Traders Bet on the Election
Above is a chart of the futures contracts for the Presidential election that trade under the University of Iowa "Electronic Markets." Since created, these contracts have been the most accurate forecaster of the winner of political elections.
The way it works is you get $1 if your candidate wins. So a Bush contract is trading right now around $0.55 and Kerry contract at $0.45. Traders still think Bush will win, but it is very close.
I looked and since this has been in operation every single Presidential election ended the same way. The contract for the eventual winner broke away in October and kept going up in value. This is the first election in which the opposite has happened. You can see what happened. Bush got a huge lead during the time of the Swift Boat ads and then blew it during the debates.
He still has it. But we won't know who has won for sure until tonight - hopefully.
It's All About Spin: The Media Treats the Stock Market and Politics Like Sports
This weekend I watched the FOX investment shows. Each Saturday they have a two-hour block of investment shows starting with Bulls and Bears and ending with Cashing In. I've been watching the Bulls and Bears show off and on for the past several years. I've known at least one person who was a guest on the show a few times, but got pulled off, because he wasn't bullish enough. It was way back in 2001 when the market was dropping. The producer wanted him to recommend some stocks to buy but he was bearish and didn't believe there was anything worth buying.
Each of the FOX shows are geared around a panel of guests who make a series of quick predictions about the market, usually slanted in a positive way or linked to politics or war. Guests are under some pressure to stay upbeat and positive because that is what, according to Nielson ratings, gets the most viewers.
This is no different than CNBC, except on CNBC the guests are almost always bullish anyway, because it is in their interest to get people to buy stocks or stay in the market. CNBC "experts" are usually mutual fund managers who make a living getting you to "believe in the market" and "hold for the long-term" or analysts who are all too often trying to pump up a stock their firm has a relationship with.
FOX is a little different, because many of the guests are independent newsletter writers or investment advisors. This at least makes their views more interesting than what you usually get on CNBC. However, like their counterparts, they still slant what they say to what they think the Fox audience wants to hear and I've noticed this get worse over time. If that isn't bad enough, I have actually witnessed two different guests provide bearish commentaries to their subscribers and then talk bullish on TV.
In fact, I sometimes wonder if after September 11th they were told by the producers that to be bearish is to be anti-America, because this seems to have gotten worse since then. Graphics used between commercial breaks link the stock market to "the war on freedom" and other such hyped up phrases.
I have a transcript of a financial marketing conference in which Tobin Smith, who is a regular guest on the Bulls and Bears shows, gives a speech and makes these comments about FOX News:
"I worked for FOX News Channel for two years. Two years ago CNN was 'Ho, ho, ho. You guys, my Gold. It's very interesting what you're doing over there. You know, you seem to be kicking our ass, but it's only because of the war, and people will come back.' And now CNN is at 625,000 households at prime time, we're at 825,000. Why? Because the FOX News Channel model is what works, ladies and gentlemen, and it's about personality. You don't differentiate news by reading it slower, faster, or doing it in Chinese. You do it via personality."
For FOX News, personality means building up the people that love America and getting the audience to hate their enemies. It's all designed to play on people's emotions and people love it. A large segment of our country loves to get an emotional high out of watching the political shout shows on these news networks. They love to spend an hour getting angry at their enemies.
It's why Michael Moore's movie packed the theaters and Rush Limbaugh still has a huge radio audience despite his own personal scandals and hypocrisy. His audience will never leave him no matter what he does, because they have become emotionally dependent upon him over the past fifteen years. They love to project their own personal frustrations on to welfare mothers and the silly political activists Limbaugh makes fun of.
This is why the rating for news shows jump up when there is war. It isn't so much that people were watching to get real information about the war. Despite replaying the same small news bits over and over again all day the core audience watched for hours on end. They loved it. They watched to live through the troops.
This election is the same thing. Their wife might be nagging them, they might be having problems with their kids, or maybe they have debt problems, but by watching war or rooting for their candidate they can temporarily forget those things and live through the troops and the election. They can't connect with their wife or fix their kid, but they can enjoy watching a battle. That is as long as the action is intense, quick, and victorious. They are lonely armchair warriors with nothing to do.
