Gridlock May Not Be Good as Double Dip Still Looms

There is a high expectation that the Repubs take at least one house of Congress, blocking any further expansion of the Obama agenda, and leading to gridlock for the next two years. There is a general view that gridlock is good for stocks, so a post today that looked at the data caught my eye. PragCap reported on a Fidelity analysis that shows NO positive correlation between mid-term gridlock and stocks:

Large-cap stock returns during post-midterm election years have been about the same, whether or not the outcome resulted in gridlock or harmony (i.e. one party controls both houses of Congress and the White House). Small-cap stocks, meanwhile, outperformed in years of political harmony compared to gridlock.

PragCap goes on to comment that gridlock may be bad for the economy in the circumstances we are in. The next chart shows how the stimulus at least buoyed GDP during the past 18 months, and (as I have commented) once past Peak Stimulus the shrinking stimulus is actually a drag on GDP growth that makes a coming double-dip more likely (the black line is the drag from less stimulus plus less inventory rebuilding):

There is hope that the private sector can more than overcome the drag, and expectations have been that the Q3 GDP report (which is released right before the mid-term elections) would be at least flat to Q2.

In August, however, the trade deficit widened, and it acts as an additional drag on GDP growth: the change in exports less imports is a major component of GDP growth, and a wider trade deficit means it could come in more negative relative to the prior quarter. There had been an import surge in Q2 which was largely based on slightly higher oil prices plus restocking for holiday sales, so expectations were for this component to decrease between Q2 and Q3, which would have pushed Q3 GDP growth up on this component.

Now, the NYT reports that Macroeconomic Advisors has reduced Q3 GDP expectations to 1.2%, a decline from Q2's 1.6%. Calculated Risk had expected a 2% Q3, but calculates that the trade deficit will end up about the same as Q2, meaning it will not improve GDP growth, and now estimates 1.5% GDP in Q3. 

Ironically, a poor GDP report boosts the odds of QE2, which should boost stocks until they run up enough to account for the purported benefits of QE. If gridlock results in less fiscal stimulus and less effort to fix serious structural problems (unemployment, exports, bank lending), the normal rise in stocks between the mid-terms and the next election may be less than expected. 

Comments

[Whitebear]

"Tomorrow... Good one for the bears?.."

Are you from an alien planet? GOOG up 50 AF and you're saying it will be good for the bears?

All those top callers, where is the drop? How come today's drop still failed to get any traction by the close?

[george]

Roger D,
bidu stock symbol down on the
close -1.75 points.
dow industrials pretty
much unchanged. dow industrials
are not following bidu as
you previously commented both
going up together.i did not
see any new news .
the other day the only
news looks extremely negative.
still no
huge volume as happens on a
triangle breakout up or down.
if you are long based on your
comments the other day you
might want to hedge your bet....
the microsoft news was absolutely
horrible
for the company.
you could still
be correct if a positive news event
comes out fast to counteract the
extremely negative news the other
day. the triangle looks
completed for the past 13 market
days. when it breaks on heavy volume
it should move at the minimum
several points in one day.

[Roger D.]

At this point anything is possible for a single stock. GOOG is a great example as that will pop no matter what the financials do. There are many financials breaking down today and the question is will the big money bail before the shit hits the fan or will they continue to ride the euphoria higher. My take is the smart money is selling here.

Roger D.

[Dsquare]

"My take is the smart money is selling here." Dumb money has been selling since April, so who does smart money sell to? They all get out at once? That will be a crash to behold.

[Greg]

Yeap, crash!!!

[Brainy genious smart an gonna make a killing]

Yeah, crash, baby, crash!!! Just like Prechter says!!! Dude is righteous!

[Wave Rust]

straight up from august lows for 140 sp handles
13 down days out of 36 days from august lows

if s&p closes down, the bears come out foaming at the mouth, pronouncing their next great prediction of whopping cataclysm.

if you need further proof of how foolish and wrong they are, then maybe you have a sick need to be abused. thats a pschological illness.

it's not an issue of who's right or wrong, or who's your buddy, or who you are trying to befriend or impress.

perma bear and perma bulls are both on the same ship, the USS Fade Us, whose rudder is stuck at left fool rudder. It simply sails in a big circle endlessly with its passengers puking over the rail on their respective sides of the ship.

"it is not possible to underestimate the stupidity of perma bulls and perma bears."

wave rust

P.S.
watching the perma fools is a great way to make money. Just fade them.

[Wave Rust]

it's a frikkin channel

too simple? not enough TA for ya?

you want more complexity in your life? then get married, have kids then try to figure out why your pet likes you, and your kids don't. LOL

the market is so simple, except for the human beings who feel the need try to predict it, instead of simply trading it.

