Politics’ hegemony over markets

I can’t wait for Gallup and the other major public polls to start reporting their first 2011 results on the direction of the country. With all the positive momentum in the financial markets and concurrent good directional news about signs of economic recovery, can’t we anticipate that those dark and foreboding “wrong track” percentages will finally start to edge downward?

I’m not optimistic, unfortunately. The fact that sentiment about the country didn’t show any positive movement after the election just makes me wonder if things get better in the near term. If optimism for the nation doesn’t pick up this month, we’re probably in the doldrums until the next election. 

{mosads}Stock market analysts point out that since 1950, with 90 percent accuracy, the direction of stock prices in January predicts the direction of the market for the rest of the year. That means if the current trend of a bull market persists through this month, the 11 months that follow should provide a safe and even profitable opportunity for ordinary IRA and 401(k) investors who abandoned stocks in the 2008 crash to get back to filling up their portfolios. Not so fast, I say. While the financial pros can see opportunity in the data they trust, I fear that the public is still being held back from investing because they think we’re still pointed in the wrong direction.

To understand this, you have to go back to the beginnings of the “right direction-wrong track” question. It assumed, rightfully for the times (1970s and 1980s), that economic sentiment would drive politics. If there are good times, voters will vote for continuity and reelect incumbents. If times turn bad, voters will turn to outsiders and other challengers in an effort to “throw the rascals out.” But somewhere in the last decade, the right-direction formula got hijacked. Suddenly it seems that many people answer the direction query on the basis of sentiment unrelated to their financial well-being. Instead, they reflect on whether their side is winning in politics. So, for example, many Democrats started saying “right direction” after Obama won even though they didn’t have even two new nickels in their pockets to rub together.

After this election, I expected some movement. Didn’t one side win? They should feel that we’re headed in the right direction, shouldn’t they? Well, they didn’t budge. I fear that neither side — neither the Republicans nor the Democrats — will affirm the right direction unless their side has near-total control of both houses of Congress, the White House and their own state capitol. Anything less means the other side might be winning, and that means the direction is wrong, wrong, wrong. And if the direction of the country isn’t right, will they show any faith in its markets? And if the masses don’t start feeling more positive sentiment about things, can we expect them to start buying stocks again?

In a perverse way, the Democrats’ strategy to make us all dependent on government and politics has finally succeeded. Now even the Republicans can’t see economic opportunities because we’re blinded by political considerations. Yes, economics and politics have always had overlapping relationships. Political considerations are always going to impinge on markets because governments control regulatory structures that influence corporate profitability and investment outcomes. But political influence over markets was not hegemony like it now appears.

If January sees the bull market persist, I am going with the historical trend and buying stocks in anticipation of a yearlong bull market. The rest of you wrong-trackers can just wallow in your pity over all you lost in 2008. I’m moving on. When President Obama or Harry Reid are finally out as leaders, I’ll already be a step ahead for the next bull market that follows.

David Hill has been a Republican pollster since 1984.