Showing posts with label US presidential elections. Show all posts
Showing posts with label US presidential elections. Show all posts

Monday, April 04, 2016

Donald Trump Predicts 'Very Massive Recession' in US Economy, Warns that it is a 'Terrible Time' to Invest in Stocks

It's really interesting to watch fireworks or controversial assertions from 'anti-establishment' US presidential aspirant Donald Trump. Well 'anti-establishment' is what he presents or markets himself to the public. Whether this image is real or not is something that will only be known if he manages to implant himself in Washington. (Disclosure I do not endorse any candidate)

But once again, Mr. Trump takes on the side of the grizzly bears.

From Reuters
Republican presidential front-runner Donald Trump predicted that the United States is on course for a "very massive recession," warning that a combination of high unemployment and an overvalued stock market had set the stage for another economic slump.

"I think we’re sitting on an economic bubble. A financial bubble," the billionaire businessman said in an interview with The Washington Post published on Saturday.

Coming off a tough week on the campaign trail in which he made a series of missteps, Trump's latest comments bring him back into the limelight ahead of Tuesday's important primary in Wisconsin where he trails in the polls.

The former reality TV star said that the real U.S. jobless figure is much higher than five percent number released by the U.S. Bureau of Labor Statistics.

"We’re not at 5 percent unemployment," Trump said.

"We’re at a number that’s probably into the twenties if you look at the real number,” he said, adding that the official jobless figure is "statistically devised to make politicians — and in particular presidents — look good."

Trump said “it’s a terrible time right now” to invest in the stock market, offering a more bleak view of the U.S. economy than that held by many mainstream economists.
Is Mr. Trump really a bear? Or is he taking this position as campaign strategy to assail Wall Street?

Saturday, March 26, 2016

US Politics: Reason Why the Fed Didn't Raise Rates? Donald Trump

One recognizes that the political season is heating up with comments like this. From New York Posts' John Crudele 
The upcoming election and, especially, the surprising strength of Donald Trump also make it almost impossible for the Fed to boost rates. If Trump gets elected, the Fed will almost immediately be hit by audits that will reveal lots of secret, sinister things. 

So Fed Chair Janet Yellen and her fellow central bankers can’t do anything — like raise the cost of money — that might slow the economy down and give Trump a better shot at winning the presidency.
Presidential aspirant Donald Trump seeks to have the FED audited. And this is probably why a FED official has recently been under fire for donating to rival Hillary Clinton. Fed employees have placed big bets on Democrats while campaign donation to the Trump: ZERO!


Thursday, March 17, 2016

US Pollitics: Will Donald Trump Spur the Demise of the GOP? Will a New US Political Structure Emerge?

The Donald Trump phenomenon seems to have caused a Richter scale 7.0 earthquake on establishment politics... 


Caricature from Ben Garrison/hat tip zero hedge

Here are some noteworthy quotes on 'The Donald Phenomenon'

From analyst Martin Spring: (bold mine)
Without Ohio’s 66 delegates, Trump now faces an extremely difficult path to reach the majority of delegates he needs to avoid a “contested” GOP convention. So the establishment looks like it will win and no candidate will enter the convention with a majority of delegates locked up. So after the first ballot, they are free to vote for whoever the establishment wants. It looks like the computer may be right after all. This is beginning to appear to be a very insane situation. The last time no candidate had the required amount for a nomination was 1976. Under the rules of the GOP, all these primaries were pointless. Delegates can choose one of the candidates who ran, or someone else entirely – Romney?

With the people voting for Trump, the Republican Party may have to face a huge, strong anger backlash from his supporters. We are more likely to see a third party candidacy from Trump himself. The establishment will not have an outsider in that office so Trump might as well run third party to illustrate the corruption. The Republicans prefer Hillary to Trump any day of the week. The establishment fears ending elections that cannot be bought by their supporters, for their families might get fired from cushy jobs. Trump would not just sign whatever bill was put before him...

Someone like Trump presents a huge threat to the establishment. They would have to assassinate him because he got in their way. The establishment might try blaming Cuba again or someone else they really do not like. The talk behind the curtain is clear— hand it to Hillary and everything remains intact.

