It’s the Economy Stupid!

September 28, 2006 –

spiderweb.gifHistorically, August and September are very weak months in the stock market and rallies start in October into November and December. Then January has always been a very strong month performance wise as investors buy back shares they sold off in December for tax reasons. Right now, the U.S. markets are following some historic patterns and ignoring others. Trying to decipher them is a big web of entanglement.

I’ve been focusing most in the U.S. markets now even though I have very little money invested there because this is a mid-term Presidential election year in the United States, and the global stock market that affects all other stock markets the most is the U.S. market. This year, August and September have been fairly good months creating a sharply overbought U.S. stock market right now. From a technical charting standpoint, it certainly looks like a reversal is coming in October. However, the monkeywrench in the mix, and it is a big monkeywrench indeed, is the behind the scenes political- economic plays being made by the great wizard, the U.S. government, from now until November 7th.

Just a month or two ago, President Bush’s approval ratings were at all time lows, and political experts were predicting a carnage in this year’s Mid-Term elections, with Democrats possibly gaining control in the House and the Senate. Now those experts have changed their tune, calling the mid-term elections too close to call. What has caused this dramatic turnaround?

As people say, It’s the Economy Stupid! In a recent statement, Bush asserted that he felt the economy’s recent performance would help Republican’s maintain control in U.S. Congress. He further stated, “”I’ve always felt the economy is a determinative issue, if not the determinative issue, in campaigns…I certainly hope this election is based on economic performance.” Only if you dug deep down the rabbit hole, the economy looks terrible. However, on the surface, everything looks great. The markets are humming along, new home sales rose in August (however misleading this statistic is which I’ll discuss in a future blog), and gasoline prices have significantly dropped, giving everyone fatter wallets.

President Bush, as does every other President and Head of State all over the world, realizes the economy will determine whether his party maintains control of the government in the upcoming elections. Given that the U.S. Secretary of Treasury is his appointed friend, Henry Paulson, and that the U.S. Federal Reserve occasionally assists the interests of the incumbents, it would be very naïve to believe that political manipulation behind the scenes hasn’t artificially created this “feel-good” rally we are experiencing now. If you want to know my opinion on the sustainability of this rally, just read my prior blog entries.

So where do we stand now? The situation just gets increasingly stickier. I’m not so sure that we’ll get a significant pullback before Nov.7 in the U.S. markets even though technically we should. There’s too much behind-the-schemes political scheming to create this artificial rally to bet against it now. Even if we were to get a pullback, I think it would have to happen very soon, as the incumbent government surely wants to ensure that we don’t have a plunging stock market heading into Nov. 7. So perhaps the U.S. market pulls back now and then recovers into Nov. 7, perhaps it trades sideways in October, or perhaps against all odds, it just keeps surging into Nov. 7. It’s just too sticky to call.


In sticky swords or hands, as I mentioned in a previous entry, as long as one keeps the situation sticky, one maintains control of the opponent. That is what this incumbent government is doing now. Keeping the situation sticky and keeping control of the November 7th elections. However, in combat, all it takes is just the tiniest of slips, and a small error yields control of the situation, the stickiness is surrendered, and the loss of control can result in a very quick serious injury or death. This applies to the current U.S. economy as well. There is so much deception occurring right now with the trade deficit, rates of inflation, the housing market, gasoline prices and so forth, that just one slip, even a tiny slip, that allows the truth to seep through to the masses could cause a quick and serious reversal in the stock market. Of course, here, J.S. and I already know the truth, and know that when the truth catches up to the rest of the investment world that it will stir up the hornet’s nest at some point, whether it is next week or two months from now.

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