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"Gridlock" is Good!

Many of you know the famous Gordon Gekko (played by Michael Douglas) dialogue from the 1987 movie Wall Street - "Greed is Good". Well - on the eve of mid-term elections, let me tweak that dialogue into a political context and say "Gridlock is Good".

Over the last two years, we've had a one-sided government within all branches of government (President, House and Senate controlled by Democrats). We got some meaningful policy actions done by Biden and Congress. But some of those actions also created the inflation mess that the economy is dealing with (another reason is slow action by Fed in raising interest rates) as well as gyrations in stock markets.

Most of the predictions suggest that Democrats are going to lose House by a few seats and there is small possibility that they may lose control of Senate (my prediction is that the Senate will remain 50:50). Either way, with the House gone to GOP, there would be "gridlock" in Washington. Here are my reasons to suggest that "Gridlock is Good":

  • Both parties must agree to budgets, taxes (increasing or reducing), debt-limit, all kinds of funding. This would bring some much needed financial discipline which has been lacking for last few years.
  • Major policy decisions will not take place unless both parties agree and there is very small chance that they would agree to anything. 
  • Power to the centrist political leaders - the election setbacks would bring Washington to centrist policies. In last 6 years, it feels that Washington has been taken over by "ultra-right" or "ultra-left" and centrist have lost their sway.
  • 2024 - These elections would set the tone for 2024 elections and hopefully send message to both parties to promote centrist policies and make America united again!
  • And history had proven that when there is gridlock in Washington, markets do well. In the last 80 years, markets have been up every time after mid-term elections and in most cases, mid-term elections have balanced the power. History is bound to repeat again - after mid-term elections, markets would start finding bottom and inch higher with S&P heading to 4000 or higher by the end of the year.
As a follow-up to my earlier blog regarding the 4 "Cs" of Tesla - a lot had happened in last few days. Musk is focused on Twitter (based on his non-stop tweets and so many drastic actions he had taken in first few days) and during last 6 days, Tesla had lost 14% of market cap, which is ~80 Billion (reaching 17-month low). And if my hypothesis is correct, there is more pain ahead for the stock and company! As far as Twitter, the story is going to get worst before it gets better due to recession, boycott by many companies and individuals, low employee morale and the CEO's "strategy by tweet" approach. It's possible that after initial churn, Elon Musk may be able to transition it but may has to keep it private for many years.

Tomorrow is election day in USA, Go out and Vote (I already voted by mail)

/Shyam





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