So a Republican split is looking more likely. They have drawn the line in the sand. By no means will they accept Trump. He might as well begin forming a third party. What is going to be exposed is that we do not live in a Democracy. As long as the people vote for their groomed candidates, the pretense is fine. Now when it threatens their existence, well it’s time to bring the grapes of wrath down upon everyone. Their mistake: they assume this will all blow over. Where they are wrong is that to defeat Trump, they must expose the truth. It’s their game and they make the rules. Your vote really means nothing to them. I suspect this is step one in what the computer warns will be an entirely new political system ahead.
From Libertarian author Robert Ringer: (bold added)
But make no mistake about it — all members in both wings of the party fully understand the importance of the theater aspect of the political game, never losing sight of the fact that their overarching, joint objective is to stay in power. Everything else about the game is secondary. The unspoken understanding among Demopublicans is, “You scratch my back and I’ll scratch yours. And if you refuse to play the game, you can be sure that you won’t be around long.”

Nevertheless, the Republican wing of the party has been dying a slow death since the end of the Calvin Coolidge era. Coolidge was the last great U.S. president, a fervent believer that the government’s role was to stay the hell out of the way, hence his slogan: “The business of America is a business.”

But when Coolidge handed the freedom baton to Herbert Hoover, the downward spiral began. Hoover was the George W. Bush of his time, offering little resistance to the big spenders in the Democratic wing of the party and paving the way for Franklin D. Roosevelt, the first president to fundamentally change America.

Like the stock market, there have been a few upticks here and there, most notably under Ronald Reagan, but the long-term trend line for America has been downward. And since the first anti-American president appeared on the scene in 2009, members of the Republican wing of the Demopublican Party have not even made a pretense of opposing policies that are specifically intended to collapse the economy.

As a result, everything has been going along just fine for the anti-American crowd for seven years, with the Demopublicans moving ever closer to fascist control of the populace. Then, suddenly, from out of nowhere that damn Donald Trump came along and started threatening to burst the Beltway bubble. Of course, the establishment didn’t take him seriously at first, which is likely to go down in history as their Waterloo mistake.

Like Napoleon, they were breathtakingly arrogant and, as a result, completely miscalculated the strength of their sworn enemy — the American people. Now that Republicans realize they made a terrible mistake in mocking and dismissing the chosen leader of the masses, The Donald, they have become increasingly frantic.

It’s become a real-life version of Road Runner (Trump) and Wile E. Coyote (establishment Republicans). Every time the latter thinks they’ve convinced Republican voters that Trump is a fraud, a phony, and/or an unknowledgeable fool, they wake up in the middle of the night to the haunting sounds of “Beep! Beep!”

I’m hoping that Trump’s great contribution to America will be the official end of the pompous Republican wing of the Demopublican Party — the wing that has brought us such frauds as Recreant Romney, Mush McCain, Mooch McConnell, and, more recently, Robo Rubio. Make no mistake about it, the power brokers behind the scenes are still determined to maintain the status quo, but there’s a good chance that their long-running scam is finally coming to an end
Will the Trump phenomenon expose on the populist fraud called Democracy which the establishment has used as camouflage to protect their interests?

From conservative author Pat Buchanan (emphasis mine)
What the co-conspirators of Sea Island were up at the Cloisters was about as religious as what the Bolsheviks at that girls school known as the Smolny Institute were up to in Petrograd in 1917.

From what has been reported, it would not be extreme to say this was a conspiracy of oligarchs, War Party neocons, and face-card Republicans to reverse the results of the primaries and impose upon the party, against its expressed will, a nominee responsive to the elites’ agenda.

And this taxpayer-subsidized “Dump Trump” camarilla raises even larger issues.

Now America is not Russia or Egypt or China.

But all those countries are now moving purposefully to expose U.S. ties to nongovernmental organizations set up and operating in their capital cities.

Many of those NGOs have had funds funneled to them from U.S. agencies such as the National Endowment for Democracy, which has backed “color-coded revolutions” credited with dumping over regimes in Serbia, Ukraine and Georgia.

In the early 1950s, in Iran and Guatemala, the CIA of the Dulles brothers did this work.

Whatever ones thinks of Vladimir Putin, can anyone blame him for not wanting U.S. agencies backing NGOs in Moscow, whose unstated goal is to see him and his regime overthrown?

And whatever one thinks of NED and its subsidiaries, it is time Americans took a hard look at the tax-exempt foundations, think tanks and public policy institutes operating in our capital city.

How many are like AEI, scheming to predetermine the outcome of presidential elections while enjoying tax exemptions and posturing as benign assemblages of disinterested scholars and seekers of truth?

How many of these tax-exempt think tanks are fronts and propaganda organs of transnational corporations that are sustained with tax-deductible dollars, until their “resident scholars” can move into government offices and do the work for which they have been paid handsomely in advance?

