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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, May 06, 2016

Presidential Politics & The Markets

The US will have a newly minted President come this Jan. The first day of full time work for any new
President involves getting together with top staff and advisors to begin development of a re-election
strategy. In getting the plan together, the key sin to be avoided is to have the economy in trouble
during the last 15 - 18 months of the first term. You want the economy humming along as best it
can during the protracted lead-in to the next election. So this means taking stock of the economy
after the inaugural festivities and delving into whether it  can be kept relatively comfortably
afloat throughout the forthcoming four years or whether there are excesses in the system best dealt
with earlier during the President's tenure. Since the markets will be aware of these excesses and how
troublesome they may become, the early going of the first term will feature strong investor focus
on official Washington.

On the assumption the US economy will drift along positively into early 2017, it will likely be the
case that the new administration will confront stronger but still mild inflation and relatively full
employment, at least on the surface. Many in the workforce now hold more than one job and as
official part timers have few benefits. Early 2017 is likely to see that there is still significant
facilities over-capacity and plenty of liquidity in the banking system. So, unlike in many post
election years, the argument to allow the economy to run out the string with the aid of perhaps
additional fiscal stimulus in the expectation that excesses can be more fully redressed after the
next election will prove far more tempting than normally. If this preliminary assessment proves
correct, it may not make that much of a difference who wins the 2016 election, at least in the very
early going.

As investors and traders we can get caught up in the election battle in the months ahead however
we may, as long as we keep in mind how quickly the re-election campaign begins.

looking at the 2016 landscape, we find a four way political spectrum situation for the first time
really since the 1912 election. As with Eugene Debbs then, we have a newly emergent left wing
in Bernie Sanders. There is a left-of-center contingent behind Hillary Clinton. Then we have the
hardcore GOP, now captained by House Speaker Paul Ryan and a new, less plutocratic GOP
running with The Donald. To make this case, Trump will need to tell Ryan to stuff it and not
give in to the Ryan ultimatum. That little twist is ahead along with perhaps several others as
we move on to the big day.

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