should work on your facts a little bit before you try to make recommendations.

Thu, 11/04/2010 - 18:27 | 701258 ATG
ATG's picture

Yes, as several ZHrs pointed out, MHFT severely factually challenged

Most know the Fed owns the US Government;

Thu, 11/04/2010 - 10:18 | 699335 williambanzai7
williambanzai7's picture

Which direction should we stampede in today?

Thu, 11/04/2010 - 10:58 | 699502 InconvenientCou...
InconvenientCounterParty's picture

I'll get back to you after Glenn Beck airs.

Thu, 11/04/2010 - 10:51 | 699477 RockyRacoon
RockyRacoon's picture

Easy, William, where's the nearest cliff?  Just point...

Thu, 11/04/2010 - 15:04 | 700455 DaveyJones
DaveyJones's picture

I've always wanted to be a lemming

Thu, 11/04/2010 - 10:14 | 699324 praetorian
praetorian's picture

Ummmm, yeah.  Might be worth reading the actual propositions:

http://ballotpedia.org/wiki/index.php/Text_of_the_On-Time_Budget_Act_of_...(California)

Section 3, Paragraph 2, Sentence 2:

"This measure will not change the two-thirds vote requirement for the Legislature to raise taxes."

Additionally, voters passed prop 26, which, loopholes aside, makes it a 2/3rds vote to raise fees as well.

So, basically, CA is even more perfectly set up for total collapse than before, something I didn't think was possible: the dems can vote themselves the world, but won't be able to raise funds for it.  With Jerry Brown at the helm and a republican House in D.C., no rescue package will be forthcoming.

There will be no extra point,

prat

Thu, 11/04/2010 - 18:25 | 701244 ATG
ATG's picture

Why they called him Moonbeam, Linda Ronstadt dumped him in Afreaka, he never made Senator or President and settled for Mayor of Oakland before the D Machine settled for him against MW at the tender age of 72

His younger sister CA Treasurer, was married to CBS News President and Senior Adviser to GS

Thu, 11/04/2010 - 10:11 | 699312 FedUpGuy
FedUpGuy's picture

Sure, MHFT, let's compare deficits:

Bush: 5 trillion/8 years =620 billion/year

Obama: 3 trillian/20 months = 1.8 trillion/year

 

Thu, 11/04/2010 - 11:35 | 699688 functionform
functionform's picture

Hilarious.  I guess starting unfunded wars, and preventing the fall of the global economy are the same thing.

Thu, 11/04/2010 - 17:55 | 701198 FedUpGuy
FedUpGuy's picture

Err.. does it look to you like the economy is running swimmingly?

I'm with you on the unfunded wars part...

 

Thu, 11/04/2010 - 10:50 | 699467 RockyRacoon
RockyRacoon's picture

Ain't that simple.  There is a velocity of accumulation that you have not figured in.

There is not a bright line in this equation that appears on inauguration day.

But it looks better doing it your way, of course.

Thu, 11/04/2010 - 10:10 | 699308 Everybodys All ...
Everybodys All American's picture

Your stats are flawed.  Add in Reagan and Carter years and get back with me on how that works out.

Thu, 11/04/2010 - 09:55 | 699259 au4
au4's picture

I am a little surprised at the rancorous tone of many of these responses. Is it becasue MHFT seemed a little glib? I am not especially fond of either Left or Right, but many here are assuming that Obama could have magically cured the economy in two years, which is a dubious assumtion. But all that aside, what I perceive in the election is not just a decisive rejection of the Left's statist approach, but a kind of last ditch hope that conservative candidates who this time REALLY mean business are going to finally make some progress. But the question remains, what do any of these representatives promise - substantively - but a return to the policies of the Bush administration? And then: what is it about the Bush years that anyone finds so wildly appealing? Disclosure: I regard Bush as one of our worst presidents.

Do NOT follow this link or you will be banned from the site!