Market traders and investors are of two very distinct mental and emotional groups. The two groups are the "Intelligent but Stupid", and, the "Smart but Dumb".

The first group knows they have some level of intelligence but repeatedly do the stupidest things. They are absolutely sure they can figure out the markets because they are so intelligent.

They are usually in denial about what they did and search for someone or something to blame it on. They refuse to learn from their mistakes. They refuse to do their own homework. They live in the box that they think in. They fail 95% of the time and blame it on the successful traders/investors ,,,, "who are the crooks, of course."

The second group is the exact opposite. They know they are dumb, and they know they must get smarter. And, they do eventually. They respect the market.

They have learned from doing their own work, learning from their mistakes, and improving their techniques and tools. They don't have any ego at stake when they make a judgement or a trade, because they know being wrong is a given in trading. It happens.

They try to begin every day with an attitude that says, "I'm dumb, Mr. Market. Teach me something today and make me smarter. I'll use anything I learn to try to make more money."

Trading from the dumb side, with tools you've developed for your own trading, means you know what to do and what not to do when the market does something interesting.

The first group stops learning after finding what they "know" is the secret to the markets. The second group never stops learning. Ever! They know that the secret to the markets lies between their ears. They are the secret.

The market is simple. It's you. You are the market. No Zen here. You are either the problem or the solution to your trading failures and successes. Why? because you get to pick which one you want to be, the problem or the solution.

See? Simple, right? :)

wave rust

[Roger D.]

"watching the perma fools is a great way to make money. Just fade them."

hasn't that been the truth, but someday,maybe tomorrow,next week,next month,when least expected the fools turn into geniuses.

Happens all the time. The premice is right,the timing is the difficult part.

[Wave Rust]

Roger,

even when the perma bears are right about direction or trend, they end up losing. They get in late and stay way too long.

So, I disagree with that they turn into geniuses. They ALWAYS think they are geniuses, even when they are wrong for long periods of time, like years and years.

as for timing, that is a traders perspective. A trading friend trades tick bars and another trades daily bars. Each has their own timing bag of tricks.

They both make about the same amount of money each year. The main difference is the 'daily bars trader" trades less frequently and gets to play alot more golf. :)

wave rust

[Account Deleted]

S&P 500 Futures before opening bell: CLICK HERE

[bob m]

Wave Rust - those are some amazingly creative posts, especially the whole USS Fade Us analogy / post.

Anyone can say "F -you" or "your mother" (hey I am from Brooklyn. When I was growing up THAT was THE phrase generally use to evoke fists.)

I applaud your eloquence.

[Wave Rust]

bob m,
thanks

just trying to return the favors to someone today, who might think they need a change in their thinking.

somebody did it for me long long ago. Think stubborn, don't learn or, change your thinking to how the market thinks.

"lots of people learn how to play poker, very few learn how a betting strategy."

wave rust

[Wave Rust]

i know alot of great traders. day traders to trend traders.

every single one spends time focusing on yearly monthly and weekly chart analysis.

It took a long time for me to figure out what they saw in the long term charts ,,,, but thats because i'm a dumb trader.

distilled into a brief statement, what i found out was this: long term charts are exactly the same as 5 minute charts.

my dow data goes back to 1896. use it all the time. the patterns repeat over and over in similar fashion except for one thing that never repeats.

and thats a secret! :)

wave rust

p.s.- typo in previous comment

"lots of people learn how to play poker, very few learn how to use a poker betting strategy."

[Michael]

The weak dollar commodity trade (and anticipation of QE-2) is getting a bit long in the tooth for me. I've been on this trade for the last year and am feeling a bit uneasy with every talking head from a major brokerage company NOW recommending exposure to metals, mining, and energy stocks.

Today, Goldman raised their forecast for Gold, Silver, Copper, Cotton, Oil, and other commodities ... dramatically increasing their 12-month price targets from a further 15% price appreciation to 30% for all three metals, 54% for cotton, and sees crude oil over $100 per barrel.

As many people well know on this blog, I have been a MAJOR BULL on the coal, iron ore, copper, and steel names . . . buying every "dip" along the way this last year. Names like ACI, BTU, CLF, FCX, and WLT.

However, this "trade" is becoming quite crowded for me now. It's no longer a GREEN light for me. Changing to YELLOW now.

[Roger D.]

The bank are screaming "big trouble" here and no amount of QE2 will help as real estate still continues to head south across the country. When it looks to good to be true,it probably is. Sell,sell and sell.

Roger D.

[JT]

Roger,

You might be right at some point, but given your "perma-bear" posts over the last year you obviously don't do any trading at all and really have no "feel" for the markets whatsoever.

Tell me, how old are you?
What do you do for a living?

