Monday, November 1, 2010
Batten down the hatches...
The Calm Before The Storm
An eerie calm has descended upon world financial markets as they await perhaps the two most important financial events of the year this week. On Tuesday, investors will be eagerly awaiting the results of one of the most anticipated midterm elections in U.S. history. On Wednesday, the Federal Reserve is expected to end months of speculation by formally announcing the details of a new round of quantitative easing. If either the election or the meeting of the Federal Reserve open market committee delivers a highly unexpected result, it could have a dramatic impact on world financial markets. In fact, many are looking at this week as a potential turning point for the U.S. economy. The decisions that are made or not made this week could set us down a road from which the U.S. economy may never recover.
At this point, it looks like the Republicans will take control of the U.S. House of Representatives and will pick up a number of U.S. Senate seats as well.
There are many in the financial world who already consider Barack Obama to be the most "anti-business" president in U.S. history, so a defeat for the Democrats on Tuesday would be greatly welcomed by many on Wall Street. Barack Obama's decline in popularity since he was elected has been absolutely stunning. According to Gallup, Barack Obama had an average approval rating of just 44.7% during the seventh quarter of his presidency, which was a brand new low. In fact, Obama's average approval rating has fallen during every single quarter since he took office. Things have gotten so bad for Obama that one new poll has found that 47% of Democrats now think that Barack Obama should be challenged for the 2012 Democratic presidential nomination.
However, if the Democrats were able to do surprisingly well on Tuesday, it would not only shock the political pundits, but it would also likely put world financial markets in a very bad mood.
If the Republicans do very well on Tuesday, it will likely mean that there will be no more extensions for those receiving long-term unemployment benefits. Some state governments are already anticipating this and are making preparations. For example, armed security guards are now being posted at all 36 full-service unemployment offices in the state of Indiana. It is estimated that approximately 2 million Americans will lose their unemployment insurance benefits during this upcoming holiday season if Congress does not authorize another emergency extension of benefits by the end of November. If the Republicans do very well on Tuesday, it would make it much more likely that the extension will not happen.
But if millions of unemployed Americans suddenly find themselves without any unemployment checks, that is only going to cause the anger and frustration regarding this economy to grow.
Either way, the unfortunate truth is that this election is not going to change much.