People like to identify themselves with soldiers, politicians, and talking heads. Sports provides a window into this type of behavior. How else can one explain some of the weird things sports fans have done, such as the wild European soccer riots, the murder of soccer players in South America, or the stabbing of Monica Seles by a man who called himself a fan of her opponent?
Isaac Asimov put it this way, "all things being equal, you root for your own sex, your own culture, your own locality&and what you want to prove is that you are better than the other person. Whomever you root for represents you, and when he wins you win."
For these types of people politics and war are sporting events and the networks have tried to make financial news a sports event too. Find a hard-core sports fan and you'll find the phone number for a bookie hidden in his billfold. With stocks you can be proud to be involved. Investing isn't seen as gambling, it's portrayed as being safe, wise, and patriotic. And its no coincidence that when CNBC first launched its producers tried to model it after ESPN Sports Center as much as possible.
On Fox News the investment shows are marketed and spun as if they are part of the broader "war on terror" and the audience is given the impression that to believe in the market is to be a true American. If you turn off the audio and watch the headlines you'll notice some of the craziest financial hype ever. Phrases like "The Rich Are Buying Stocks, Should You?" will introduce segments of the shows.
Watching TV commercials or news shows without the audio on will reveal to you how much everything is hyped up and spun. This past weekend these FOX shows did a lot of spinning to help pump up investors. Almost every commentator said that they think the market will go up to its 52-week high by year end. Their reason was simple - it bounced off support last week and support has held and that is bullish. The Nasdaq has fallen 5% over the past year. This is probably the best rationale one can come up with in order to tell the audience that everything is still okay.
Their logic is flawed however. You see, it would be bullish if the market had been repeatedly testing resistance, not support. When a market - or a stock for that matter - keeps testing a certain level it becomes only a matter of time before it gets broken. This is Technical Analysis 101. And as much as I'd like for the market to bounce higher, it doesn't look like any bounce is going to last for long at this point.
Charts are useful investment tools, because they force you to deal with reality and not what you want to happen or what people are predicting is going to happen, but with facts. The thing about the stock market is that real facts are hard to come by.
Oh, there are 'facts' everywhere. There are facts to back up any investment opinion and they are served up twenty-four hours a day by Wall Street to keep you "in the know". But what facts are really important? What facts should you listen to? What facts are going to move the market?
Sadly, people will rely on the news for facts and leadership. It's not their fault. I mean, what else is there? If the market drops like I think it will over the coming months, millions of Americans will turn to CNBC and the financial media for guidance - and they'll be misled.
They'll hear facts. They'll have their emotions played on. And many of the investors will become dependent upon these financial experts for emotional support. They will have someone to hold their hand and provide comfort as the market - and their finances - go down the toilet.
Things are a little quiet right now. It's been a quiet summer. But things will start to speed up soon and this year is going to get crazier the further we get into it. It's an election year and emotions are going to be running high. The hard-core political bug will enjoy hating his enemies and will enjoy the television shows that make this easy to do.
You see I had a thought watching TV this morning. I turned the channel from FOX to CNN for a minute and then turned it off. I manage millions of dollars of money. I know dozens of hedge fund managers. And neither I nor any of them to my knowledge have ever turned on CNBC, Bloomberg, or Fox News, and made an investment decision based upon what we heard. Not once.
I know - because there is NOTHING of use to me from those shows. The only reason I watch them is to get an idea of what is influencing the public. I want to know the consensus, because it does change for brief moments of time and that is important to know.
The way the market is portrayed on these shows has absolutely nothing to do with reality or successful investing. But these shows are the public's main source of information when it comes to the market. They use them to understand what is happening. In reality the shows simply tell them to buy and hold and spin everything to justify doing that. This is what the public wants because it is what they have been taught to believe is the best thing to do and because they simply have never been given the opportunity to form another opinion.
When the reality of the market hurts them financially - stocks drop and their account loses value - these shows help them ignore reality. But what they hear is all (pardon the pun) bull.
