Turning to the Fall Elections, I think I've allowed myself
to get lulled into thinking it's not a super-important election for Bush. Not sure how I fell asleep like that, but it's a very important election. If Bush loses either legislative body, that releases the floodgates on myriad agendas, as the chairmanship(s) change, and then the Dems are really going to go after him. It will be everything from NSA issues to rumblings about impeachment. So even if Turdblossom has indeed losts his touch, and even if Bush is weak, and not sure if his "heart" is still in to win, I think they want to win. And need to win.
Here's what I see coming.
1. More of these quasi-bogus "terrorist-plot" arrests, which started with the Miami arrests and this week we got the silly Tunnel plot arrests. (These cases will fade to black after the election).
2. They're going to rough-up Bernanke pretty hard at the Hump.-Hawkins testimony week after next week. I think the FED blinks here (based on the "data") though its tricky for sure. I'm certain they are coordinating with the BOJ now, so I'll have a better view after the BOJ decision next week. Basically I think the BOJ starts, and the FED stops.
3. They're going to trumpet this deficit-reduction theme which is not even actual or true, but we got the signal it will be a campaign push. I think this may be more cover for the FED to pause, actually.
4. Like you I think they'll do anything to avert this "4 year cycle low" script for October, that everyone's talked about for a year. A pause in August which I give an 80% chance now would be their game-plan to keep the market elevated.
5. They will announce troop withdrawals and key the idea it will reduce war spending.
6. They will get China to do another upward revaluation by a tick or two, and trumpet that.
The one ornery problem they have are prices at the pump. That is just deadly at election time. I think they have to punt, do a hail mary, and basically just pray because if the FED keeps hiking and the market crashes in October, you could have a situation where the stock market is on the front page, but oil STILL has not come down enough. The election-strategy math here is not that hard: keep the stock market up, and pray like hell Oil comes off as it usually does, seasonally, beginning in October. If I was a hired gun, that would be my advice. All Rove has to do is ask for the 20 year chart of seasonality in Oil, and he gets his answer.
I think the FED's overall effect will have been to forestall any big daddy stock market crash until next year.
Of course, it's always possible Bernanke is fiercely independent of the White House, has zero interest in helping the GOP, is a classic inflation hawk, and fully intends to mold a legacy in the tradition of a Bundesbank hard-ass. <ggg>
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