QE3: Obama Wins, Bernanke Doesn’t Get Fired

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The following is an excerpt from Richard Russell's Dow Theory Letters

I'm convinced that Bernanke wants to bull the Dow higher to ensure that it's up two months prior to the election (this on the basis that if the Dow is up during the two months prior to the election, the incumbent almost always wins). And, of course, if the Dow is up during the two months before the election, Obama will almost surely be the winner.

The talk is that if Romney wins, he will fire Bernanke, so it's obvious that Bernanke would far prefer an Obama win.

All of which leaves us wondering whether the Fed can engineer a two-month rise in the Dow, and in so doing, ensure an almost certain Obama victory.

So the stock market remains a bet on whether or not the Fed will be successful in manipulating the Dow higher during September and October.

This is not the kind of "iffy" market I want to put my money on. Therefore, I'm telling my subscribers that I, personally, am not going to buy any DIAs, nor am I tempted to add to my gold position. I can see the case for speculating in DIAs and GLD, but to me that's tantamount to playing craps at Vegas, and I never gamble (and I'm not going to start now).

Note on the chart below that we've had four recent days in which the Dow hasn't moved at all. It's noteworthy that during the last five sessions, gold has closed literally unchanged.

dow jones

Below, the Transports are collapsing (now below 5,000) and for a reason — sales and shipping in the US are declining. The only thing that QE "infinity" is doing is driving up the dollar price of the Dow and driving up prices in all areas — commodities, basic materials, medical, college tuition, taxes, energy, heat.

transports

The election — I guess I've read 100 or more analyses of the coming election, and the following are my thoughts. This is aside from the Fed's stimulating in favor of Obama.

First, it's almost guaranteed that Obama will get a second term, unless he screws up royally (which is doubtful, because he's very careful) in one of the three coming debates.

Here are my conclusions. Obama almost certain to take 21 states including Washington D.C., giving him an almost certain 269 electoral voters or one vote short of the 270 votes needed to win.

As for Romney, he will win 24 states, giving him an almost certain 206 electoral votes. There are five states in the undecided column, and they are, Florida, Virginia, Colorado, Nevada, and Iowa. Romney could conceivably (but very unlikely) sweep all five of the undecided states and produce a 269-269 tie. In the case of a tie, each state would get one vote in the House of Representatives and Romney would win. But Romney's chances of winning all five of the undecided states is almost inconceivable, because Obama won them in 2008. Besides, momentum is running Obama's way. Hispanics make up 20% of the population of Florida, Nevada and Colorado. Hispanics tend to vote heavily Democratic, and on election day, Hispanics usually turn out in big numbers. If Obama takes Florida (and he probably will) with its big 29 electoral votes, the election could end up as a rout for Obama.

Russell conclusion — put your money on Obama, he's almost guaranteed to win.

Interesting note — Investors and the stock market do not like Obama. After the election and if Obama wins, we could see a major sell-off in the stock market. If Obama wins, the Fed will be satisfied and will have less incentive to buoy the stock market.

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