[Mamma Boom Boom]

---- Downtrend In Jeopardy ----

Big Mo starts to whimper!

Neo-Mamma

[Roger D.]

JT I am retired,for eight years,and am doing fine, thank you.

JPM is flashing warning signs.

Roger D.

http://www.screencast.com/users/fast996/folders/Default/media/1d9c3686-71aa-4a06-9155-f477a58f34f4

[Roger D.]

I would not hold longs over the weekend.

Roger D.

http://www.screencast.com/users/fast996/folders/Default/media/0464431b-ec58-4339-a330-0ed98327c8dd

[BeatTheSP500]

Five-years of getting it right...

Check it out and decide for yourself.

http://elliottwavetechnology.blogspot.com/

No time better than the present to hop on board.

[Neo Tzu]

Hurst 2.5 week low due next week should coincide with a wave-c

[Whitebear]

Top callers, how come GOOG up 50 if the market will need to fall?

[?]

Whitebear,

You are too nice. GOOG is actually up 57 and not 50.

[Whitebear]

"Real estate going down???..."

Why don't you go to zillow.com and check out why Francisco core area like Presidio, Pacific Heights are still selling for > 2M easily for a measly 25x100 lot?

Also, care to explain to me why avg Single Family House is still selling for 1.6M in Palo Alto?

Where is the drop in those areas???

[Whitebear]

Michael, are you into China's, Hong Kong, and Sydney's real estate? Those markets just baffles me. It seems like they can keep on going up and up given how everyone in those market are already saying that "Real estate never drop?"

Can you imagine Shanghai selling for USD$1500/sq for the high-end apartments, or in HK, where high-end are now fetching $2000/sq?

[Neo Tzu]

Top callers, how come GOOG up 50 if the market will need to fall?

Google is up because the spiral calendar for the NASDAQ tops tomorrow. Tomorrows Spiral relates to the Dot Com Bubble Top...

http://spiraldates.com/?p=569

Potential dynamite triangle in the Dow 3 minute chart looks bearish...

[Neo Tzu]

Top callers, how come GOOG up 50

I've got tomorrow, this guy has today...

10/15/2010 = F3, F5, F6, F9 is Nasdaq 100 Spiral top date

Chart here:
http://spiraldates.com/2010/charts/ndx_100810A.png

[Wave Rust]

neo sue,

dont know hurstian cyclicality ,,,, cycles are too inexact for my trading.

but i totally agree with your lower intraday trendline and the abc down. good job there.

its going to be one heck of a buy at monday's low, whether the whole thing is a flat or a zz, barring any extensions of the c wave.

cant tell yet whether the c wave will last longer than 1 day.

wave rust

[Wave Rust]

yelnick,
have you read the judge's opinion on the 20 state suit of health care reform constitutionality, led by florida?

it's really a good read. especially why he kicked 3 plaintiff counts. he's a good writer.

wave rust

[Wave Rust]

michael,

"However, this "trade" is becoming quite crowded for me now. It's no longer a GREEN light for me. Changing to YELLOW now.

It's so crowded, nobody goes there anymore.

wave rust

[Neo Tzu]

Read the first Chapter of Spiral Calendar for free here:

http://www.amazon.com/Spiral-Calendar-Effect-Financial-Markets/dp/0932750214#reader_0932750214

But like any system, dont use it by itself, let it confirm the host of other systems you use.

For now I believe it confirms a swing trade down, if I see a bottom in a few weeks, I'll swing trade the market back up. Bull or Bear I really dont care.

[Whitebear]

Don't get me into the Spiral Calendar again, Carolan recommended selling real estate after the tech bubble!!!

Vancouver real estate selling for 800k on avg on the West side. It's now selling for 2M on avg. Talk about the lost gain here!!! That's 1.2M of lost profit in 8 years!!!! And Canada does not charge capital gain on self-residence.

[Wave Rust]

Once CNBC gets through the 9-11 am socialist hours (I switch to cartoons), you can actually get some good interviews with real people telling real stories with unvarnished facts.

In case you missed these, here are two Real estate related interviews, one with Kudlow and Long Island banker, and then one with Faber intewrviewing an attorney on the MBS legalities, related to JPM and BAC.

Kudlow
http://www.cnbc.com/id/15840232?video=1616162026&play=1

Faber
http://www.cnbc.com/id/15840232?video=1616177614&play=1

wave rust

[Neo Tzu]

Don't get me into the Spiral Calendar again, Carolan recommended selling real estate after the tech bubble!!!