How many of these think tanks take foreign money to advance the interests of foreign regimes in America’s capital?

We talk about the “deep state” in Turkey and Egypt, the unseen regimes that exist beneath the public regime and rule the nation no matter the president or prime minister.

What about the “deep state” that rules us, of which we caught a glimpse at Sea Island?
Has the Trump phenomenon been the "karma" from US foreign imperialist backdoor policies or US government's meddling abroad?

Or could it be that the Donald may be just be another Trojan horse?

From Bill Bonner: (underscore mine)
But we find it hard to imagine that The Donald hasn’t already made a deal with the “powers that be.”

His career was forged in the white heat of the building trade – with mafia-run unions, along with banks and regulators in Las Vegas and New York hammering him.

He denies it. But he depends on all of them – the government, the banks, and the system of Bubble Finance – to keep his fortune intact.

He knows how important they are. And he knows how they operate.

Donald claims to be one of the greatest dealmakers in history. It is hard to imagine that he hasn’t made the most important deal of his life.
Central bank inflationism seem to have spread to drastically affect even the political spectrum. 

And yet the Trump, Europe's refugee crisis, Europe's rise of right wing politics, territorial disputes, Middle East crisis, Brexit and many more seems just the appetizer.

Friday, November 09, 2012

The Supposed Virtue of Romney’s Conceding

Over the radio, I heard a local bureaucrat pontificate over the supposed “virtue” of defeated US presidential candidate Mitt Romney on conceding the race to re-elected President Obama as worthy of emulation by local politicians.

From Breitbart.com (bold mine)
Speaking to a large but dispirited crowd at the Boston Convention and Exhibition Center, Romney began his speech on a gracious note:
 "Thank you, my friends. Thank you so very much."

"I have just called President Obama to congratulate him on his victory." 

With only the state of Florida's 29 electoral college votes undecided, President Obama held an insurmountable 303 to 200 electoral college lead over Governor Romney.
The act of conceding, could in the surface, seem as sportsmanship or as gentleman’s behavior.  Yes, political agents love to draw people's attention towards superficial abstractions by pinning the blame or conflicts on people's behavior rather than from systemic flaws.

But my point is that Mr. Romney’s loss has already been an established fact or a reality when he made the concession.

So being a politician, Mr. Romney opted to save face by being gracious in the face of defeat than become a sour grape—the latter would have put at risk his political career or future political actions.

In other words, US electoral conditions vary from Philippine elections such that the former’s electronic platform which produced immediate results,  supposedly removed the stigma of cheating or electoral fraud that has been the key source of acrimony in the local setting.

Of course, we can never really say how clean the US elections had been since any electoral cheating in the digital age would have meant largely untraceable systematic manipulation.

As former assistant secretary of US Treasury and former associate editor of Wall Street Journal Paul Craig Roberts duly noted
With electronic voting machines, which leave no paper trail and are programmed with proprietary software, the count can be decided before the vote. Those who control the electronics can simply program voting machines to elect the candidate they want to win. Electronic voting is not transparent. When you vote electronically, you do not know for whom you are voting. Only the machine knows.

According to most polls, the race for the White House is too-close-to-call. History has shown that when an election is close and there’s no expectation of a clear winner, these are the easiest ones to steal. Even more important, the divergence between exit polls, perhaps indicating the real winner, and the stolen result, if not overdone, can be very small. Those who stole the election can easily put enough experts on TV to explain that the divergence between the exit polls and the vote count is not statistically significant or is it because women or racial minorities or members of one party were disproportionately questioned in exit polls.
The world does not operate in a vacuum. People act based on incentives. Laws, regulations and social or political economic systems have material influences on people's behavior and actions.


Thursday, November 08, 2012

Video: Marc Faber Says President Obama is a Disaster for the US, Recommends Buying Machine Guns

In the following Bloomberg interview Dr. Marc Faber rants on Obama's re-election which comes with several interesting insights




My notes from his interview

-Obama is a disaster but less bad for the world than Romney. Both deserve to lose

 -Markets will drop by at least 20% in 6-9 months, may drop 50%

-Obama's regime: more regulations, higher taxes

-Bernanke's money printing led to high corporate earnings but has been coming down 

-Global slowdown may counter the effect of money printing [For me, global central banks are doing the same as Bernanke's Fed, so these would have consequences to the markets and the economy, which ensures volatility but not necessarily an asset slump]

-It is difficult to tell where the markets will go because of so much manipulation

-Congress will solve Fiscal Cliff standoff with Obama by cosmetically raising taxes and cutting spending which will be backloaded 10 years.

