Life Is Stranger Than Fiction… Will The 2018 Midterms Be Viewed In A Similar Manner As The 1954 Midterms?

By: Kent Engelke | Capitol Securities

Wow! Life is indeed stranger than fiction. The Kavanaugh hearings. Rosenstein. The new NAFTA. Oil. Interest rates.GE. And this is just a few of the events of the past four days.

Volumes have been already written about the above. One’s innate bias can easily be validated.

Commenting about GE, eighteen years ago, GE was viewed as a company that could do no wrong. It was the largest company in the world. Its management was viewed as omnipotent and every organization attempted to emulate it. It was the most widely followed and was the most recommended stock in history. Its AAA rating was sacrosanct.

Today, it is a shadow of itself, down about 82% from its apex, viewed by many firms as a “speculative buy.” Wow!

What will be written in 10 years about today’s market leaders? The greatest difference between now and then is that today’s market leaders dominate the indices and investing strategies. Their capitalization is unfathomable. Because the prices of their shares are in the mid-triple to four digits, any volatility will have an outside impact on the indices

Will AAPL be viewed in a similar manner as Lucent? Will Google be regarded as Prodigy? Will Amazon be thought upon as another Montgomery Ward or Sears?

Friday the all-inclusive September employment report will be released. Twelve months ago, consensus expected the economy would slow and unemployment would rise. The economy today is growing at the greatest pace in 10 years. The labor participation rate is rising which should support wage increases.

Last spring I was writing the upcoming midterms are the most significant midterms in at least two generations. Most are now supportive of this view. Historically, the electorate votes their pocketbook. Against this backdrop, the Republicans should increase their seats in Congress.

Also historically, the party of the incumbent loses an average of 30 House seats and 3 Senate seats. Perhaps the safest comment to make is this president is the most controversial president in many generations, where the establishment is defined as anyone in the political/media/business elite and who also harbors great vitriol and animosity towards him.

What are the odds the Democrats have overplayed their hand similar to the McCarthy era, the last era of character assassination where one was guilty before being proven innocent and the fundamental right of Due Process was ignored?

For those that do not recall, Senator McCarthy was a Republican who was blamed for the Republican loss of the House in 1954. The Republicans did not again capture the House until 1994.

In my view, the greatest risk of the current political fiasco is the gross violation of Due Process, the fundamental right that differentiates the US from the vast majority of other countries. As noted, this violation was a major reason for the Republican’s stunning 1954 loss.

What will happen today?

Last night the foreign markets were mixed. London was down 0.42%, Paris was down 0.71% and Frankfurt was down 0.76%. China was up 0.83%, Japan was up 0.10% and Hang Sang was down 2.38%.

The Dow should open moderately lower on Italian statements that it would have solved its fiscal problems with their own currency, albeit the indebted nation did state it had no intentions of leaving the Euro. The 10-year is up 5/32 to yield 3.07%.