My F.I.L. thinks the midterm elections will resolve the current uncertainty in the market and therefore by December will have broken out of our current trend. His theory is that the R's pick up enough seats to cause gridlock and that gridlock will resolve the uncertainty. No uncertainty will give businesses enough faith to start investing, hiring, etc., etc. And therefore things will get better.
I agree that gridlock is the most likely outcome at this point on the midterms, but that the gridlock will cause the economy to stall. So I'm betting we're below trend come December. The kicker for me is Christmas hiring and sales - I think they're both going to be off and that this is going to drive things down. I'm in the camp that we need about another $500B in non-military stimulus to get things going again, but we won't get that with any sign of gridlock in Congress.
Between now and the end of the year, hiring, consumer confidence, housing, etc. aren't going to improve in any meaningful way, and I think that's going to create negative feedback throughout the economy. Obama's already too late to turn the midterms around significantly (I think), however I don't think the R's are going to pick up as many seats as they thought 3-4 months again.
We didn't put any money on this, but simply being right and being able to rub it in for the next 20 years is where the real action is.
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