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Divided government returns to The Swamp as Wall Street rejoices

Written By | Nov 8, 2018
divided government and The Swamp

Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.

WASHINGTON.  For most political junkies of whatever persuasion, Wednesday was the morning after. The morning after the midterm Election 2018 edition, that is. It marked the end of the beginning of the latest skirmish in America’s ongoing culture war. Although some races are yet to be finalized — usually ones where Republicans are ahead — we got what was a largely anticipated split decision. Yes, sports fans. Wall Street rejoiced Wednesday, likely because divided government will return to The Swamp in January 2019.

Politics, headline risk and The Swamp move stocks. Again.

The Republicans have augmented their Senate majority, probably by a greater number of seats than the media will let on at the moment. But on the other hand, the GOP lost the House, despite brave, hand-to-hand combat in a number of key districts. If I can find the time, I may have more to say about divided government and more in a more strictly political article that drills down on The Swamp.

But since we’re dealing with finance and moneymaking here, I’ll limit this column to the fallout of Election 2018 as it pertains to stocks, bonds and other securities.

As I indicated in an earlier piece, I chose not to make any moves in my portfolios on Tuesday, given the frequently cataclysmic and unpredictable reactions of our post-2016 U.S. markets to major events. Headline risk Tuesday was high. Thus, it was no time to be making bets on either the short or the long side of the market. (Didn’t do anything on Wednesday, either.)

Positive market moves

That said, markets were fairly perky on Tuesday, as folks who hadn’t voted already went to the polls. That did have some implications for Wednesday’s action. Wall Street’s Deep Insiders (and yes, they do exist, though they shouldn’t) – the guys and gals who know absolutely everything that you and I don’t – had an inside track. They somehow learned they’d be happy with Tuesday’s election results.

The problem for me, as always, was knowing what, precisely, was going to make these bigwigs happy. You can see them making their moves. But it’s tough for a small investor to figure out precisely why.

Does divided government make Wall Street happy?

The answer, it turns out, is one I’d been reading about in various places. Namely, that a divided Washington – one in which neither party is firmly in power – makes markets happy. Frankly, I’m not convinced that this is really true. But, at least for one day, Wall Street’s irrationally exuberant reaction to last night’s more-or-less complete election results indicates that things turned out exactly as Deep Staters and Deep Insiders intended. It’s their way, perhaps, of “refilling” The Swamp. Business as usual. Why learn a new game when the old one still does just fine?

Wednesday’s closing numbers appeared to bolster this theory. The Dow closed up 543.87 points, a 2.12 percent gain on the day. The NASDAQ gained 194.79 points, up 2.64 percent. And the S&P 500 closed up 58.39 for a gain of 2.12 percent.

Despite what Wall Street’s bigwigs allegedly wanted and got out of Election 2018, we’ll still have some time for second thoughts over the next few trading days. It all depends on what this or that politician says or does, post-election. If the President and Maxine get into another row and if Nancy P and her wealthy California pals stir the pot, markets could get nervous again. The inevitable armada of impeachment mosquitoes buzzing around The Swamp could make things really unbearable for us all.

Will House anti-everything antics pay off in 2020 like the Senate’s Kavanaugh Clown Show did this year?

From an investment standpoint, I’m not sure that the eagerness of certain Democratic House members slated for leadership roles – like Auntie Maxine and, in my opinion, the very weird Adam Schiff – to play the impeachment game will produced the fervently desired results. If they play this dangerous game, the 2019 edition of the House may end up doing to itself what Senate Democrats did to themselves during their disgraceful, unjustified and outright disgusting mass smear of now-Justice Brett Kavanaugh. If so, they’ll pay for it in Election 2020, just like the Democrat’s Senate crazies did this year.

Likewise, given the absolute certainty of a continued Republican majority in the Senate, any bogus impeachment move by the House Democrats will end up just as effective as the GOP’s move against Bill Clinton near the end of his second term.

More on potential moron moves in the House

Even with a fair number of anti-Trumpers still lurking in the upper chamber, there’s no realistic way the Senate can come up with 67 votes to convict the President on whatever silly counts House Democrats might conjure up via their pals in the DOJ and the intelligence community. Meanwhile, anyone who thought that draining The Swamp would be easy will now have to reflect more soberly on that fantasy. It will take a hell of a lot more than two years to drain this mess, if, indeed, it ever gets done. This task is like that of Sisyphus, except that it’s running on steroids.

If they persist in giving flesh to Maxine’s most cherished fantasy, however, Democrats will end up with egg on their collective faces just as the GOP did in 1998. In the end, most Americans on either side of the aisle have zero use for this kind of crap. They want Congress to do their jobs for a change and, yeah, Make America Great Again, however you define that from left or right. They don’t want a lot of fakery, preening and grandstanding like we saw during the disgraceful Kavanaugh finale. Period.

It’s possible a big infrastructure bill might now stand a chance of passage

Meanwhile, stock market-wise, what we may see come January, could be a weird bit of political harmonic convergence  in the area of infrastructure support. It was not much covered in the lazy-ass MSM this year that Trump wanted (and still wants) a big infrastructure program to revitalize America’s aging utility systems, bridges and roads. The Democrats want this, too, as it’s a great opportunity for them to do what they do best: buy tons of votes by allocating big construction contracts to favored union bigwigs in various states and localities.

Yep, a revived infrastructure package is a massive amount of good, old-fashioned Federal pork. And you and I will pay handsomely for it. Yet it’s probably the only way to get many of these vital projects funded before more of us get killed on collapsing bridges. Or before we blow out several sets of tires per year on pothole-laden urban and interstate roadways. Or before more of our kids than just the wretched victims of Flint, Michigan water disaster acquire lead poisoning due to old, lead water supply lines.

Republicans – both never Trumpers and Tea Partiers – hated the very thought of this pork-barrel legislation. But the Democrats will love it. Even the now more-Republican Senate may find it tough not to go along with a package. After all, there’ll be plenty of goodies for each senator to allocate as well. Stockholders of companies involved in heavy construction will rejoice mightily, and will remember who voted for the package.

Other taxpayer-funded goodies are possible

Maybe there’ll be other ruinous legislation that will get passed during the next Congressional term. But who really knows? If the Democrat-led House decides to play the impeachment game, all bets will be off. And Donald Trump will be well on his way to a big electoral victory in Election 2020.

Assuming, however, that the President gets those international trade deals wrapped up. He and the GOP lost House seats in the corn-and-grain belt last night. It seems at least some farmers were up in arms about China’s retaliatory tariffs that were specifically levied against them. This game has yet to play out. But it could prove dangerous for the President and the GOP going forward.

Bottom line: We start a new kind of ballgame when the calendar turns to 2019. And we don’t quite know what the rules are at this point. Or if we even have any rules. But as of right now, Wall Street seems to like what it thinks it knows. Which, BTW, was born out in the major market averages the day after the Election 2018 polls closed.

See you tomorrow.

—Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect.


Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17