Political opinion polls are fast becoming a laughing stock; flipping a coin rarely proves much better at the game of predicting political outcomes. There is, however, one tried and tested way which has an almost 90% success rate in guessing who the president will be: the economy.
The More People Involved in The Prediction-Making Process, The More Accurate It Is
One of the main arguments for free market capitalism versus a centrally planned economy is that the aggregated decisions of millions of people are much wiser than those of political elites.
This logic seems to be at play when we consider that the stock market performance of the S&P 500, the largest and most significant companies in the US today, has predicted all of the last 22 US Presidential elections, bar three.
Time and time again, the economy comes out as the most important issue to voters.
The Logic Behind This Phenomena
Now, hold your horses.
This isn’t black magic or a sinister corporate conspiracy.
It is actually very logical and just goes to show how the economy is king when it comes to decision making.
Strategas Research Partners have looked into this.
Daniel Clifton, head of policy research, explains that it is simply the case that a strong economy causes people to be contented with the incumbent party, meaning they vote them in again.
In the period from August 8 to November 8 (the date of the election), if the stock values of the S&P 500 rise, the incumbent party (the Democrats) will be re-elected.
Should they fall, this last minute weak performance proves enough to push people over to elect the opposition, in this case, Mr. Trump.
Investors Get Cold Feet; Incumbent Sees Defeat
The possibility of a change in regime also provides a feeling of insecurity, and we all know how much shareholders and investors abhor that.
Thus, they will be more likely to play it safe and reduce activity if they perceive a new government on the horizon.
While people’s perceptions and reality might not always align, it is the aggregated activity of everyone that proves remarkably astute in predicting the change in the wind coming.
So, the economy weakens.
Investors get scared and pull out, or save rather than spend.
Economy further weakens.
Each factor compounds the other. Get it?
Third Term? The Theory Holds Firm
Research shows that this trend is even more apparent when a political party is re-elected for a third term.
The last two times this has occurred, the S&P 500 stock market has seen a huge rally in the last few months before the election.
This makes sense.
For a third term, a political party would need strong economic performance to justify their re-election, as after eight years, a president and party have done more than enough to piss off a lot of people.
That’s just part and parcel of being in power.
Strategas’ research has found that in ‘open’ election years, where a president has finished their eight-year tenure, and so there is no incumbent president, the stock markets have fared worse.
Below is a graph showing how turbulent the stock market is when a new president needs to be elected, compared to averages from all elections years and all calendar years.
This effect is amplified in the months leading up to the election.
Stocks don’t fare so poorly in re-election years and non-Presidential election years.
The political climate around a re-election is usually a lot calmer as you know what you are getting with a re-election.
Recent lessons from across the channel
The UK elections in 2010 and 2015 were determined almost entirely by the economy.
In 2010 the UK was in a deep financial crisis and thus Labor were defeated for the first time in 13 years.
Then, as the Conservatives defended their office in 2015, the high economic growth that year proved enough to push through a majority despite them faring poorly in all the opinion polls and a strong lack of popular political clout.
With the coming election the most unpredictable yet, with polls and betting odds all over the place, the economy may well prove to be the best indicator we have available.
Additionally, with Brexit a distinct possibility, global, and thus US markets will be even more insecure.
The UK is the fifth largest economy in the world, and the uncertainty surrounding its trading future will cause havoc.
However, that doesn’t necessarily mean weak performance by the markets, it will simply be anything but predictable. Keep your eye out for the general trend and you could find yourself one step ahead of others in the political guessing game.
STUDY: Number of Billionaires Doubles in Last Decade
The number of billionaires has doubled in the past decade and the world’s wealthiest 2,153 people controlled more money than the poorest 4.6 billion combined last year, the charity Oxfam said Monday.
Meanwhile, unpaid or underpaid work by women and girls adds three times more to the world’s economy each year at least $10.8 trillion than the technology industry, the Nairobi-based charity said in its “Time to Care” report.
Women around the world work 12.5 billion hours combined each day without any pay or recognition, while the world’s 22 richest men have more wealth than all the women in Africa.
“It is important for us to underscore that the hidden engine of the economy that we see is really the unpaid care work of women. And that needs to change,” Amitabh Behar, CEO of Oxfam India, told Reuters.
“Our broken economies are lining the pockets of billionaires and big business at the expense of ordinary men and women. No wonder people are starting to question whether billionaires should even exist,” Behar said ahead of the annual World Economic Forum in Davos, where he will represent Oxfam beginning Tuesday.
“Women and girls are among those who benefit least from today’s economic system,” he added.
There will be at least 119 billionaires worth about $500 billion attending Davos this year, according to Bloomberg, with the highest contingents coming from the US, India and Russia.
“The very top of the economic pyramid sees trillions of dollars of wealth in the hands of a very small group of people, predominantly men,” the Oxfam report said.
“Their wealth is already extreme, and our broken economy concentrates more and more wealth into these few hands,” it said.
To highlight the inequality, Behar cited the case of a woman called Buchu Devi in India who spends up to 17 hours a day walking almost two miles to fetch water, cooking, preparing her kids for school and working in a poorly paid job.
“And on the one hand you see the billionaires who are all assembling at Davos with their personal planes, personal jets, super rich lifestyles,” he said.
“This Buchu Devi is not one person. I in India encounter these women on a daily basis, and this is the story across the world. We need to change this, and certainly end this billionaire boom.”
