How Can Sour Grapes Be So Sweet?

The post-election bull market

A funny thing happened on the way to the Presidential Inauguration. Well actually, two funny things. First, Mitt Romney was the first unsuccessful opponent in recent memory to boycott the Inaugural Balls. If the President’s balls was the watchword and the Washington theme, Mitt expressed his own circular observation (as Max Shulman might have said) concerning those events by hanging out in La Jolla.

The second, and more startling, funny thing was the market’s Post-Election Rally, followed by its December Santa Claus Rally, and finally the extended and even more impressive New Year’s Rally. Totally a rally-round-the-flag, boys sequence, which again could only have been scripted by Max Shulman. I may be dating myself, but I don’t care: Max was the last of the post-war patriots, the dramatis personae who graced Broadway during the cold war.

So what’s funny about all this stock market ebullience? Or irrational exuberance, as Greenspan would have put it? Nothing, except that the Grand Old Party had predicted a maelstrom if the first Muslim, socialist, non-American born, non-Caucasian spendthrift were re-elected.

Flash back to those anxious pre-November days, when there were storm clouds over Wall Street and ancestral voices were prophesying doom. In fact, as far back as the Republican Convention, it was commonly accepted that a Democratic victory would cinch a market descent into a bottomless pit of economic despond.

The short run was not to worry about. There’s an old saw to the effect that ever since McKinley whipped William Jennings Bryan in 1896, there’s been a pre-November bull market every four years (a) because both sides are confident of victory and everybody feels euphoric and expansionary, and besides, (b) both candidates are promising the moon, a chicken in every pot, a Toyota in every carport, except those garages occupied by technological geniuses and embryonic rock bands.

The market had been doing that in the autumn, even though the outside world conspired to prevent it. The Dow was up 12% on the year to date. (Two thirds of the year to date, anyway.) That was accomplished while climbing a Wall of Worry (WoW). The WoW included (1) certain minor Euro countries taking turns playing economic Russian Roulette while Merkel and Hollande wrung their hands; (2) China turning in a miserable growth number of merely 8% or so, (or about five times our GDP growth) and (3) Ben Bernanke at the Federal Reserve’s symposium in Jackson Hole, itching to say something encouraging monetarily, but not wishing to upstage the Federal Open Market Committee at their next meeting.

As Thumper said to Bambi, Ben, if you can’t say something nice, don’t say nothing at all. (The guy in the White House plays the part of Thumper). You know, quantitative easing, buying up Treasuries or worthless mortgages from worthless Wall Street houses, that sort of thing, which is mildly inflationary but good for the mocket. In an election year.

But hey, wall of worry notwithstanding, or even notwithsitting, it was all good news, given that R & R (Romney & Ryan or Rest and Relaxation, take your pick), were likely to balance the budget within 30 years, give or take, and Barack Obama had a plan to create jobs, hopefully beginning with those of say 400-odd Congresspersons and 60 Senators colored Blue. The only thing standing in the way – as in the joint Houses of Congress – were manic hordes of tea-bag fanciers bearing sandwich boards announcing his Zimbabwe origin.

Mitt winning narrowly in the swing States, as the polls had polled, would surely outpoint Obama’s circumventing Florida’s spoiled ballots and seven-hour waiting lines and the plurality of free thinkers in California, West vs. Eastwood. But we’re getting ahead of the narrative.

It was self evident to remember that Wall Street was Republican. In fact, long before November, Larry Kudlow, the CNBC soothsayer, had been soothing that dire results would befall the market with an Obama win, all because of the evils of socialism and big government, and frivolous spending on little old ladies and health care.

In the days since November 6, that’s been a little difficult to explain with a straight face – even allowing for the market’s Ouija board mystique – since the Dow Jones Average has taken a dead-cat bounce from 12,600 just after the election, to a recent record high over 14,000.

You’ll remember that the Ouija board has a mind of its own, or is magically consensual, distilling the will of the assembled players. Like communal prayer working miracles. Like a stock market. As a player, it helped if you had gone to Sunday School as a kid, or at least had a father who was an imitation options trader on CNBC.

The Dow Jones Index, which is really a Republican dance card, reminds me of a Ouija board. Financial talking heads, Wall Street traders and Mom and Pop investors all pretend that the market moves up, down or sideways in response to broad prevailing attitudes, taking into account the likely business cycle outlook, politics and the thousand internecine shocks that flesh is heir to, such as Obama’s scheme to trash free enterprise. The Ouija-like stock market sorts all this matrix out and then acts with what is considered to be a mind of its own.

Doesn’t that sort of give you a creepy feeling up your spine? On the other hand, sometimes I wonder if there are other twitchy fingers at work. Mostly Republican fingers. Perhaps the market marches to a far more simplistic drummer – one which plays a powerful paradiddle, engaging huge volumes of automated, programmed institutional trading.

So if the market’s big movers are all over the board like an invisible Ouija presence, moving that kidney-shaped index to “yes” (up) or “no” (down) according to the avoirdupois of their position sheets, which is to say their inventory of bonds, stocks and short positions, how can they be reacting so positively to the dreaded Obama resurgence? Unless of course everybody pretends that the market has a mind of its own, not remotely reflective of a Democratic administration. Rather, it’s plausible that those twitchy unregulated fingers could be doing the will of the followers of Rove and Norquist.

Meanwhile, the talking heads produce an inexhaustible stream of reasons for a bull market despite a Democratic White House: corporate earnings reports, a lack of gastric disturbance within the Federal Reserve System (or indeed dyspepsia on the part of its grand vizier, Ben Bernanke), zero interest rates, juiced-up money supply, the wealth of nations and the resolute determination of a Republican House to trash any hint of egalitarianism from the White House that might suggest a soupcon of socialism, which is to say anathema to, and a perceived impediment to, unbridled greed.

So now it’s easy to explain why the Republican Street, not the second-term Presidency, is responsible for this boots-and-saddles market. From Cantor’s freshly minted bullish immigration policy to Boehner’s resolute campaign to create jobs; earnings reports reflecting all those Republican CEOs and their guidance, while Republican governors uniformly taking action to crack down on unruly unions and enhance greater free enterprise.

Mission accomplished, as Dubbleya used to say. The sour grapes produce sweet vermouth after all.

Bill Annett writes four newsletters: The Canadian Shield, American Logo, Beating the Street, and The Oyster World. He can be reached at: Read other articles by Bill.