What if the fiscal cliff collides with a replay of the Bush vs Gore 2000 election fiasco...
Gallup just announced the results of their latest poll and find Romney has overtaken Obama 49% to 47% among 'Likely Voters'. Obama still holds the lead among 'Registered voters' but this headline was enough to cause a dramatic crash (back under 60%) in Obama's odds on Intrade's market. Critically, the entire post-QEternity bump that Obama-believers had bought, has now been retraced as it seems the old adage "As Goes AAPL, So Goes Obama" is proving true...
Whether it is a fringe-blog pointing out the statistical un-possibility (here and here), or a previously well-respected 'elite' pointing out the suspiciousness (here), most of the general public (or their media-based oracles) prefer not to swallow the red pill of reality with regard Friday's data SNAFU. However, given the political (and economic) consequence of a single-number, Gallup has decided to weigh in on reality as they note "even though the Household survey tends to be very volatile, this decline seems to lack face-validity, particularly after the prior month's numbers" as they analyse why the household results should be discounted heavily. Critically, they, like us, suggest the 'unemployment rate' needs to be replaced as a measure of joblessness, suggesting a far simpler (and more transparent) measure - Payroll-to-Population - would avoid the 'adjustments' and 'biases' that are inherent in the BLS's bafflement. The Gallup measure suggests, as one would perceive using common-sense, that the real jobs situation was essentially unchanged last month.
SS Ponzi is approaching a cliff.
Gallup's US economic confidence index surged 11 points last week (more than the 10 points when Bin Laden was killed) and has reached levels comparable to the pre-crisis highs from January 2008. As Gallup notes, it appears that the spark for the dramatic rise in Americans' economic confidence last week was the Democratic National Convention. A review of Gallup's nightly tracking results shows that the index was consistently near or below -25 each night in late August and early September, but then sharply improved on Sept. 4, the first night of the convention, to -18. Confidence then held at or near -18 through Sunday, despite the dismal August unemployment report Friday morning showing continued weak jobs growth. More specifically, the convention appears to have given Democrats and, to a lesser degree, independents, fresh optimism about the economy. We can only assume that the cognitive dissonance of the hope-holding believers-in-change will not carry through to real economic growth or all those other 'hopers' - the 'this-time-QE-is-different' crowd - will be sadly disappointed.
One of the deepest mysteries related to the ongoing rally in U.S. equities is the persistent lack of retail investor involvement. QAs we have vociferously noted, U.S. equity mutual fund flows remain solidly negative and interest in single stock trading among individual investors is similarly moribund - while corporate bond volumes remain flat and Treasury volumes higher. As Nick Colas, of ConvergEx group, notes, one missing link to explain this dichotomy must be the fundamental lack of financial literacy among U.S. retail investors, yet this relationship is seldom mentioned as a reason for this group’s ongoing apathy in the face of 4-year highs for domestic stocks. You might argue that “It was always thus…” and that is a fair point. American investors haven’t grown dumber on financial matters in the last decade; they never had the requisite knowledge to begin with. But it does appear that the events of the last few years have caused some kind of “Tipping point” with regard to investors’ ability to process the world around them.
With the polls apparently seeing it all tied up at 46-46 (and heading into the period when McCain and Obama diverged so strongly in 2008), a recent Gallup poll brings up the age-old question of whether the electorate will vote with their hearts or their wallets. Only in a Facebook-world; but 54% 'like' Obama versus 31% 'like' Romney but this huge social-network-factor disappears when asked who will better handle the economy - 52% believe Romney will be better for the economy as opposed to 43% believing in Obama. Of course none of that matters if the market remains up here.
In four months the debate over America's Fiscal cliff will come to a crescendo, and if Goldman is correct (and in this case it likely is), it will probably be resolved in some sort of compromise, but not before the market swoons in a replica of the August 2011 pre- and post-debt ceiling fiasco: after all politicians only act when they (and their more influential, read richer, voters and lobbyists) see one or two 0's in their 401(k)s get chopped off. But while the Fiscal cliff is unlikely to be a key point of contention far past December, another cliff is only starting to be appreciated, let alone priced in: America's Demographic cliff, which in a decade or two will put Japan's ongoing demographic crunch to shame, and with barely 2 US workers for every retired person in 2035, we can see why both presidential candidates are doing their darnedest to skirt around the key issue that is at stake not only now, be every day hence.
