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Wall Street legend Robert Prechter on how the Presidential election will impact the economy and the markets.
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And this year all right.
What about the election and attempting to put on right now doesn't have any effect on your.
In a strategy.
Now a lot of people have studied.
You know which party gets elected which one makes the stock market go up more than the other.
And fifth overall there's -- really no reliable results if you go back far enough they all cancel out and there's just no reliable result.
The Democrats say due to better -- -- candidate you know 100.
An election after the stock market moves and we found out when the market is up for three straight years.
Or down for three years into an election -- incumbent running.
He will win if the market and generally speaking we'll have a much better chance of winning of the market's been strong during his term benefits been weak.
So that's what we're watching to determine who's gonna win in November horrible for this president -- -- essentially doubled under his stewardship.
Yeah now people usually credit or blame the -- predecessor for the first year so.
We tested 123 in four years -- theory was that it was three years that would matter and turned out that was the best correlation from from going back 200 years.
On reelection so you basically want to start you know around you know November 09 for Obama.
And yes the markets up about 30% in the Dow took about 15% real terms.
But there's quite a few more months -- November and with the market looking kind of vulnerable I still think the elections up for grabs.
Jimmy Carter of course was done in by high gas prices and just be in place in the came when it.
Could that undo this president.
Well car if you look at the real stock prices during Carter's -- he came in a high and they weren't pretty much lower.
All the way when you're adjusting for say the PPI -- or some other index like that.
And Obama's got the same situation I mentioned the -- up 30% nominally but that's you know.
Thanks to the Fed and and a lot of funny money it's really up 15% when you adjusted for the PPI and if you.
You know do it relative to gold it's -- if at all so it's a mixed bag but still positive for him so.
You know it he should if you could he should pass -- have an election next week you probably and much better chance.
And you mentioned it before the break through that media oppressor and involve a lot of people say by different measurements that still.
You know -- -- still low by historical measures and that's the market has a ways to go you're obviously dismissing.
Well a colleague of mine -- Parker and I wrote a Paper for the journal behavioral finance it was published in 2007.
And what I propose and there is that there's really is a tremendous dichotomy between economic markets in financial markets.
Economic markets generally are rational that prices are objective.
-- -- economic markets they're non rational and subject have been over on the economic side if you -- into -- -- for example.
And there's a sale all -- like shoes or half off you you might be more inclined to buy whatever is on sale.
In the stock market is the opposite when -- all the sales as they did in three years ago.
Everybody was afraid to -- didn't wanna do it now they're talking about how they wanna own stock and one -- -- -- -- vote -- portfolio with 600 dollars a share.
So again economic markets seem to be quite rational quite objective.
But these financial markets.
To use a word -- -- at the outset being non rational are close to crazy most of the time that's what people are leaping from one investment to another and polling that went up tremendously and then deciding to get out.
And you have on ceasing dynamism in the financial markets where you tend to -- equilibrium over and in economic markets and if you go to the story you know chicken obese cheaper -- stake most of the time.
But you know what and Wall Street chicken -- sometimes fifty times as expensive mistake can -- Yes I was overweight and reason but here's what they are -- more than others -- look so -- at the government's own view of it is to do the -- train psychology major here.
And this is something informative because my wife was -- psychology -- so.
Here too I feel I'm on an expert.
Hello my condolences -- there.
I think people have this pent up desire to spend I really do I think it that's it after years of just holding back.
They're having getting their balance sheets in order maybe not to the degree -- about -- would like but but better than the government but they've certainly built in the government.
And I think they just want to spend -- I I don't think maybe to the degree they did it in the prior bullish economic years but.
I think that's what's gonna be sustaining factor we're seeing it already and some retail -- reports not across the board but enough.
And that's why I think talk about psychology the psychology.
Of of average folks is.
We wanna come out of our cocoon and -- and it's gonna take a lot may be gas prices do it.
To stop what say.
Well I think you're right about that but when they do decide to divide they're gonna maximize utility of that money they're gonna say you know OK I -- -- new car what's the best car -- -- what's the best way to spend my money and they're going to watch their budgets when they do that thing and make sure they get bargains.
-- you know over the financial markets is totally different you mentioned PE a minute ago.
You know PE has a range over the last fifty years from a low of six.
To high of infinity.
And the fourth quarter 2008.
When you look at the dividend -- of say the S&P 400 company's.
Dividend -- is has been as low as 1%.
And as high -- 17%.
So this is huge range in the so called benchmarks of value.
So you might know for example what a stock dividend is paying on the stock that you wanna buy -- you don't know if the market will price that's -- a hundred dollars a share.
We're seven box.
Because he's benchmarks are not real.
And they are real over in the economic market so yeah you're right plus or -- costs out of this -- -- -- -- -- they're starting to spend.
But you know they've been spending on the Wall Street side and that's the site where social would start changing -- -- trends change.
Bartlett who are well obviously have a problem we're both speaking that you can -- and I apologize that the very sorry we don't have my mind it.
What what are you investing in what are you doing with your money just sitting -- under a mattress or what.
-- mattress I mean safety is is where I think people should be now the markets already gone further than I thought it would most bear market rallies Trace about 13 to two thirds of the previous.
This one is gone beyond that so to me it's extremely extended in and very dangerous however isn't as a -- four.
It still might go up but I'm not gonna play I'll give you my money safe there's going to be another 2009 opportunity sometime the next three to four years.
-- -- very close above and -- And it would just keep that in mind one of the greatest financial minds to accept or reject but listen read watch this -- be on the net.
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