Skip to main content

Washington Gridlock - Good for Markets !

Election fever is rising with elections only about 6 weeks away. It's time to check out its potential impact on markets. Tea party backed nominee winning in couple of primaries - especially Christine O'Donnell in Delaware woke up GOP. This would only make GOP to become more conservative and give a slight hope  to democrats to revive their slumping election fortunes in Nov. Here are my predictions how elections results would turn out:


  • Republicans taking control of house by a slim single-digit minority
  • Democrats losing fee senate seats but keeping control of senate
  • Obama remains president (no elections till 2012)
This means that we will have a divided government in Washington similar to 1994. Is it good or bad when it comes to stock markets ?

I think divided government (aka Gridlock) would be good for stock markets for following reasons:
  • No one side would dominate and uni-laterally push their agenda. 
  • All three branches would have to work together when it comes to budget and any meaningful policy changes.
  • Extreme conservative or extreme liberal agendas would be push on back-burner since there is no chance of getting it done (no chance of something like Health-care reform getting passed)
  • Balance between budget cuts and tax-cuts
  • Centrist politicians would get their voices heard
  • In worst case, absolutely nothing would happen for next two years removing any uncertainty since "nothing" is certain than "something". As all investors know, markets don't like uncertainty and hence it would start pricing in "nothing" and go up
Since stock markets are always ahead of actual economy, they must have started pricing this as evident from upward movement in Sept (which is rare) !

Since I was studying possible election outcome, one sector caught my attention this week - this sector is my recommendation for this week - for profit education sector. This sector got punished in last few weeks due to possible new rules coming (gainful employment, loss of government aid). Here are 4 recommendations in this sector which could provide 50% returns in next 18-24 months
  1. Corinthian Colleges, Inc. (COCO) - Buy around $6
  2. Education Management Corp (EDMC)- Buy around $10-11
  3. Lincoln Educational Services Corporation (LINC) - Buy around $12-13
  4. And biggest of them Apollo (APOL) - Buy around $47-48
Even though markets are up and trading near high of recent trading range, there are quite a few
opportunities - but that's topic for next week !

Have a great weekend !

/Shyam

Comments

Post a Comment

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...
Post a Comment
Read more

Elections and Rotations!

2024 will be known as an important year in terms of elections (97 nations covering half the population) across the major countries in the world. We are only halfway thru the year and already some key nations have gone thru elections and voters have indicated their preference for change (in a way). Let's take a look at few. India - Modi's BJP started with lots of enthusiasm with slogans of "Modi ki Guarantee" and "400 paar" (more than 400) seats (out of 543). Indian voters (which I considered one of the most smartest) gave reality check to Modi and BJP by reducing BJP count to 240 (from 303 in previous parliament) forcing it to form coalition government. I have lot more detailed hypothesis on these results (but not here). Almost everyone (including me) got their predictions wrong and lost some friendly bets. Indians want balance between "Strong, Prosperous, Proud" India with "Inclusive, Employment and Harmony". Modi and BJP are quick learn...
Post a Comment
Read more

The "i" factors are back again!

Happy Earth Day! In following Stotra, we remember Mother Earth every morning before touching feet to the ground. समुद्रवसने   देवि   पर्वतस्तनमण्डले   । विष्णुपत्नि   नमस्तुभ्यं   पादस्पर्शं   क्षमस्वमे   ॥ Samudra-Vasane Devi Parvata-Stana-Mannddale | Vissnnu-Patni Namas-Tubhyam Paada-Sparsham Kssamasva-Me || Meaning : 1:  (Oh Mother Earth) O  Devi , You Who have the  Ocean  as Your  Garments , and  Mountains  as Your  Bosom , 2:  O  Consort  of  Lord Vishnu ,  Salutations  to  You ; Please  Forgive my Touch  of the  Feet  (on Earth, which is Your Holy Body). (source: Green Message site) So let's make sure that we honor Earth every day and preserve her for millions of years..After all we have only ONE! It has been six weeks since I wrote about markets. During that time, markets reached all time highs (almost touching 5300) and down by 5% from those levels. W...
Post a Comment
Read more