What if politics is the same? The political shows have one purpose - to get an emotional reaction out of their viewer so they'll continue to watch. And, for whatever psychological reasons, there are millions of Americans who have no personal involvement in politics at all who have needs fulfilled by watching these shows. They enjoy latching on to a political personality or commentator and becoming one of their devotees. There is a psychological comfort and joy in becoming a "ditto head," a term people Limbaugh listeners proclaim themselves to be when they call in.
But what if these shows are just like these financial shows? Perhaps the people who are really involved in politics think that what is on them has no bearing in reality. The shows simply talk about issues of no real importance or just spin things in a nonsensical or hyped up way so that the real facts behind them remain hidden. Maybe the issues just exist to get the audience - and voters - emotional - but that's it. An emotional public is one that can be counted on to vote and to be controlled.
The thing about investing and finance is that it is presented in such a confusing manner that most people think they have to be total experts to be a good investor. There is so much information and so many facts thrown out at them that they just stay confused. What is this economic number going to do? How is the election going to impact the market? Are interest rates going to go up? That's part of the game: make the investor feel inadequate in his abilities so that he will blindly trust Wall Street's paid experts.
You don't have to answer those questions. Deal in reality. Just take what the charts are telling you and the facts will follow. Stay in alignment with the trend of the market. You are investing in trends and not betting on guesses at what is going to happen in the future.
Do this and you'll see a market that is looking very dangerous right now. The long-term technical picture is just as bearish as it was in the summer of 2000. After last month's drop, all three major market averages are below their 200-day moving averages.
If you look at a long-term daily chart you'll see that the market has spent the past 10 months going sideways and making a large top. It has bounced off of support over and over again, but the past few successive bounces have each come on lighter volume than the previous ones, while the declines have been on greater volume.
The Nasdaq just made a new 52-week low last week, but started a bounce on Monday from the 1840 area - which has been support since last October. The DOW is in the same predicament, with support lying in the 9,875 area.
One very troubling thing with the recent drop is that sentiment has stayed extremely bullish despite the decline. The VIX has barely budged and when the market goes up one day and gaps up the next the put/call ratio has fallen back down to .50. There has yet to be signs of anything that can remotely be called a panic washout.
As I've noted in many of my pre-market comments almost everyone I read on the Internet thinks that this is just a temporary dip. On TV, weak days get blamed on "worries" like high oil prices or "uncertainties" such as who is going to win the Presidential election. Their insinuation is clear - "worries" are irrational and "uncertainty" won't last so the market will go up later, thereby making this a buying opportunity.
However, the implications for the technical picture have their own message - when the bounce from last Monday comes to an end the market is going to roll over and make new lows. If that happens the 150 and 200 day moving averages are going to start to curl down, setting the grounds for a classic Stage 4 Stan Weinstein decline, such as we saw in the Fall of 2000 and summer of 2002.
That's reality. And if the CNBC audience isn't prepared for it, insiders are. They've been selling stock at an alarming rate (higher than 2 to 1). For instance last week technology insiders sold $189 million worth of stock and bought only $90 million. Insiders of financial companies dumped $110 million on to the market and bought only $16 million worth of shares. Some of the companies seeing the most selling are Yahoo, Harley Davidson, and Juniper Networks.
Why might the market drop? We don't have to know the exact reasons, to know what we should do, but it isn't hard to speculate. As I've said before the economy is not on track for a sustainable economic recovery. Not until our balance sheets are in order will we have one. The economy has grown simply because of low interest rates and stimulus from government deficit spending and tax cuts.
Both of these props are coming to an end. Interest rates are now starting to tick up and the Federal government can't keep increasing the budget deficit without creating a total fiscal crisis. Last week the Federal government announced that it was going to run a record $450b+ budget deficit. After the election whoever is President is going to have to reign spending in.
Whoever wins the election is going to have to deal with these deficits and the likelihood of a waterfall decline in the US dollar.
Of course that means gold will keep going up. No one seems to be talking about that on TV.
To find out what gold stocks Mike Swanson holds and plans on buying subscribe to his free Weekly Gold Report at http://wallstreetwindow.com/weeklygold.htm
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