-trading year end rally until January before selling pressure.

-GDP is not a very relevant figure

-Dr. Faber also cites of the entitlement mentality of the markets where a decline of 2% is seen as a big deal when markets have had a "huge bull market" over the past decades    

-China's economy is growing a maximum 4% at present time

-Asia not in a recession but off the peak of business activities from nine month ago. 

-Dr. Faber jokingly recommends buying guns and machine guns, he quips of his need to buy a tank.

-Whenever you manipulate the market you willget unintended consequences

-The re-election of Mr. Obama is an unintended consequence is an unintended consequence from money printing. [For me, money printing was a political strategy by Bernanke in to the political goals of Obama, thus was hardly an unintended effect]

-Mr. Bernanke enabled the "wealthy fat cats" profiteers [which Democrats used effectively as part of their political campaign]

-Dr. Faber doubts if Mr. Obama stay at the presidency for the another four years as in "there will be many scandals".

-standards of living in the western world will continue to decline because of the cost of living increase will exceed income gains, cost of living will also go up because of all types of taxes will be increased 
 

US Elections Hobbled by Low Voter Turnout

Obama’s triumph comes amidst low voter turnout.

According to the Daily Mail,
With 99 percent of precincts reporting, The Associated Press' figures showed about 119.5 million people had voted in the White House race, but that number will increase as more votes are counted. In 2008, 131 million people cast ballots for president, according to the Federal Election Commission.
Hurricane Sandy could be a factor. Growing indifference may have also been a factor.

Again from the same article
In other areas not affected by the storm, a host of factors could have contributed to waning voter enthusiasm, Gans said. The 2012 race was one of the nastiest in recent memory, leaving many voters feeling turned off. With Democrats weary from a difficult four years and Republicans splintered by a divisive primary, neither party was particularly enthused about their own candidate. Stricter voting restrictions adopted by many states may also have kept some voters away from the polls.

"Beyond the people with passion, we have a disengaged electorate," Gans said. "This was a very tight race, there were serious things to be decided."
But perhaps the no vote camp may have been gaining some ground

When we express a preference politically, we do so precisely because we intend to bind others to our will. Political voting is the legal method we have adopted and extolled for obtaining monopolies of power. Political voting is nothing more than the assumption that might makes right. There is a presumption that any decision wanted by the majority of those expressing a preference must be desirable, and the inference even goes so far as to presume that anyone who differs from a majority view is wrong or possibly immoral

US Equity Markets Welcomes Obama Re-election with a Thud!

What a celebration for the re-elected President.

From Bloomberg,
Stocks tumbled as Obama’s re-election set up a showdown with the Republican-controlled House over the budget, with the so-called fiscal cliff of more than $600 billion in tax increases and spending cuts slated to start in January unless Congress acts before then.

The Standard & Poor’s 500 Index (SPX) lost the most since June, tumbling 2.4 percent to close at 1,394.53. The retreat wiped out roughly $370 billion in market value from U.S. equities, according to data compiled by Bloomberg.
Don’t worry, for the Obama apologists the US Federal Reserve will ride to the rescue.

A day ago, Federal Reserve Bank of San Francisco President John Williams said that he expected the revitalized asset purchasing program or QE 30 (forever) to reach $600 billion into next year.

After yesterday’s elections, the ante seems to have been upped, where many expects the Fed’s program to exceed $1 trillion (I have been saying that both the FED and the ECB will be buying over $2 trillion)

From the same Bloomberg article,
A fiscal boost to the economy is probably off the table as President Barack Obama negotiates tax increases and spending cuts with leaders of a Democratic-controlled Senate and a House of Representatives led by Republicans, Edelstein said. That may leave only the Fed in the position of trying to boost the economy, and its third round of quantitative easing may extend through next year and climb past $1 trillion, said economists at JPMorgan Chase & Co. and Pierpont Securities LLC.
Supposedly political gridlock is there to blame, but this is simply a smokescreen for what in reality has been President Obama’s anti-business policies, which have only increased the risk profile and the cost of doing business and which will be reflected on higher hurdle rate for investors and entrepreneurs.

Economic freedom in the US has been on a marked decline.

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From Fraser Institute: US ranking fell to 18th in 2010
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From Heritage Foundation: US fell to 10th place in the 2012 index

The distinguished Professor and author Thomas Sowell elaborates,
The media misconception today is that what we need to speed up economic recovery is to end gridlock in Washington and have bipartisan intervention in the economy. However plausible that may sound, it is contradicted repeatedly by history.

