Right now it appears that the congressional elections will break with history, as the House switches party control(to the Dems), while the Senate does not (stays Republican).
Why is that a break with history? Because since 1913 (the first election where Senators were directly elected by popular vote) the House has never changed party hands without the Senate also doing so. Why do I think the Dems will get the House (Speaker Pelosi!) but the GOP hold the Senate? Because Tradesports says so – the betting odds right now give the Republicans only a 25% chance of holding the House, but a 69% chance of keeping the Senate.
What is Tradesports? Go here to find out: Political horse Races OpinionJournal – Taste
Here’s the short version – it’s an online betting parlor run out of Dublin that allows betting on all sorts of sports, political events, and other happenings (like the odds on capturing Osama Bin Laden by the end of the year). And as far as political races go, it is extremely accurate. After all, people are putting their money where their mouths are.
What does this mean for the financial markets?
In my opinion, not a lot. If anything it may be a little bullish. This is because the markets basically don’t like economic or social change. In fact, they like gridlock. And with Dems in control of the House and the Republicans having the Senate and the Presidency, there’s not likely to be much in the way of new policies or programs. Bush couldn’t do much the last two years controlling both Houses of Congress (probably why the GOP will lose ground in this election) and any tax increases or real social programs offered by the House Democrats won’t get through the Senate, or they’ll be vetoed by the Prez. There may be some cosmetic legislation, like a rise in the minimum wage, (which effects very few people but sounds good), but the kind of essential reform we need in areas like medicare and the social security program – forget about it. And even if the Dems do win the Senate, this still won’t bother the markets, since they’ll only have a thin, not a workable majority.
For the financial markets it’s much easier to make predictions and projections if they don’t have to worry about a cost/benefits analysis of new government programs, changes in tax laws, etc. So the financial markets are happy with gridlock. Here’s a quote from Kenneth Fisher, an investment manager and columnist with Forbes, who I think gets it exactly right: "Markets do not care which political party is in power, but the abhor major policy changes, especially in areas that effect property rights and wealth redistribution."
This is the nature of "markets". Thousands of little decisions, with thousands of little decision-makers, create the market, as people look out for their own secular, value-free, self-interest. We may not like it, but that’s reality.
If you want to have a look at Tradesports, here’s the link:Betting Exchange – TradeSports – Trading Exchange
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