This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Monday, October 4, 2010

Business Hungers for Lame Duck

So far the trend has been subtle, but big business has begun to behave as though President Obama’s time for influencing American policy may be drawing to a close. Many companies that had been sitting on hefty cash reserves have begun deploying capital. Some, including Walmart, Microsoft, and AutoZone have been using cash to buy back stock. Others have been investing in plants and equipment for expanding operations.

Even better, it seems like the stock market likes what it sees from big business, and has begun to trend up again.

As students of the markets are surely aware, stocks historically tend to lead the economy by roughly six months. For example, after 2008 the stock market made a major bottom late in the first quarter of 2009. As we now know from the National Bureau of Economic Research, the recession officially ended in June of 2009, and the economy made significant advancements in the second and third quarters of that year – about six months after stocks turned up.

Now, after a mostly stagnant summer, the stock market seems poised to begin traveling north as it heads into winter. This hints at further economic recovery to begin in the first quarter of 2011. Interestingly enough, that would coincide with the beginning of 112th United States Congress.

We know from history that the market favors political gridlock, as that adds some degree of certainty to policy changes (or lack thereof) to be expected out of Washington. There is little that Wall Street likes more than certainty, even if it’s the result of gridlock. By turning up, the market seems to be anticipating that gridlock will result from the November elections.

So while Obama technically won’t be a lame duck until he loses his bid for reelection, the market is anticipating that he’ll only be a one-term president. Moreover, if he loses Congress (which seems likely) he won’t be able to do anything, especially spend. Essentially, the market is indicating that Obama will be harmless in six months.

In fact, even if Obama somehow avoids losing control of Congress, he won’t likely get anything passed. After all, Democrats in Congress still want to get reelected, not matter how unlikely. They seem to be realizing that helping to pursue Obama’s agenda makes their reelection much less likely.

Many policymakers, even administration officials, have been jumping ship as of late. Even Obama’s chief enforcer, Rahm Emanuel has been rumored to be thinking of a change of scenery.

And still Democrats reportedly have 20 bills are on docket for the Congressional lame duck period from November through December. The real question is what centrist Democrat would vote for such an unpopular hard-left agenda? Anyone who would do so is ensuring that they’ll never get reelected to Congress. Many might have trouble running for local school boards.

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