Unemployment was never in double digits in any of the twelve months following the stock-market crash of 1929. Only after politicians started intervening did unemployment reach double digits — and it stayed there throughout the rest of the 1930s.

There is nothing mysterious about an economy’s recovering on its own. Employers usually have incentives to employ and workers have incentives to look for jobs. Lenders have incentives to lend and borrowers have incentives to borrow — if politicians do not create needless complications and uncertainties.

The Obama administration is in its glory creating complications and uncertainties for business, ranging from runaway regulations to the unknowable future costs of Obamacare and taxes. Record amounts of idle cash held by businesses and financial institutions are a monument to the counterproductive effects of Barack Obama’s anti-business policies and rhetoric. That idle money could create lots of jobs — net jobs — if politics did not make it risky to invest.
So President Obama’s increasing reliance on the FED (most likely on Bernanke) will only lead to more volatile markets.

And volatile days have been a common feature since 2007.

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The Bespoke Invest notes of the increasing “All or Nothing days” or advance decline breadth index “where the net daily A/D reading in the S&P 500 exceeds plus or minus 400”.

In other words, since the FED began intervening in the markets, stock market movements either floated or sank in tides. Such tidal motion is a symptom of the monetary policy influenced inflation (boom)-deflation (bust) volatilities.

Finally, Sovereign Man’s Simon Black succinctly illuminates on what to expect from the extension of Obama’s presidency
One point that I absolutely must make is this– after December 31st,
- Income tax rates are going up
- Capital gains rates are going up
- Rates on dividends are going up
- Estate and gift tax exclusions are going down. Dramatically.
Eventually the US government will run out of savings or wealth generators to tax and a crisis will emerge. And the US will default on its obligations.

Perhaps the markets has signaled what the great libertarian H. L Mencken wrote [A Little Book in C major (1916); later published in A Mencken Crestomathy (1949)].
Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

Wednesday, November 07, 2012

Barack Obama Re-Elected

Barack Obama on Tuesday night was re-elected U.S. president, defeating Republican opponent Mitt Romney after an intensely close race for the White House. Obama has promised to invest in clean energy and education in a second term, as well as raise taxes on wealthy Americans to help pay down the deficit. Victory in the key state of Ohio helped Obama win on Tuesday night
Here is what I earlier wrote
In a close battle, the incumbent have the edge. This is because they hold the political machinery which can be used to their advantage through whatever means

In a choice between two statists, the snookered American electoral system fell for the status quo.

As I previously noted
At the end of the day, regardless of whoever wins, US policies will remain embedded to the interests of the political economic establishment. Changing personalities who runs the same show hardly accounts for a change in the system.
Plus ça change, plus c'est la même chose

Tuesday, November 06, 2012

Obama’s Potemkin Economy

I have been saying here that asset markets have subject to intense political interventions since so much has been at stake for the career of politicians.

For instance, US Federal Reserve chief Ben Bernanke’s "QE Forever" could be construed as having been connected or linked to his tenure under the President Obama presidency.

I guess even the recent statistical economic growth of the US economy may have been propped up for election reasons.

Writes Professor Shawn Ritenour at visionsandvalues.org (bold mine, hat tip Mises blog)
The main reason GDP increased at a rate larger than forecast was a large increase in government spending. As hard to believe as it may be, government spending’s contribution to real GDP had actually decreased since the second quarter of 2010. Anyone who understands the economic consequences of government spending knows that this was a good trend if we want to promote long-term economic expansion.

Alas, this trend underwent a dramatic reversal over the past three months. Real federal government expenditures increased 9.6 percent. National defense spending alone increased 13 percent over the third quarter. These increases at the national level contributed to an overall increase in all government spending (federal, state, and local) of 3.7 percent. Government spending is what drove the increase in real GDP. Unfortunately, we cannot rely on government spending to generate sustainable economic expansion. The economy is not a machine that is ailing from a dead battery. Yet modern macroeconomists and policymakers often talk and act like it is. They speak of “jump-starting” the economy with a little government spending or monetary inflation or both. Such actions, however, do not generate real wealth. They surely do cause a redistribution of wealth, benefiting some while harming others, but they do not provide any general social benefit. Neither government spending nor monetary inflation results in more production of more goods that are able to satisfy the subjective ends of people in our social economy…

The bottom line is that increases in GDP statistics caused by monetary and fiscal stimulus signals an economic expansion that is more apparent than real. Any economic expansion that does not result from increased voluntary saving and investment cannot be sustained. The minute the government slows the rate of government spending or the Federal Reserve slows the rate of growth in the money supply, the economic lie is exposed and economic law once again asserts its authority. Capital malinvestment and the misallocation of factors of production no longer can be covered over as official statistics catch up with reality.
President Obama seem to have employed a deft win-win political strategy. A simulacrum of economic growth may work in favor of his re-election. Otherwise a loss should translate to a 'graceful' exit.

