Divided Government Will Produce Larger Deficits – Ep. 410

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Relief Rally Post-Midterms

The elections are over and the Blue Wave was averted and the Dow Jones rose 545 points today to celebrate that fact and the NASDAQ was up 194 points, 2.64%; Russell 2000 up 26 points, about 1.67% .  Now you may be wondering why there was such a big rise in the stock market based on an outcome that was pretty much expected.  The Republicans lost the House of Representatives, and that was something that was widely anticipated by the markets.  But the loss wasn’t that big; they lost 26 seats.  I think 23 was the number that the Democrats had to pick up.  But I think there was some concern that the Republicans may have lost the Senate – instead they actually picked up, I think 3 seats as of now, in the Senate – increasing their margin. This is only the third time in 100 years where that’s happened, where you’ve had the incumbent party lose House seats but gain Senate seats.

Obama’s Midterm House Loss: 63 Seats

But it is amazing that the press was trying to hold this out as some kind of repudiation of his policies: “You lost the House of Representatives”.  Big deal!  Obama lost the house of Representatives during his first midterms in 2010.  That was one of the biggest disasters for an incumbent since Roosevelt. Obama lost 63 house seats. Not 26 – remember the Tea Party?  That was all 2010.  Trump did so much better than Obama.  In fact, the average loss for a midterm in the House is 37 seats.  Trump’s loss of 26 was much better than average, but you wouldn’t know that from listening to the Media.  But most impressive was the 3 seats gained in the Senate.  Barack Obama lost 6 seats during his first midterm elections. That’s a 9-seat difference between what Trump was able to accomplish and Obama’s accomplishment.

Economy-Stimulating Tax Cuts Less Likely

I think the reason that the dollar was weaker is the narrative is that since the Republicans no longer have control of the House of Representatives that it is less likely that we will get more tax cuts – at least the tax cuts that would be stimulative to the economy.