Sunday, October 22, 2006

Decision of the Year

Yesterday I joined my family for a viewing of the latest Robin Williams movie, Man of the Year. It was quite entertaining but not necessarily his best piece of work. The movie reminded me to check on the latest 2006 election polls when I returned home.

Right now the Democrats are clearly ahead in the race for the House. As for the Senate it is too close to call. If you count Joe Lieberman as a Democrat (though I am not so sure he will be siding with the party that just abandoned him), we could be looking at a 50/50 split, which means a 51 - 50 Republican advantage as the Vice President (President of the Senate) will cast any swing vote according to the Constitution

My own political views aside – for full disclosure I consider myself a Reagan Republican – my concern with the elections are the impact on the financial markets. Nancy Pelosi and Charles Rangel will no doubt in my mind seek to turn back or eliminate the Bush era tax policies. In danger are the dividend exclusion, low capital gains tax rate and final elimination of the “death tax”. They will also push to raise taxes though increased marginal tax rates or through other means. A totally Democratic Congress would make those politicians’ ambitions an ever greater probability.

When I look at the economy and the financial markets, I am not concerned with the Federal Reserve Open Market Committee’s monetary policy or corporate earnings or the housing market or even the consumer. The one single concern that I have that would cause the biggest and most immediate blow to the economy and the financial markets is a Democratic majority in both the House and the Senate. I am not talking from my own political perspective but from economic realities and the psychology of the stock market.

If a Democratic party sweep become a reality, it would trigger an investor rush to the exits. As for the 2008 Presidential elections, don't get me started.

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