Carolan also made one of the greatest calls in market history and nailed the 2008 $147 Crude oil top within hours....

http://carolan.org/2008/07/best-in-the-business/

And here's Christopher Carolan in his own words:

The Spiral Calendar is a tricky tool to utilize. As a stand-alone piece of analysis, it is easy to conclude that it is ‘wrong’ more often than it is ‘right.’ And yet, I can statistically prove that Spiral Calendar relationships exist in markets in quantities greater than random, i.e. this isn’t witchcraft! (or numerology!). The recent crude oil bubble provided the ideal situation for the Spiral Calendar to be re-introduced, it was a clearly emotional market where the masses were behaving with lunacy. Once crude oil attained a truly vertical price rise in 2008, it was just a matter of doing the analysis and pinpointing the likely top. The amazingly successful forecast of the crude oil peak has re-affirmed the Spiral Calendar’s place as a useful analytical tool and an important breakthrough in understanding the forces operating on crowd financial behavior.

[Edwin]

"SPY" Golden Cross happened today!! Buy!

[Mamma Boom Boom]

wave rust, I think you're stroking my big toe. Ya can't watch those on dial-up.

Let me add my 2 cents worth: Investors are facing an up hill battle, on 2 fronts. 1)Statute of Limitations 2)Soppy Due Diligence. Most are going to lose.

The really big, grand, question is: how do they 'ever' establish true title on millions of pieces of real estate?

Neo-Mamma

[bob m]

Look at the month/weekly/daily gold chart with the Ichimoku cloud. They are ALL just dying to test the kijun-sen. CCI showing fair amount of bearish divergence. There was significant buying to create these charts.

[Wave Rust]

mama
both were interesting updates on RE.

not tradeable but interesting.

i bought a 28 kb modem from the guy next to my stand at the flea market (I sell collectible buggy whips). LOL

And i'm amazed at how long the new modem stays on line!!! Wow, cutting edge technology is so cool.

wave rust

aint tutchin anybody's toes. that aint my thing.

[Wave Rust]

neo sue

As Chris wrote, the SC dates are an approximation.

approximations can kill ya, at approximately the same time you think they are exactly right.

you should see some of his proprietary indicators he shares with subscribers. a few are pretty good.

wave rust

[Whitebear]

I don't think "Selling real estate" after tech bust is an approximation. It was 6 years earlier than it should be in the US.

And, in Vancouver, Canada, real estate is still at all time high, surpassing even the 2008 high.

Is Carolan going to reimburse my lost gain during the years? As I said, avg SFH in Van on the west side in 2002 was 800k. Now, it's 2M.

[Neo Tzu]

SPX 1089 is all I want here...

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=55596301

This market is so strong, 100 handle drop here would create the base for the next upmove.

[Wave Rust]

selling it in and around here

wave rust

[vipul garg]

neo,
if my memory serves me right, a few days back you only posted a different version of the chart above where you labelled it as a terminal impulse in wave 1 position as the start of a new bull phase after 4-6 yr low.
now you ve made terminal impulse into a reverse alternation triangle ...

i hope the counts didnt exist in alternative universes

[yelnick]

wave, haven't read it, will track down the opinion. In general, it is time for the law to be respected. The foreclosuregate mess is all due to banksters trying to skirt the law and getting away with it. They need to be forced to file proper title and follow proper process before foreclosing. This pervades the so-called Ruling Class and its activities for at least the past decade. The Tea Party really got started after the TARP was passed and then reused for different purposes. Lawless. And then people in power like Geithner can cheat on taxes and get away with it, publicly, visibly. 

Here is one of my favorite quotes:

A society in which men and women are governed by belief in an enduring moral order, 

by a strong sense of right and wrong, by personal convictions about justice and honor, 

will be a good society - whatever political machinery it may utilize; 

while a society in which men and women are morally adrift, ignorant of norms, and 

intent chiefly upon gratification of appetites, will be a bad society - no matter 

how many people vote and no matter how liberal its formal constitution may be. 

- Russell Kirk

[Wave Rust]

neo sue
if spx 1137 is hit, i'll take every contract to cash, but 1145 is a good area to hit the exits. 1089 may be later this year.

re-enter below 1125 with good mo.

we'll see ,,,, corrections should be played by ear, not by expectations

wave rust

[Wave Rust]

yelnick,

here's where I got it in pdf

http://www.northescambia.com/?p=31632

I like that quote. i think Beck would like it too. :)

wave rust

[Mamma Boom Boom]

Due to our recent loss of 'big-mo' I feel that this correction will only carry down to about the 1150 area (subject to further adjustment).

Neo-Mamma

[Michael]

"It's so crowded, nobody goes there anymore." - - -wave rust

That's pretty funny.
Sorry that you missed the move.
:)

[Dsquare]

Currencies, weekly dojis all around.
http://finviz.com/futures_charts.ashx?t=CURRENCIES&p=w1