Guest Post: Election Year 2012: Two Landslides in the Making?

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Election Year 2012: Two Landslides in the Making?

If the economy continues declining into late October, there may be two landslides in the making: the stock market and the presidential election.

The stock market is precariously close to slipping into a landslide. If the economy and stock market both continue declining into late October, the presidential election could also turn into a landslide--against the incumbent.

There is nothing particularly partisan about this possibility; people who vote tend to vote their pocketbooks, and a re-election campaign that boils down to "hey, it's not as bad as The Great Depression" is unlikely to inspire great loyalty in voters who are already culturally predisposed to tire quickly of presidents, wars and a tanking economy.

If the economy and stock markets are both slip-sliding away, the opponent need only be "not the incumbent" to win.

Presidents facing re-election in deteriorating economic conditions find their support in the critical non-partisan middle is a mile wide and an inch deep. A recessionary economy acts like a drought on that shallow lake of support, and when it dries up then the incumbent loses, and often loses big.

Let's consider the critical backdrops of the economy and stock market: household income and corporate profits. Market bulls like to tout rising profits as the reason the market can keep climbing higher in a global recession, but before we get too euphoric let's recall that the earnings of 90% of American households have been flat since 1970.

All those fabulous profits were built on two now-crumbling edifices: astounding levels of household debt and a declining U.S. dollar that boosted the critical overseas profits (40% of all profits) via currency devaluation. Now that the dollar has broken out of a multi-decade downtrend and has been rising for a year, those tailwinds have turned into headwinds.

I have yet to read even one market bull who has considered the negative impact of the strengthening dollar on overseas profits. That is a fatal flaw in their argument for ever-higher profits and stocks.

Can the top 5% push corporate profits into the stratosphere?

Do trees grow to the sky? Corporate profits have risen at geometric rates. Does a recessionary global economy and a debt-crushed, declining-income 90% of households support the bullish claim that profits can soar to the moon?

Here's a chart of the ECRI's Weekly Leading Index courtesy of dshort.com. I have marked it up to show the megaphone top pattern and the downtrend since 2007 of lower highs. This is unambiguously bearish. In effect, trillions of dollars in stimulus, bailouts, subsidies, giveaways and backstops have simply slowed the deterioration. Every time the economy threatened to sink into recession, another "save" was pulled out of the magic hat.

Once again the economy is on the edge of recession, only this time there are no more "saves" in the hat except QE3, and that can't be unleashed (and the sugar high won't last long) until 1) the market tanks and 2) the election is over.

When systems that have failed are not allowed to fail because of resistance by vested interests, the inevitable implosion is only delayed. Please consider this chart from Tony at Macro Story, who kindly shared this comparison chart of the S&P 500 (SPX) for 2011 and 2012. Tony counted a remarkably similar 16-point pattern in the two charts, and offered this commentary:

"First let me explain the basis for why the following may happen. The model analyzes market stress such as a selloff that was somehow averted. When such price action is averted, it is only done so temporarily. It does not eliminate the stress. And the more such events happen the greater the stress built into the system. For example, if you study the flash crash of 2010 or the July 2011 selloff, prior to that a number of opportunities for markets to correct were averted. For whatever reasons, the downside price action needed to “cleanse the system” was not allowed. The end result is the stress became too great and the downside movement was very explosive. (emphasis added by CHS)

 

The best example I can share with you is the detailed analog of the current market and that of 2011 over roughly the same time period. As a reminder there is more than just candlestick patterns but rather levels where price hits within the model. Those are levels used to identify such stress as referenced above."

Thank you, Tony. If the stresses that have been countered since December 2008 with endless rounds of interventions, threats/promises of QE, etc. can no longer be constrained, then the bottom could be much lower than most technicians and pundits expect.

Some analysts have been claiming that presidential election years are strongly bullish. Longtime correspondent B.C. separated election years in secular Bull markets from those in secular Bear markets, and reached a considerably more Bearish conclusion.

Bullish analysts consider 1,180 SPX a remote possibility. SPX 880 is not on their radar. Since nobody knows what will happen tomorrow, much less in October, all this is merely "food for thought." But confident Bulls might want to look ahead a year and study B.C.'s chart for the first year in a presidentail cycle.

Once again, if we separate secular Bull and Bear markets, the oft-touted Bullish trends for the election year and first year of the presidential cycle vanish.

