“Its the Economy Stupid”

From Wikopedia.  “It’s the economy, stupid” is a slight variation of the phrase “The economy, stupid” which James Carville had coined as a campaign strategist of Bill Clinton‘s successful 1992 presidential campaign against sitting president George H. W. Bush.

Carville’s original phrase was meant for the internal audience of Clinton’s campaign workers as one of the three messages to focus on, the other two messages being “Change vs. more of the same” and “Don’t forget health care.”

Clinton’s campaign had advantageously used the then-prevailing recession situation in the US as one of the campaign’s means to successfully unseat George H. W. Bush. In March 1991, days after the ground invasion of Iraq, 90% of polled Americans approved of President Bush’s job performance.^[1] Later the next year, Americans’ opinions had turned sharply; 64% of polled Americans disapproved of Bush’s job performance in August 1992.^[1]

Today, I would suggest that the same phrase could be used, but for a somewhat different reason.  The current GDPNow figures calculated by the Atlanta Fed for the fourth quarter are showing weakness.  On the other hand Janet Yellen and most Wall Street Economists believe things are fine.  I would put my money on the Atlanta Fed however.  See their website.

https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1

Recessions during election years are relatively rare, See a recent Huffington Post article:

“In an election year, there is an obvious disincentive to those in office to have a recession. However, the year after the election the President has a political incentive to get the recession over with. And, indeed, this is what the evidence suggests happens — on average.

Since 1792, a period of 222 years encompassing 54 election cycles, there have been 47recessions. A suprising 19 of them have begun during the first year following a presidential election far more than chance would predict. In contrast, only 9 have occurred in the election year itself, also a statistically significant variation. This trend grows even stronger if we move forward in time at the expense of observations.

Since 1928, a whopping nine of 14 recessions have begun in the year following a presidential election, far more than then the three that should have occurred randomly. Since 1969, four of seven (or four of six if one excludes the brief 1980 Carter recession) have occurred in the year following a Presidential election more than twice what chance would predict.

There is a debate among economists about the role played by policymakers in recessions. Rudy Dornbush famously remarked that none of the post-war expansions died in bed of natural causes: they were all murdered by the Fed. Others attributesome recessions to shocks. It is also true that in the US, the President cannot tell the Federal Reserve or Congress what to do. Nonetheless, A fair reading of the data suggests that the general pattern has been for politicians to spend money in an election year and for the Fed to tighten the following year, triggering a recession, giving rise to the pattern observable in the data.

So when will the next recession occur?  The odds say it will occur in 2017 following the next Presidential election.”

There you have the history.  The market yesterday seemed to agree, T-Bonds took a crack, going down into the top end of the support area of 149-152 that we mentioned a number of weeks ago.  If you think a rare event is looming, then you would be a buyer of T-bonds and a seller of Stocks today.

What will be interesting is how the markets affect the 2016 election.  Obama and the Democrats seemed to have missed a chance to point out the problems that Bernanke and Yellen are perpetuating.  The Republicans seem to have more of a problem with the FED but their arguments are basically off.  It will be important for the Presidential contenders to put together the right reason of why the train went off the track if they want to win.