Behar said that to remedy the problem, governments should make sure above all that the rich pay their taxes, which should be used to pay for amenities such as clean water, health care and better schools.
“If you just look around the world, more than 30 countries are seeing protests. People are on the street and what are they saying? That they are not to accept this inequality, they are not going to live with these kind of conditions,” he said.
Source: New York Post
(c) 2020 2019 Vanguard Media Limited, Nigeria Provided by SyndiGate Media Inc. (Syndigate.info).
Pump Prices to Edge up After Attack on Iranian General, but Long-Term Effect Unclear
Motorists soon will see the effects of President Donald Trump’s decision to kill a prominent Iranian general. Whether pump prices rise a little or a lot depends on how quickly international tensions intensify.
Florida gas prices climbed an average of 7 cents a gallon in the past three days and could increase an additional 5 cents, AAA – The Auto Club Group said Monday.
The 7-cent increase was coming even before the U.S. air strike Thursday that killed Iranian Maj. Gen. Qassem Soleimani. That hike was a result of a rise in the price of crude oil in December.
News of the targeted killing of Soleimani sent crude oil surging nearly $2 per barrel on Friday. An increase of that magnitude typically translates to a 5-cent hike at the pump, AAA said.
The U.S. benchmark for crude oil traded Monday just above $63 per barrel, the highest level since May 2019. The price of oil makes up about half the price of a gallon of gas.
“What happens in the Middle East can have a direct impact on Americans’ daily lives by influencing what they pay at the pump,” said AAA spokesman Mark Jenkins. “Crude prices rise when there’s a threat of war, because of concerns over how the conflict could hamper supply and demand.”
Oil analyst Tom Kloza of energy firm OPIS agreed that pump prices in Florida likely will rise about 5 cents a gallon in the coming days.
“Then I have a hunch that things are going to calm down,” Kloza said Monday. “I don’t think we’re looking at $3 gas.”
The national average pump price Sunday was $2.585, while the Florida average was $2.526, AAA said.
Kloza expects only modest increases in part because of the timing of the attack. January is always a slow month for gas consumption in the United States.
There’s also the reality that sanctions leave Iran unable to export oil. Complicating the calculus is Iraq’s response to the U.S. attack. The drone strike on Soleimani took place in Baghdad, and some Iraqi politicians considered the assault an affront to Iraqi sovereignty.
While there’s no Iranian oil supply to be disrupted by a war, Iraq is an important producer.
Trump keenly watches oil prices and realizes that a price spike might erode his support in this year’s presidential election, Kloza said.
At the same time, Kloza added, “This president has proven to be unpredictable.”
Trump’s response has been typically uneven. Delivering an official statement at the Mar-a-Lago Club in Palm Beach, Trump’s tone was measured. He said the targeted killing was designed to pre-empt Soleimani’s planned attacks on American diplomats and soldiers.
“We took action last night to stop a war,” Trump said Friday. “We did not take action to start a war.”
However, over the weekend, Trump took to Twitter to threaten attacks on Iranian cultural sites.
“The United States just spent Two Trillion Dollars on Military Equipment,” Trump wrote Sunday on Twitter. “We are the biggest and by far the BEST in the World! If Iran attacks an American Base, or any American, we will be sending some of that brand new beautiful equipment their way…and without hesitation!”
##IFRAME_1##Iran has vowed vengeance, but military experts say the nation isn’t powerful enough to wage a direct war against the U.S.
“It’s still far too early to know how much of an impact this conflict will have overall on prices at the pump,” AAA’s Jenkins said.
Stocks Rally Despite Impeachment News
Stocks rose on Thursday as investors looked past the news of President Donald Trump’s impeachment as well as mixed U.S. economic data.
The Dow Jones Industrials advanced 53.85 points to begin trading at 28.293.13
The S&P 500 recovered 4.93 points to 3,196.07
The NASDAQ added 19.39 points to Wednesday’s all-time record, at 8,847.12.
The S&P 500 is up nearly 7% since House Speaker Nancy Pelosi launched a formal impeachment inquiry in September.
Cisco Systems was the best-performing Dow component, rising 1.6%. The consumer staples and real estate sectors led the S&P 500 higher, gaining 0.4% each. Micron Technology shares also contributed to Thursday’s move higher. Conagra shares surged more than 14% and were on pace for their biggest one-day gain since Oct. 16, 1989.
Micron shares climbed 3.5% on the back of strong quarterly results. The chipmaker posted earnings per share and revenue that topped analyst expectations.
On the economic data front, weekly jobless claims fell to 234,000 from 252,000 the week before. However, economists expected claims to fall to 225,000.
Meanwhile, the Philadelphia Federal Reserve’s business conditions index fell to 0.3 in December from 10.4 in the previous month. Economists expected the index to slip to 8.
The Democrat-led House of Representatives voted Wednesday to impeach Trump for abuse of power and obstruction of Congress. Trump became only the third president to be charged with high crimes and misdemeanors and will now face a trial in the Republican-controlled Senate.
Prices for the 10-Year U.S. Treasury were lower, raising yields to 1.94% from Wednesday’s 1.93%. Treasury prices and yields move in opposite directions.
Oil prices gained seven cents to $61.00 U.S. a barrel.
Gold prices moved forward $1.80 at $1,480.50 U.S. an ounce. Copyright © 2019 Baystreet.ca Media Corp. All rights reserved.
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