26 Aug WILL THE ELECTION BECOME THE PRIMARY ISSUE?
The Republican Convention commenced Monday night. As with the Democratic Convention, TV viewership is down considerably. According to Bloomberg, on a percentage basis the declines are comparable per party.
Politics may become the driving narrative until November given the stark difference between the candidates. Last week I commented about the proverbial Democratic post-convention bounce of 15-18 points. Bill Clinton had the greatest bounce at 30 points. On the other hand, John Kerry was essentially unchanged in the polls following the convention.
According to Politico, Biden did not receive a post-convention bounce. What was even more interesting, Trump’s average polling numbers rose 1%. Is this rise anything of significance?
Will Trump receive a post-convention bounce? Historically the Republican’s bounce is significantly lower than that of a Democratic bounce, ranging between 3 and 7 points. In 2016 Trump received 2 points and in 2012 Romney got 3 points. In 2000 Bush had an 8-point bounce according to Politico.
Perhaps the only certainty to write the vitriol, the animosity, the disingenuous statements will rise to perhaps historic proportions between now and November 3. All must remember truth is the first virtue lost in war and politics.
Changing topics, the market imbalances are at historic proportions. Apple is worth almost 7.5% of the S & P 500 and is worth more than the Russell 2000. I rhetorically ask what happens if Apple stumbles?
Moreover, the five largest companies—focused in the technology sector–now comprise around 28% of the S & P 500 capitalization.
Wow! To quote Ross Perot, talk about a great big sucking sound!
In my view this data is insane. At some juncture the markets will revert back to normalcy where substance will be more important than style but as all know market imbalances can last one day longer than one can remain solvent or sane.
It is not if a stumble will occur but rather as to when.
Later this week FRB Chair Powell may radically alter as how the Fed views inflation. Powell may indicate the central bank will let inflation run above where it will utilize average inflation targets.
Forty years ago, the argument was the inverse as FRB Chair Volcker (1979-87) utilized interest rates to crush inflation.
As widely discussed and a surprise to many, inflation has been below 2% every year since 2009 for the exception of two. I will argue this is the result of crippling regulations, anemic M-2 growth and the lack of monetary velocity. As noted several times during the past weeks, M-2 is now growing at a record 25% annual rate, a level that is normally associated with inflationary growth. Is this a reason as to why the economy has rebounded stronger than most had expected?
I think yes.
What will happen today?
Last night the foreign markets were mixed. London was down 0.26%, Paris up 0.25% and Frankfurt up 0.48%. China was down 1.30%, Japan down 0.03% and Hang Sang up 0.02%.
The Dow should open flat. As noted, Powell speaks tomorrow and it is expected that the Federal Reserve may keep short term interest rates near zero for five years or possibly more after it may adopt a new strategy for carrying out monetary policy, taking a more relaxed view toward inflation, even to the point of welcoming a modest, temporary rise above their 2% target to make up for past shortfalls.
The 10-year is off 7/32 to yield 0.71%.