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Originally Posted by tabs
What was the commonality of events that caused the downturn that you mentioned in the last two 8 year election sequences?
Both in 2000 and 2008 Bubble economies deflated. The first was the Dot Com bubble the second the RE & mortgage bubble. The bubble that is currently building is the Mother of all bubbles and that is the Sovereign Debt Bubble. There is no walking away from an implosion of that bubble for it has to do with the very medium of exchange for the Global economy...the USD. The ramifications of a USD collapse would be like a nuclear war without the bombs.
What most do not realize is that since 2008 a whole new paradigm of reality has been operative. The old rules no longer apply as the FED now has a safety net guarantee of activism to support the economy from failing. That guarantee has been the lynchpin of the advance in Equities since 2012.
As it is turning out without FED intervention the economy falters into a no growth mode(even with intervention it is slow growth at the rate of population increase). This is unsustainable because tax revenues will not keep up with government expenditures in particular SS, Medicare and Prescription Drugs. Thus you are in effect standing on the deck of the Titanic.
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The FED only intervenes to bail out the biggest players and yes, to stabilize the greater economy. The post-2008 safety guarantee you mention is not new, it was always there and was simply revealed during the 2008 collapse. Henry Paulson hands one president a piece of paper demanding 800 billion be infused into the biggest private institutions immediately, with no congressional review or any other impediment. Another 800 billion went in when the next president took office. "Too big to fail" has been in place for decades, we just didn't see it until it had to be implemented in 2008.
My speculation (good word since we're talking about money) about the past two downturns after 8-year presidential terms is based on Wall Street hedging its bets as a new administration comes to town. The big banks don't really care who wins the White House because they have plenty of people on the inside in both parties. (I say they have a Red playbook and a Blue playbook.) What they hedge against is the uncontrollable uncertainty, regardless of insiders, of just how the new administration will handle fiscal policy. Once they begin to see exactly how the new administration will run its fiscal policy (spending, taxes, trade agreements, wars, etc.) then they re-invest, perhaps differently based on the new policies, and things hopefully calm back down as the new president becomes known and predictable. The big investment banks also hedge against the emotional instability of the greater herd out in the market. As we regular investors get nervous about our investments at times like this the big players move quietly to avoid the spooked herd from costing them money. Pull back. Wait and see. It's probably nothing but let's not take any chances. Let's pull back, slowly and quietly, so that when the herd notices it doesn't cost us anything.