The Boston Tea Party of American Revolution fame was a protest over unfair taxation and lack of representation. The Boston Tea Party as the name implies occurred in Boston in the harbor, yet yesterday another form of Tea Party took place. This time it is part of a loosely organized grass roots politically and fiscally motivated movement. While this blog is a financial based blog and I have no position in the Tea Movement one must always look at the political landscape when making investment decisions.
To me true investing requires a “trident” approach since there are three interconnected areas that can affect your investments, like it or not. First of the three tips of the "trident" is the economy so one can understand what areas are going to be profitable and why. The second prong of the investment “Trident” is fundamentals of the investment vehicles, this is not to say that vehicles with lousy fundamentals can not appreciate, however, I would term that situation more of speculation. The “Trident’s” third prong represents the political\geopolitical implications for investments.
In light of the Tea Party primary race wins there is a political dynamic that is entering the fray and could potentially lead to increased volatility until it is more clear which party will gain and lose seats in the two branches of congress. If it appears that the grassroots efforts by the Tea Party does not bear out then the Democrats will retain control and we can expect more of the same efforts that have come to pass in the past 18 or so months. My feeling is that a Democratic retention of both houses will lead to more uncertainty and a market decline. Furthermore, the continuation of the tax and spend policies and ramping up of more regulation will keep small business the largest employers, who create 80% of the jobs, in the country on hold.
On the other hand if the Republicans manage to gain enough seats in one of the houses then the dynamic has changed. The Republicans would be opposed to the vast majority of Democratic proposals and block them at every turn. Dear reader, you may be asking how this could be good for the country. I have only one word that will say it all “gridlock”, meaning nothing of any significance will be achieved during this time and there may be attempts to undo many items implemented over the last year and a half. If we had gridlock then America could get back to business because small and large businesses would be able to get a lay of the land and figure out how to work within the new confines of the recently implemented laws.
Of course I did say that the “trident” took into consideration geopolitical factors and if something on a grand scale such as a huge terrorist attack were to occur on American soil then all bets would be off.
So in a nut shell if the Democrats retain power expect more of the same but worse because the Democrats will take the election as mandate on both their leader and policies. In this case I would be more inclined to hedge my bets with inverse ETFs and precious metals. The flip side if the Republicans take one of the houses of congress I would be more inclined to invest in oil and gas companies, coal companies, defense contractors and some areas of health care(see my blog post on TEVA).