Think of this as Volume 14, Number 30 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.
Here is what you know, or think you know.
The Democrats are toast in November. They may lose the House, even the Senate. Barack Obama is doo-o-o-o-omed because America is a center-right country.
Wrong. Democrats may lose seats but they're not toast. They will lose neither house although majorities may be narrowed. Barack Obama is the closest thing we've had to a shoe-in for re-election (barring assassination) since Ronald Reagan.
Here's why.
It's the Economy, Stupid
The President's problems and those of his party are the result of a lousy recovery from the Great Recession.
But the next few months will show improvement. There will be jobs. Wall Street is heading up.
The reason is that corporate America is awash in cash that's losing value in its vaults and needs to be invested. Even if CEOs just buy back their own stock the value of that stock goes up. Buying each other, mergers, also cause the market to rise. And there are enormous opportunities in technology, in alternative energy, and in new manufacturing technologies, areas where America is a natural leader not just because we're educated but because you can find money here easier than anywhere else.
Why hasn't the recovery been bigger? Partly because the stimulus wasn't big enough. We know that because consumer prices are falling -- we have deflation. When no one is spending free money, the country that steps up to the plate first wins.
Want proof? Look at Ireland. Under pressure from so-called smart people, they launched a program of austerity, cutting spending in order, they said, to cut their debt. It hasn't worked. That never works in a deflationary spiral. And it won't work here, either.
Not that Republicans really want that. If they did they would gladly foregoe the Bush tax cuts, which are due to expire. Or they would at least demand that tax cuts be offset with spending cuts to balance the books. But they don't think it's necessary. They think tax cuts "always" pay for themselves, even though Arthur Laffer's famous curve was a letter D lying on its back. At s0me point, according to the Laffer curve, lower rates do indeed mean lower revenue.
Even absent congressional action, growth is baked-in. Some parts of the stimulus, notably the health IT spending and broadband money, remain unspent. Companies are already hiring to grab those dollars -- the health IT area actually faces a labor shortage. The Federal Reserve can also act to stop deflation by simply printing money.
The biggest problem our economy faces is a disconnect between what many people know how to do and the jobs we know will create the next boom. The previous economy was about real estate and finance. The next one will be about conservation and green production. Until results start appearing on bottom lines and investment bankers start pounding the table for new growth stocks, things will seem to be bad.
But they're getting better, and it's the direction of the economy in November, not its present state, that people will take into the voting booth.
Go long stocks.
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