If stocks start cascading in a landslide the enfeebled, failed Fed cannot stop, the sitting president may face a landslide as well.

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fonzannoon's picture

As long as rates stay low and go towards negative territory, fundamentals, earnings etc. will mean nothing. People will continue to latch on to anything with a dividend and drive the price higher. These overvalued dividend paying stocks are forming a massive bubble. It seems treasuries are the trigger that will pop bubbles everywhere. Real estate, dividend equities etc. etc. they will alll blow sky high the second rates move up. The only question is how high does the debt have to go before it detonates. 20 trillion? 30?

AlaricBalth's picture

The only thing the Corporate Profits after Tax chart tells me is that the Fed has been devaluing the dollar for decades. Not a very clear picture of corporate profits when it is unadjusted.

A chart of Corporate Profits as a Percent of GDP gives a clearer picture.
http://graphics8.nytimes.com/images/2010/11/23/business/economy/economix...

Michael's picture

If the economy and stock market both continue declining into late October, the presidential election could also turn into a landslide--against the incumbent

If the economy and stock market both continue declining into late October, the Congressional elections could also turn into a landslide--against the incumbents. There, fixed it for ya.

I'm still voting for Obama so Romney and the GOP/MSM gets fucked up ths ass.

I think I need to buy a gun's picture

i don't think the republicans want any part of the next 4 years, hence romney,,,,,it's really a one party system in disguise, the republicans steal all the money and the dems clean up the mess EVERY TIME the last 100 years,,,,They are all the same fuckin thing that turn the 99% on trivial issues against each other so they can steal the money, this cycle so happens to be that once every 100 year one where they went to far and took fuckin everything.

Rasna's picture

This, indeed, will be interesting.  If Mittens wins Bernank KNOWS that he will be out of a job.  The Glove has said so,,, So, it's in his best interests to help O get re-elected... Barring unforseen exogenous events occurring, we have seen the power of the Fed to manipulate markets.  So can we expect to see low volume melt-ups and phantom rallies from nowhere over the next 4 months?

Personally, there's little difference between O and Mittens.  As I've said before, No one, and I mean absolutely no one gets within sniffing distance of the White House without the blessing of the financial elite.  The Presidency is bought and paid for.

I think that we could see a continued correction to SP 1235-1250, Hell maybe even 1220 over the next few weeks, but I expect that that's it and the ramp will begin.

After the election, well that's another matter.  I had my ass handed to me on more than one occassion trying to trade against the FED using logic.  I don't make that mistake any more.

andrewp111's picture

NSJ. Bernanke wants to stay in power, and he needs to reelect Obama to do that.  Obama has the powers of office, and he will use them to the max. I predict he will (1) have a NATO war in Syria as a distraction, (2) Announce with Bernanke a massive ultimate bailout of underwater mortgage debtors. possibly using Eminent Domain for the Fed to take the mortgages, and (3) his partisan hack Eric Holder will indict Romney for tax evasion within a week of the election.

Missiondweller's picture

Are you sure Bernanke wants to stay "in power"?

 

The guy seems miserable and has essentially admitted that what should have happened "according to textbooks" hasn't happened. Bernanke just doesn't know what to do and even if he did, he doesn't have the balls that Volker did.

AldousHuxley's picture

bernanke just cleaning up mess that greenspan made.

 

romney isn't going to kick bernanke out. he is going to reappoint bernanke and tell him to print even more to save private equity industry from revealing itself as just bet on fed easing.

Race Car Driver's picture

This is all a lot of mumbo-jumbo nonsense. Elections don't matter. The banksters appoint who they want amongst themselves - and that includes politicians and school boards.

HungrySeagull's picture

That large multi stage rocket will flame out once it burns through the dollar bills stuffed inside it's hull rather than the more expensive fuel.

Neither is going to be pretty; however we cannot afford 4 more years.

I would not be above writing Trump in for Prez comes time to cast a vote.

hungrydweller's picture

Trump is just a poser; more of the same regardless of the crap that spews out of his mouth.  He says one thing but will not do what it takes to right the ship.  He, like most all current politicians will vote to inflate.  If you want to write in a real candidate, one who supports an economy backed by real money and real constitutional principles, write in Ron Paul.  I will be.

RiotActing's picture

You're an idiot if you think things will get better with Romney at the helm. It really doesnt matter who is there, the fucking wheels are coming off next term, by design.

