While the major media networks focused on Iraq being the major issue for the power shift in congress, they all but ignored what may have been an issue just as important.
In 1992, Democratic strategist James Carville coined the phrase "it痴 the economy stupid", and believe it or not, that same phrase came home to roost yesterday. I believe one of the main issues on voter痴 minds was the high cost of energy.
High energy prices go to the root of the economy for consumers. Yesterday, the BigPicture.com listed some findings by California-Berkeley economist Emmanuel Saez. Saez said, "The median value of stock holdings for the wealthiest 10 percent of Americans was $110,000 per household in 2004, according to Morgan Stanley, the banking giant. The value of stocks held by the other 90 percent of Americans averaged $8,350."
So, despite the recent rise in the stock market, the 90 percent of Americans who have an average $8,350 in stocks are more concerned with their incomes going into their gas tanks than they are a rise in the market.
The Republican's had plenty of time to address this issue, and they chose to ignore it. I feel that this one issue led to a bitter resentment among voters. They perceived the Republican's as being a bunch of Country Club elitists who are in the back pockets of big oil.
Given the demand issues around the globe, and the reduction in refining capacity caused by the last Democratic administration, the Republican's couldn't have done much to stop prices from escalating. Not being proactive while the consumer is suffering was a grave mistake.
Don't misunderstand, Iraq was and is a very important issue, as is outsourcing of U.S. jobs, immigration, and corporate greed.
With the Senate still up for grabs, we feel the implications for the economy and the stock market remains unchanged. If the Democrats win Virginia and Montana, making the recent tax cuts permanent will not happen. The death tax will continue to be an issue, and the massive profits for defense contractors will probably begin to dry up.
For consumers who think the democrats will bring down gas prices better think again. This problem is too big for politics to tackle. In 1979, Jimmy Carter's approval rating had dropped to 25% after gasoline prices skyrocketed.
We feel that energy prices will be an important issue for a very long time.
Unfortunately, we have to consider politics and policy making as we evaluate our investments. I say unfortunately because politics is something that divides people, and deep seeded beliefs drive emotions.
Today, more than ever, public policy plays a huge role in the success or failure of many investments. Take for example the ramifications of the announcement by Canada痴 Finance Minister Jim Flaherty to tax energy trusts. This political move caused an immediate sell-off of 20% in many Canadian Income Trusts.
If the democrats are successful in reversing the tax cuts on corporate dividends and capital gains, this will have a negative effect on the stock market.
With the election "magic" now over, watch energy prices, and Iran.