Something tells us not even an ARIMA X-12, 13 or even 14 seasonal adjustments will do much to change the opinion of America's population that Congress is now more useless, incompetent and corrupt than ever. From Gallup: "Ten percent of Americans in August approve of the job Congress is doing, tying last February's reading as the lowest in Gallup's 38-year history of this measure. Eighty-three percent disapprove of the way Congress is doing its job." So what happens when the approval rating hits 0%? Does America automatically revert back to Monarchy (for all you Sid Meier fans out there), and what then? Back to Slavery? And in the New Centrally Planned normal is Darwin really right?
It has been a tempestuous week where good is bad, worse is better, but European news is to be sold. Here is your one stop summary of all the notable bullish and bearish events in the past seven days.
A rare moment of optimism from David Rosenberg: "I've said it once and I'll say it again. And believe me, this is no intent to wrap myself up in stars and stripes. But there is a strong possibility that I see a flicker of light come November. The U.S. has great demographics with over 80 million millennials that will power the next bull market in housing, likely three years from now. After an unprecedented two straight years of a decline in the stock of vehicles on the road, we do have pent-up demand for autos. I coined the term "manufacturing renaissance" back when I toiled for Mother Merrill and this is happening on the back of sharply improved cost competitiveness. Oil production and mining services are booming. Cheap natural gas is a boon to many industries. A boom in Chinese travel to the U.S. has triggered a secular growth phase in the tourism and leisure industry. The trend towards frugality has opened up doors for do-it-yourselfers, private labels and discounting stores.... Few folks saw it at the time. But it's worth remembering, especially now as we face this latest round of economic weakness and market turbulence. It is exactly in periods of distress that the best buying opportunities are borne...and believe it or not, when new disruptive technologies are formed to power the next sustainable bull market and economic expansion. Something tells me that we are just one recession and one last leg down in the market away from crossing over the other side of the mountain. And believe me, nobody is in a bigger hurry to get there, than yours truly. At the risk of perhaps getting too far ahead of myself, but you may end up calling me a perma-bull (at that stage, I must warn you, folks like Jim Paulsen will have thrown in the towel)."
Fraud ... What Fraud?
Americans feel “gold is the safest long term investment” today, a Gallup survey has found. Gold was favoured over four other types of investments perceived as the best long term choice for American investors today. 28% of the American public choose gold as their favoured investment of choice today. Real estate followed in second place, with 20% seeing it as the best long term investment. Paper assets were less popular with savings accounts and certificates of deposits (CDs) tied with stocks and mutual funds at 19%. Bonds came last at 8%. This suggests that the American public may not be as uninformed when it comes to investing as is often suggested. According to Gallup, "investing in gold has gained in popularity in recent years as low interest rates have made traditional savings instruments less attractive, and instability in the stock and real estate markets has undermined the mass appeal of those options." "Meanwhile, the rising trajectory of the price of gold over the past several years apparently offers more of the returns and stability investors seek." While some may find the Gallup poll findings worrisome from a contrarian perspective, it is not.
A multi-decade trend reversed.
Gallup Finds Obama, Romney In Dead Heat As Daily Tracking Begins, With Independents Leaning Toward GOPSubmitted by Tyler Durden on 04/16/2012 15:05 -0400
Now that the GOP primary is essentially over, and Mitt Romney is set, for better or worse, to be the Republican frontrunner, Gallup has launched its daily tracking poll to keep an eye on each one's presidential prospects. Not surprisingly, the result is a dead heat. "Mitt Romney is supported by 47% of national registered voters and Barack Obama by 45% in the inaugural Gallup Daily tracking results from April 11-15. Both Obama and Romney are supported by 90% of their respective partisans." What is curious is that "The crucial voting bloc of independents breaks toward Romney by 45% to 39%, giving the GOP challenger his slight overall edge." So will Obama now be forced to make a moderate push to attract what will likely be the critical voter constituency in November? We will find out over the next few months.