Long-John-Silver's picture

The wheels are already off. This beast is simply sliding forward on momentum.

laughing_swordfish's picture

The wheels are already off. Unless we can return to CONSTITUTIONAL GOVERNMENT and the rule of law, we are f***ed - totally and absolutely.

At an "All Hands" meeting of DKM Trading, it was determined that our CORPORATE position on politics is this:

WRITE IN RON PAUL ... your pocketbook,liberty, and even life may depend upon it.

 

KrvtKpt, Laughing Swordfish

DKM Trading

 

 

eclectic syncretist's picture

There are many angry posters here who will be even more angry next year if they fail to write in Ron Paul.

jeff montanye's picture

yes.  donald trump seems a likely solution.

RockyRacoon's picture

Sure.  If you want a nukular war with China.  That would certainly help with the "useless eaters" problem.

billwilson's picture

The worse the economy gets the better chance Obama has. The only ones who will be left voting for Romney will be the 1%. The 99% know that things would only be worse under Romney. Not that Obama has any answers, but everyone knows Romney has absolutely nothing for them (other than Bush retreads and stronger more rapacious banks)

RiotActing's picture

As soon as that dope Romney starts debating Obama. they problalby wont have to fix it this time.

bagehot99's picture

Who categorizes people based upon income other than moronic Marxists? The 1%??? The 99%???? You're living in a fucking cartoon, son.

grey7beard's picture

>> Marxists?

Marxist, favorite word of the wingnut parrots.  You fucking dolts couldn't give one trait of a Marxist yet you had Obama labeled as one before he even set foot in the Oval office or put one policy in place.  Turn off the idiotic talk radio and exercise your brain cells.

zorba THE GREEK's picture

Is the election supposed to mean something? It doesn't matter who wins in November, they both serve the same master.

xtop23's picture

Honestly, who cares? Your vote means nothing. You have a choice between steak with potatos or with the vegetable medley. 

The hijacking of our country, that is so apparent today, has been decades in the making.

Plan accordingly.

jeff montanye's picture

i think someone else has already eaten the steak.

BigDuke6's picture

Isreal will find a war or two for you before the election.

Make sure the isreali war machine supporting, biggest flag waving moron gets home to the white house.

Worked with Bush x2.

 

hungrydweller's picture

"flag waving moron"

"flag waving mormon"

There, fixt it fer ya.

jeff montanye's picture

yes you are right.  they are not morons but superficially smart but morally and practically bankrupt tools.  

i hope the flag waving mormon replaces the flag waving whatever, ostensibly christian, currently manning the drones (and torturing manning).  

the 99% may have an easier time rising against a more obvious rapacious crony capitalist warmonger than the cleverly (less so as time goes by) disguised one we have now.

RiotActing's picture

Landslide against the incumbent? Is this guy high? Shit is fixed and Obama is the banker bitch, he'll get relected one way or another. They will make sure of it.

hungrydweller's picture

Whatch mean Obama is the banksta bitch.  Romney is a banksta.  Why have the bitch when you can have the pimp in charge.

RiotActing's picture

Romney is no pimp, he was born with a silver spoon up his ass. He's like Mark Cuban, a dip shit with a lot of money who thinks he's a genius. That Romney is fucking moron, they dont have time to explain things to him. Why change horses? Nah Obama is a lock...

RiotActing's picture

P.S. Romney is no "banksta", he wishes. Empty suit thats going to get crushed in the debates.

ozzzo's picture

I was going to vote for Obamney, but now I'm voting for Rombama instead!

fonzannoon's picture

it was the right call ozzzo

Crack-up Boom's picture

As long as we're in dreamland, Nigel Farage for Prez!

Long-John-Silver's picture

We are in an Economic Depression. The economy is in the process of taking a second downturn. All you need do is compare today's chart to the chart of the Great Depression. History is repeating with a vengeance.

This Great Depression Stock Chart opens in a new window.

 

The Stock Market will take another hit and it's going to be worse than 2008. It will happen on or before October of this year just in time for the November elections.

