It was a week of encouragement, a week where Cyber-Monday numbers were decent. It was a whole week without serious indigestion from Europe and the jobs number was +120K. Additionally, the stock market followed up its big turkey with a feast not seen since March 2009. Welcome to Santa’s version of 2011. Perhaps we won’t get delayed European indigestion this week.
Our hypothesis for months has been no European disaster in 2011. Our other hypothesis is bears just don’t have the conviction overall. As markets turned up, consider it a victory of sorts.
The big official U number dipped below 9%. Of course that number reflects a smaller work force but at least we were not subjected to any Congressional spectacles for a few days. If life gets out of the way, the stock market can do very nicely, thank you very much. We don’t live in an ideal world but if we did, this is a market that really prefers to go up. Now that it’s December, I thought we depart from the usual and take a look at what could happen in 2012. As a stock market historian I’m keenly interested in the 1932 and 1980 sequences most of all.
This economic mess has been going on for 4 years. We may have hit the bottom in the winter of 08 and I think we double dipped in October no matter what the government tells you. The beginning of this economic sequence began in July 2007 when the Russell peaked and real estate agents noticed someone flipped the switch on their once in a lifetime flurry of deals. The Great Depression was from about September 1929 to roughly July 1932. Why July 1932? First of all that was the grand bottom of the market. I wasn’t there but I did bit of reading on the subject and that’s about the time the country realized they were going to rid themselves of Herbert Hoover and a new optimism for the future began to take root as the country leaned on Franklin Delano Roosevelt. Of course he didn’t take office until 1933 but the market was already off the low, signaling a long term change is social mood.
A new President can do that for crowd psychology. The 2 best examples I can give you are Roosevelt and Reagan. This was the week that Newt Gingrich rocketed into the lead for his party and unless he messes it up it appears he has what the American people are looking for. At least those who consider themselves moderate. Republican money (and probably Wall Street money) has not committed to any of those other Republican candidates. Lets not kid ourselves, Mr. Obama is very unpopular and could very well be a one term man if the opposition could only get their act together.
This week Gingrich discussed why he is the man for the job. He explained how as a junior Congressman for the opposition party he worked with his colleagues and Speaker of the House Tip O’Neill in a Democrat controlled House to get bipartisan support to push through lots of Reagan programs. He explained how he partnered with Bill Clinton to get Republican support to go along with lots of Clinton programs. He’s the only one of the whole bunch who knows how to get Congress to come together. The most understated problem facing social mood right here is the debt ceiling spectacle and the Super Committee failure. While Europe takes center stage it’s the lack of leadership at this crucial time that saps confidence more than anything. Newt’s problem is he’s not a Tea Party guy; he’s already being attacked by Ron Paul.
Gingrich is an old style conservative and in this environment should be considered a centrist who could be very popular to both sides of the aisle and really the only one of the bunch who knows what he’s doing. I think he would be an outstanding opposition candidate. Last week was incredibly pivotal as this is a candidate who can flip the long term mass psychology from negative to positive. Long term readers of this column may remember the week Obama was elected I told you there was enough good feeling across the landscape that it could flip social mood out of the crash mode we were in at the time. It didn’t happen overnight but within a few months the oil tanker did reverse course in March 09. If all we have to fear is fear itself, a new voice in the mix can change the dynamic.
At important points in history there was Hoover and Roosevelt. There was Reagan and Jimmy Carter. All I’m saying is that I’d like to see a debate between Gingrich and Obama. Remember, the 1960 election was decided on a televised debate between Nixon and Kennedy. Newt does look good right now but when push comes to shove will he really be as good as Reagan and Kennedy were when they were in the Great Debate?
At the end of the day, the next year in politics is probably going to be as pivotal as the races in 1932 and 1980. Nobody can predict what will happen. We’ve already seen a sea change here in Arizona. This is the most extreme conservative state in the country and they threw out Russell Pearce, the state senator responsible for the controversial immigration bill now sitting before the Supreme Court. Americans want leadership and they don’t want extreme politics. I think ALL of the debate is going to point the country in a new direction. I also think that the outcome has the potential to bring us to the cusp of a grand new secular bull market.
Given the current state of affairs and projecting a year ahead, this is how it looks right now.
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