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Friday, August 10, 2012

Romney vs. Obama and Dow 12,000: It's the economy stupid

by Jerry Morgan
I always aim for the middle of the road

What is the number one issue in this and most any other Presidential election?

That's right! It's the economy stupid.

With the Dow Jones Industrial Average nudging over 13,000 team Obama is in control. There is virtually nothing team Romney can do, say, or spend that will make a difference.

If that is the case, Obama will serve four more years, right? Well, maybe. Here's the way I see it:

If the Dow declines ten percent from these levels then the race will be a coin flip. Ten percent for a highly volatile stock market is very much a possibility; that would put the Dow at about 12,000. If it declines by fifteen percent over the next three months, that would put the Dow at around 11,000, a level that makes team Romney the favorites to take back the White House for the GOP.

Why is the Dow Jones Industrial average such an important indicator in a Presidential race? Simple, people measure wealth by numbers they can quantify. Most Americans have pension plans and sleep better on nights when the Dow rises. They often lose sleep during bear markets (definition of a bear market is a decline of 20% or more). The DJIA is a number that the electorate hears on almost a daily basis. Nobody checks their overall net worth on a daily basis, but they cannot but help hear on the news that the Dow went up or down. And if the Dow goes down below a millennium mark like 12,000 or 11,000 it is big news.

With property values depressed, many out of work or underemployed, and the cost of a college education putting young Americans deeply in debt, Americans want to believe that their retirement nest egg is still in tact and they will punish the incumbent if it is not.

The irony is that there is little or nothing either candidate can do to affect the movement of the Dow. Some may argue that the Fed can do another round of Quantitative Easing (QE) but it is becoming increasingly less effective and interest rates are already near 0 so they cannot be lowered. And no new stimulus plan will ever be approved by the GOP controlled house.

So, if you want to handicap this election, pay attention to the Dow Jones Industrial averages.