Nonetheless, artificially stimulated growth simply means blowing bubbles which eventually gets to be pricked. Unfortunately, society suffers from the eventual bubble bust, which had been implemented for the self serving interests of politicians.

Sunday, November 04, 2012

The Likely Impact of US Presidential Elections on the Stock Markets

Thus elections, quite apart from who won them, performed a powerful cultural function for the elites. To the degree that -everyone had a right to vote, elections fostered the illusion of equality. Voting provided a mass ritual of reassurance, conveying to the people the idea that choices were being made systematically, with machine-like regularity, and hence, by, implication, rationally. Elections symbolically assured citizens that they were still in command—that they could, in theory at least, deselect as well as elect leaders. In both capitalist and socialist countries, these ritual reassurances often proved more important than the actual outcomes of many elections. Alvin Toffler, The Third Wave chapter 75

It’s the eve of the much awaited 2012 US national elections.

On November 6th Tuesday many Americans will flock to their respective precincts to exercise their suffrage. The national elections will cover the executive (President-Vice President) and the legislative branches (Senate and House of Representatives) as well as some positions at the state level[1].

The Follies of Pattern Seeking Behavior

We are told that certain outcomes from the coming election may lead to specific results on the financial markets.

For instance, a Barclay’s survey on professional investors[2] proposed that a Romney victory would be good for stocks while Obama’s re-election will favor the bond markets.

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Others suggested that the elected President’s political party matters. The median return for the S&P 500 favors a Democrat President over a four year period, as against a Republican President who may spur a short term rally. All these are based on statistics derived from historical data[3].

For me, surveys are hardly reliable measures of the tradeoffs between profits and risks.

What people say and what they actually do may be different. Many people talk to signal Social Desirability Bias or to say things in a matter that they will be viewed favorably[4]. 

People are also highly sensitive to changes in preferences due to many factors as new information, social pressures, and more. Besides, surveys can also yield distortive results based on the influence from how questions are framed by the pollster.

Further, candidness of the survey participants also account for as another important variable to be leery on.

On the other hand, statistical constructs based on historical events signify as veneer to people’s desire to seek patterns in order to deal with uncertainty or to simply tell stories again for social signaling purposes.

Yet historical events are complex phenomena that had been arrived at through multifarious causes. They cannot simply be oversimplified or seen or interpreted as homogenous replication of the current environment. Even Wall Street acknowledges this dynamic through the axiom: Past performance does not guarantee future results.

Thus assignment of numerical probabilities on partially similar episodes, are not only irrelevant in forecasting the future, but such accounts for a form of entertainment to its practitioners.

As I previously wrote[5],
numerical probabilities serve to gratify one’s cognitive biases which in essence is a form of self-entertainment rather than a dependable methodology for risk analysis
Pattern seeking behavior can also be representative of the gambler’s fallacy or the Monte Carlo fallacy, which Investopedia.com defines as[6]:

When an individual erroneously believes that the onset of a certain random event is less likely to happen following an event or a series of events. This line of thinking is incorrect because past events do not change the probability that certain events will occur in the future.
Yet there has been no precedent in terms of the scale of policymaking for any meaningful comparison to be made with past US national elections.

Such distinction even holds true in terms of other social phenomenon such as technological advances or innovation and of the diffusion of voluntary exchanges expressed as globalization

Yet social policies, which shape people’s incentives to save, invest, produce and consume, implemented and enforced through the political spectrum, have reached extraordinary proportions.

Regulatory growth has morphed into a large scale bureaucratic quagmire. Notes Mises Institute President Douglas French[7],
The Federal Register, a publication with all the country’s (federal, nonclassified) rules is now over 81,000 pages long. President Obama’s Affordable Care Act is 906 pages. The Dodd-Frank Act totals 849 pages. Once upon a time, in 1913, the Federal Reserve was created with only 31 pages. The U.S. Constitution required only six pages.
It would account for as a glaring mistake to construe neutral effects from these new-fangled edicts or rules or decrees on people’s economic and social activities.

