Markets seem at last to have noticed the possible range of consequences from the election 10 days hence, and the result is a wide-eyed, jaw-dropped, don’t-do-anything.
Absent constant paddling, stocks tend to sink, and that’s what they’ve done between frozen days.
Bonds tend to glaciate altogether. The 10-year T-note still cannot break 1.85 percent going upward, and its trading range since August has narrowed bottom-up: from all-time low 1.4 percent in July to 1.55 percent in September, now can’t fall below 1.7 percent. Mortgages are motionless just below 3.5 percent.
Stocks also suffer from poor prospects for earnings. What a surprise. By some estimates nearly two-thirds of S&P 500 earnings in the last half-dozen years have come from overseas, rising with global trade volume. As that volume now has flattened (at best), so have earnings. It is fair to say that the U.S. is in better shape than elsewhere, but not enough so to propel earnings.
Third-quarter GDP arrived at 2 percent annual, imperceptibly above the 1.8 percent forecast. The Chicago Fed’s National Activity Index in September rose to exactly 0.00 (three-month average -0.37), as dead flat as flat gets.
Housing is improving, but the change is far oversold in financial media. September sales of new homes were up 27 percent year over year from a very low base, yet the National Association of Realtors reported no change in pending contract volume for September.
One of the very best overall housing measures is mortgage insurer MGIC’s quarterly Market Trend Analysis, third-quarter figures just released. Reporting on 73 metro markets, measured strong-stable-soft-weak, it found 14 "improving" versus only one "softening," the best ratio since 2005. However, not one was rated "strong." MGIC rated 28 markets stable, and the remaining 45 either soft or weak.
Disinterest in the election until the first debate was a good idea. Government in the last two years has been too painful to watch, and the two-year parade of Republican candidates drove away crowds. In the old days of Party control, Gingrich, Paul and Bachmann would not have been allowed near a podium. The others looked like a country club board of directors assembled to vote women off the golf course.
Now, the race too tight to call, markets must consider either outcome. A Romney White House might bring energetic action, economic understanding not seen since Clinton, and regulatory relief, but it’s impossible to know how much a desire for small government and free markets might be overdone.
Markets have also discovered that next year is probably Fed Chief Ben Bernanke’s last. There are able, mainstream replacements in either party. But for all the carping about Bernanke, he has done better than anyone in government. Heroes are not easily replaced.
Yet another discovery: Although all assume some deferral of the "fiscal cliff" past January, a fiscal contraction is coming, no matter what or who.
An Obama re-election is especially murky because he’ll have the same Congress he’s been unable to work with for the last two years. And in that unchanged Congress lies perhaps the only unexamined issue in this election, heavily distorted by the Left side of the media. Who are we, as an electorate?
The longest and widest plank in the Democratic platform is the pitch that Republicans are the party of the 1-percenters. Billionaires. No economic agenda except to protect their goodies. And an American Taliban social agenda. Latter-day Scrooges and bad-hearted preachers.
One would think Republicans like this would be a minority.
Ahem. The House of Representatives has 435 seats. Districts are reallocated among states based on population changes. The shapes of each district are determined by state governments, those decisions supervised by the courts. We do rig and gerrymander, but have been in serious pursuit of "one man, one vote" for 50 years.
The House now has 240 Republicans, 190 Democrats and five vacancies. That huge Republican majority arrived in 2010, the 63-seat net gain by Republicans the largest in any election since 1938. The most surprising thing to me in the 2012 election forecasts: No poll expects the Democrats to recapture more than 10 seats, and most think five.
Deeper into grass roots … Bloomberg reported this week that Democrats control both houses of 15 state legislatures, Republicans 26.
If you’re reading this, you’re a policy junkie of some sort. The best visual of our electoral divide is CNN’s John King and his magic map, county by county, red or blue or undecided grey. On every one of King’s maps, Blue America is an urban archipelago floating in a Red rural sea, suburban beachheads decisive.
I met a certified Lefty here, a program director for a civic group, professionally a therapist, both of us arriving too early for the show. I asked her views, saying no argument intended, just curious.
She described fear among her circle, clients and friends — fear that the helping hand of government would be withdrawn from those with no other recourse. She said that was her main motivation to vote with Democrats, and laughed as she said the rest of her family were not so damned pleased by her leanings.
Where are they? Small town on the prairie 150 miles east. And how are they, and what are they thinking? They are afraid. They get up early; they work killing hours; they look after each other, their neighborhoods and churches; and they’re afraid that the government people will bury them with rules and take more of what little they have, and then there won’t be anyone to help.
Buy any election theory that you like, except this one: good guys versus bad guys. We are far more alike in the most important ways than different. And we are all struggling to figure out what we should do together.