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Originally Posted by BE911SC
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.
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The mandate at the creation of the of the FED in 1913 was to stabilize the economy in times of crisis or panic...The FED was created as a result of the panic of 1907. (Never before 2012 has the FED had to become activist because of political dysfunction).
Not gong to say that isn't in the institutional investors playbook as it sound logical that hey would do that. I know that as a matter of fact that institutions use stealth in their entering into and exiting from positions as a course of doing business. In both 2000 and 2008 there were bubble deflation's that were caused by egregious situations in which they were at the mercies of the fates. The situations were out of control.* So that would be my criticism of your model using the last two election cycles, if you go back further into history why yes your model works as a normal course of events.
Today what is the operative paradigm is what NORUSH alluded to, the flight of foreign capital into the USA as an ON THE BEACH STRATEGY. Here one thinks of poor George Armstrong Custer and his men crowding ever closer to the top of the hill as the Indians close in on them.
One thing that I have discussed is the fact that the FED has with QE3 in September of 2012 asserted itself by practically putting it into writing that they will continue with an activist policy till the cows come home in the face of the ongoing political dysfunction. From that point on Equities and RE never looked back. So it really didn't matter who got elected in 2012** nor in 2016. Both candidates HRC the corrupt Wall Street lackey and Donald the BILLIONAIRE bad boy RE developer are essentially business friendly (Icahn is a friend and confident). Just a thought?
* If you want to talk about chaos in the abstract you have to realize that everything is always out of control and that because the pendulum usually only swings in short arcs it gives the illusion that things are in control.
** In late 2011 I surmised that if BO were reelected Equities and the economy would not like that and would react negatively. The FED saw that the economy was crumbling and that bond interest rate were plummeting in 2012 and as a countermeasure instituted QE3 right before the election in September of 2012. As stated Equities rallied from that point on to this day. So in this macro sense it does not matter who gets elected.