 

 

One World Mafia's picture

Gary Johnson can help take away votes from The Mad Obomber.

jeff montanye's picture

gary johnson is a bit like a younger ron paul.  i hope he stays active in politics.

j0nx's picture

Johnson is nothing like Paul. WTF are you blabbering about?

pragmatic hobo's picture

romney will be so much worse than o'bummer.

sitenine's picture

Who gives a shit who the POTUS be?  Krugman maybe?  Soros?  Buffet perhaps?  Please.  Neither of these two presidential hopeful douche bags are worth much more than a banker.  What do we expect from either of them?  Still think things can be turned around just by electing a leader?  Someone honestly thinks that either of these clowns can be 'worse' than the other?  In what way?  Maybe one will bring it all down faster than the other - that's the only difference I see here.  To be honest with you, I would rather see it come down sooner than later anyway.  We wont go back to work to build our futures until we have a future to build.  The simple truth is, that our future does not lay along the same path as a failed system.

alien-IQ's picture

We really need the option to vote for "None of the Above".

I honestly believe that, given that option, "None of the Above" would win by a landslide.

BeetleBailey's picture

100% Correct.

THIS is the best we can do? A choice between a scary Mormon and an even scarier Arab?

I shake my head.........

KILL ALL BANKERS! DEFAULT ON YOUR MORTGAGES. FAIL TO PAY CREDIT CARDS.

The Next War: BANKERS.....DEAD.

toady's picture

I believe that is Romney and the 'R' plan, just make sure everything gets worse and just say no until everyone is so sick of this shit they would do ANYTHING, even vote for Romney.

It may just work!

sluggo's picture

I have a question about the second exhibit/first table where the # of people in each income category are listed.  Why does the total equal only around 152MM people? I thought there were over 300MM peeps in the US?!?  Wouldn't the "bottom 90% include those who have "no" income (other than handouts)?

sitenine's picture

Not all 300MM are wage/income earners (think specifically children, unemployed without benefits, and elderly without pensions)

Mark Noonan's picture

I think it will be a Romney landslide even if the economy kind of sputters along officially not in recession.  What a lot of people are missing is that, on the ground, there is a surge of grassroots, GOP support growing.  Not that this is in love with Romney - indeed, very far from it - but it is in love with the idea of taking out the Ruling Class (witness what happened to Lugar in Indiana) and it further understands that whatever gripes one may have with Romney, Obama simply must go because he's an utter disaster as President.

People are waking up to the fact that we aren't electing a savior - we've reached Journey's End when people will invest their hopes and dreams in a mere Presidential candidate.  Romney is a tool  - and a tool which will be discarded if he strays too far from the people.  Romney, though, appears smart enough to understand this - at least for his first term, we can expect him to actually do some useful work in reforming government, even at some pain to Ruling Class interests.  It is, in the end, the only way Romney can prevent a challenger in the 2016 primaries.

Ultimately, though, there must be a revolution - and that will take someone who is actually willing to go flat out against the current system.  Romney won't do it (he's not tempermentally like that - though he may surprise us if his back is to the wall and we're facing default) but using Romney to get rid of Obama and to put at least some rationality in to government policy can give us a breather and allow us to build from the ground a truly revolutionary movement to reform America.  We still have everything we need right here in this country to make it as great as it should be...all we need do is unleash it, and I think that the political will for such radical change is developing.  The final piece of the puzzle is to get a political party (which can end up being the GOP if things go a certain way, but may require a new party) which realizes that the two sides of the coin - Big Government and Big Corporation - both have to go for America to be free and prosperous. 

 

RockyRacoon's picture

I'll commend you for being rational.   One thing you may not really be considering is that the game is over.  The US is too far gone to save, under the current "system" that has developed.  That "system" is not the form of government we were founded under.   The economics have failed, as well as the politics.   The familiar concept of denial is one that we should all take a closer look at, and yes, that includes me.   Working under the same set of so-called rules will not get us back to stable.  I'm afraid that it will all have to come down first.  That is something with which the founders were familiar, and not at all averse to.

Mark Noonan's picture

And, thus, the need for revolution.  But I think that what the Founders gave us still works at least to this extent:  we, the people, can overthrow the current system via the electoral process.  No assurance that we will, of course, but that we can. That is may ultimately require the shedding of the blood of patriots and tyrants is something that cannot be excluded but I believe there is just enough will on the side of restoring the old, constitutional order that we'll avoid anything like that.

Of course, just restoring it won't be enough: what was subverted before can be subverted again.  We have to learn the lessons and apply them.  However the revolution comes about the end result must be a much more clear re-writing of the restrictions on government power as well as a more definitive statement of the rights of the people.  Naturally, a corrupt political class will set about trying to subvert the new system as much as they had the old, but we can certainly slow them down a lot more and given America another century of good government.