william the wierd

<p>If you go to say Motley Fool the popularization of Yale Hirsch's "Don't Sell Stocks on Monday: An Almanac for Traders, Brokers and Stock Market Investors" promoted to you will be "Beating The Dow" Michael O'Higgins. Other sites push Harry S. Dent jr. and no doubt other authors are out there too pushing their works. I know of at least three other authors pushing stock or real estate plans based on political/demographic cycles but the cycles are of interest in this case based on their political effects.
<p>
Two obvious political cycles in the US are presidential elections every 4 years and redistricting every 10 years. One non-obvious cycle is that the Juglar 7-10 year cycle has been regularized in the US into an 8 year cycle due to presidential cycles. The 8 year cycle is not directly important this election but it will be next election cycle. 2014 may see a bottom like 1982 where only a redefinition of the Labor Force saved us being in an official depression: 10% or more unemployment. The four year cycle downturn is expected to hit in 2010 and the 10 year cycle is expected to be really bad 2010-14.<!--more-->
<p>
What does this have to do with politics? Did you notice the two flocks of turkeys that started the nomination fight? Obviously only the people too arrogant to realize what the popularizations of these cycles meant got into the race but even these jerks were winnowed out to the truly arrogant and egomaniacal. But if you have been paying attention you may have noticed that Hillary is not playing all that hard and McCain is going nowhere fast. Why is this? Because the three left standing have started a checklist of things to watch out for and it ain't pretty.
<p>
2010 Roth conversion year and dollar denominated Panama throwing out the welcome mat to American retirees. Since Roth IRA withdrawals are not subject to American taxes all of those retirees in Panama will keep on retaining their citizenship and voting till they die. From a partisan viewpoint disproportionately the people who convert their 401Ks, 403Bs and conventional IRAs into Roth accounts in 2010 will be Democrats. They will vote for more and higher taxes because they don't have to pay them. In 2011 partisanship will go off the scale. The doctors and medical staffs getting the medicare money will be Panamanian and Costa Rican. This will have strange and wondrous effects on medical salaries and student loan repayments in this country.
<p>
Social Security will go technically insolvent in the next term. Since the scale of conversions and rate of ex-patriation is not knowable at this point the best estimate I can give you is that it will much earlier than predicted. The retirees will have a secondary effect: noticeably smaller Democratic turnout in state elections. Some Democratic state houses will go Republican and secondary reapportionment as happened in Texas after the last census will be seen in other states this go around.
<p>
Benefits for the young and poor, mostly taxbreaks and such, will be pushed by the Republicans and because their retirees generally don't need no blinking Social Security they will push for British and Chilean style privatization into Roth IRAs. This will be unpopular but not as unpopular as the plan the Dems will have to put forward to keep both their ex-pat and domestic voters. For the life of me I can't figure out any strategy that will not alienate one or both groups.
<p>
What the prospective candidates have not foreseen is how politically created economic cycles will amplify all of the above. If the economy is expected to nose dive in February 2010 (Feb, May and especially Sept tend to be very bad months for the stock and other capital markets) shortsellers will tend to set up positions in January or even earlier to avoid the downtick rule. That will create a false sense of security in the incumbent just before all hell breaks loose.
<p>
The shortsellers will be hit by bargain hunting Roth buyers, they will short dividend paying stocks which means they will have to pay January dividends and last but not least Roth converters have to put some of their existing accounts into cash to convert so they will call the borrowed stocks which must be delivered. The usual February stock sale used to pay for the late January received Christmas bills will be swamped by the cross currents. A lot of risk capital is going to go bye-bye. The May drop off in retirement contributions and the loss of capital to tax payments will also be interesting. The happy people will go winging off to Panama, Costa Rica and New Zealand while the angry stay here.
<p>
Let's send off all of the people who are happy with me and keep all of the people I've angered nearby. Not a real smart way to get reelected. So the second year downturn of the presidential cycle is used to create momentum going into the next election cycle as the downturn is blamed on the previous president. This shafts congress. The 10 year cycle involves ripping pork projects out of declining districts and sticking the money into growing districts. Since the ex-pats maybe own a timeshare in their old district they don't care what happens there. This is critical to Democratic survival.
<p>
Democratic strongholds are based on elderly retirees, union members and monoracial minorities. Given the rate of interracial marriage even black and hispanic voting blocs are increasingly disenchanted with race based politics. Union membership is declining. In 2010 the most solid Democratic voting bloc, those born between 1912 and 1948 will have a big incentive to leave the country and therefore their district. The Dems, if in power, will be hit harder than they have ever been hit: even worse than in 1840 when van Buren was crushed due to the panic of 1837. Even if McCain wins and runs up 40% unemployment numbers the longrun damage to the Republicans will not be as great as the Roth conversion damage will be to the Dems even if they can blame the Republicans for the downturn.
<p>
But a normal downturn caused by the 4 and 10 year cycles would hit maybe a maximum of 15% unemployment as a worse case scenario. But if 1-3% of the population made up of the oldest and generally wealthiest decide to live dirt cheap overseas 20+% of tax revenues and a huge chunk of consumer expenditure will leave with them. If they contain more Democrats than Republicans, and they will, then the extra 25% unemployment will be blamed on the Democrats even if McCain is in office when it happens. Those absentee ballots will come in for decades and be a constant reminder. That will have major political effects.

Advertising