Moreover, systemic debt has been ascending to unsustainable levels.

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Chart from Dr. Ed Yardeni’s Flow of Funds[8]

Financial analyst and fund manager Doug Noland recently observed of the political imperative to keep the system afloat[9]
After beginning 1990 at $12.8 TN, Total System Marketable Debt ended June 2012 at $55.0 TN.  And Washington politicians and central bankers are now doing everything they can to sustain the Credit boom and avert the downside of an historic Credit cycle.  Similar efforts are afoot globally.  

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The accelerating erosion of America’s productive dimensions has been due to the escalating welfare state, ballooning bureaucracy and other state based expenditures which transfers scarce and valuable resources to non-productive political based spending and entitlements, which has also been crowding out the private sector. Chart from Heritage Foundation[10]

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America’s social policies have also led to the unparalleled deployment of the US Federal Reserve as chief provider of funds for the US government.

In 2011, more than half or 61% of US debts had been monetized by the US Federal Reserve. US Federal holding of US treasury debts of all maturities has surpassed $1.8 trillion (lower window).

This represents the highly fluid debt economics of the US government, where the Fed has stepped up the plate relative on the declining interests from the private sector, as well as, foreign public and private investors (upper window).

As Mr. Lawrence Goodman, president of the Center for Financial Stability wrote at the Wall Street Journal early this year
The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury's need to borrow and a more limited willingness among market participants to supply Treasury with credit.

The failure by officials to normalize conditions in the U.S. Treasury market and curtail ballooning deficits puts the U.S. economy and markets at risk for a sharp correction.
The point being: The current state of imbalances borne out of America’s political dynamics has been unmatched in scale and depth. This only means that America’s future will depend on the actions of political authorities which will either deepen systemic fragility or take remedial but highly painful measures.

Risk Reward analysis, thus, requires a focus on the actions of policymakers.

Campaign Promises Hardly Are Reliable Measures of Projecting Future Policies

It would be conceivably naïve to rely on political rhetoric of competing candidates as basis for examining and projecting prospective policies.

Politicians usually appeal to the views the median voter to ensnare votes. In other words, politicians, who are running for office, are predisposed to say what the public wants or expects to hear.

On the obverse end, people hardly vote for policies but for symbolisms which these candidates represent. Thus aspiring politicians work hard to project themselves as symbols to reinforce people’s biases.

And this is why politicians usually end up with unfulfilled promises or have usually gone against their rhetorical assurances made during the campaign sorties.

Voters become useful only to politicians when election season arrives.

Take for instance, the Reason Magazine enumerates[11] some of the unmet campaign pledges by presidential candidate Barack Obama in 2008:

1. Creating five million green jobs.

Unfortunately President Obama’s green energy industry has been suffering from a string of high profile bankruptcies[12], which includes the controversial Solyndra scandal.

The highly influential think tank Council of Foreign Relations recently noted that Obama’s creation of green jobs from the green energy sector have penalized taxpayers heavily relative to the other non-renewable energy industries[13]

2. Balance the budget

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As of Monday October 29th, the US is on path to reach its debt limits before 2013. According to the Reuters[14], the U.S. Treasury was $235 billion below the $16.4 trillion statutory ceiling on the amount it can borrow.

3. Refusing to raise taxes on the Middle class

The passage of Obamacare translates to 21 new taxes or tax increases affecting the middle class too.

4. Reforming Immigration 

The Reason.com says that the Obama administration has been deporting illegal immigrants like crazy, leaving Hispanic Caucus Democrats in the awkward position of changing the subject to health care, and otherwise blaming Republicans.

5. Restoring America’s moral standing in the world

President Obama has been expanding the theatre of warfare to include Pakistan, Yemen and Libya and from the backdoor, Syria[15].

So whether Obama or Romney, there will unlikely be any radical changes in the political structure to headoff the looming debt crisis.

This goes to show that elections have mainly been used to justify policies which benefit many entrenched power blocs operating behind the scenes.

Given the above conditions, the pricing dynamics of the markets will, thus, represent expectations from the feedback loop mechanism between policies and market responses to them.

The late illustrious French American mathematician Benoit Mandelbrot in his book The Misbehavior of Markets[16] dealt with the difference of economics with natural science.
Finance is a black box covered by a veil. Not only are the inner workings hidden, but the inputs are also obscured, by bad economic data, conflicting news report or outright deception…And then there is the most confounding factor of all, anticipation. A stock price rises not because of good news from the company, but because the brightening outlook for the stock means investors anticipate it will rise further, and so they buy. Anticipation is a feature unique to economics. It is psychology individual and the mass—even harder to fathom than the paradoxes of quantum mechanics. Anticipation is the stuff of dreams and vapors.
Anticipation is part of human action. People’s divergent expectations, anticipations, and responses are what differentiate economics from natural sciences.

Yet anticipation of the prospective polices, the actual policies, and of its attendant effects on the marketplace will most likely anchor on market dynamics post-election season.

Unlikely Change of Direction for Fed Policies in case of a Change of Administration 

A good test of these will be to assess the scenario of a Romney victory (Although I have big doubts of a Romney win. In a close battle, the incumbent have the edge. This is because they hold the political machinery which can be used to their advantage through whatever means).

Yet under a Romney victory, would the new President discharge on his vows to replace the incumbent chairman US Federal Chairman Ben Bernanke at the expiry of the latter’s term? Will Mr. Romney spearhead through his appointee a massive overhaul to the US Federal Reserve’s current policies? I don’t think so.

Given the reality or the fact that the US government’s huge budget deficits heavily depend on the US Federal Reserve for financing, it is unlikely that the Romney appointee to rock on the establishment’s boat.

I have predicted in the past[17] and have been validated that Fed Chairman Ben Bernanke would work to ensure Obama’s re-election through “stock market friendly” policies. This places an ethical issue of the agency problem or conflict of interests between Mr. Bernanke and his policies which affects the average Americans on the political table. 

To downplay the political bias from his recent action, Ben Bernanke has floated to media the possibility of his retirement even if Obama wins[18]. Of course, the re-elected President Obama can always “persuade” Mr. Bernanke to change his mind. 

Mr. Bernanke seems to be applying the same communications signaling strategy to the public for his personal affairs. This leaves a bad taste on the mouth for Bernanke apologists.

As an aside, all the blarney about “QE forever” designed as monetary policy to supposedly aid the economy through the spending transmission channels of the wealth effect, has really been a diversion, if not a subordinated priority, to the real or primary objective: the FED as contingent financier to the US government’s intractable US budget deficit as expressed through surging debt levels.

Yet candidates floated by the mainstream[19], particularly Glenn Hubbard, Greg Mankiw and John Taylor, to replace Mr. Bernanke have mostly been “dovish” or in favor of the Fed’s contemporary policies (This is with the exception of John Taylor, of the Taylor rule fame, whom I don’t think stands a chance). 

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In addition, the composition of voting members of the FOMC has been, and will be, most likely leaning towards the “doves” or conformists.

Such would include the previously vacant seats which were recently filled (Jeremy Stein and Jerome Powers), aside from the replacement of the 4 voting regional Federal Reserve Presidents, as part of the customary rotational process, which again favors the “doves”[20]

At the end of the day, regardless of whoever wins, US policies will remain embedded to the interests of the political economic establishment. Changing personalities who runs the same show hardly accounts for a change in the system.

And as such policies will likely remain accommodative primarily to shield the US government from interest rate and credit risks, which should for the meantime, benefit the financial markets, particularly stocks, bonds and commodities (yes despite last Friday’s shakeout) whom have been the secondary beneficiaries.

After all, the main risks I believe will emanate from the market’s ventilation of the unsustainable imbalances from the welfare-consumption-debt based political system, which eventually will render politicians utterly helpless in the face of market-economic chaos. But it is unclear if the day of reckoning is sooner or will surface later.

For the highly interconnected and interrelated global stock markets, including the Philippines, the actions of the US Federal Reserve will have very important transmission implications, and this will be backed by the actions of other major central banks, as well as, from the auxiliary effects of domestic policies. As far as the Philippine BSP is concerned they have aligned their policies to ease along with the US and with most of the major central banks.


[3] Frank Holmes Who Will Lead America Over the Next Four Years? US Global Investors November 2, 2012
[6] Investopedia.com Gambler's Fallacy
[7] Douglas French Democracy Is a Terrible System, Period Laissez Faire Books
[8] Yardeni.com US Flow of Funds, October 29, 2012
[9] Doug Noland Sandy, Bernanke And Money November 2, 2012
[11] Reason.com 5 Broken Democratic Promises from 2008, September 4, 2012
[15] Anthony Gregory America’s Unique Fascism Lew Rockwell.com September 6, 2011
[16] Benoit Mandlebrot and Richard L. Hudson The (MIS) Behaviour of Markets p.28
[20] Axel Merk and Yuan Fang Monetary Cliff? Merk Investments October 24, 2012