Election Week Is Here

Is it Obama or McCain? A McCain victory might elevate the markets more as the promise of lower taxes might spur the economy along quicker. However, the relief of anybody taking over as President will also be a positive. Therefore, we should expect some kind of rally this week. In the end though it will still all be about the economy and any weak numbers may bring the S&P and the DOW lower.

Friday was the first time in October that the market had two positive days in a row. It is likely that more upward trends will entice other investors to part with their cash. However, the economy is bad and is likely to get worse over the next few quarters. Unemployment will rise and consumers and businesses will conserve cash. Countries all over the world are lowering rates and injecting cash into their financial systems as the global deleveraging process, which may take a while, is clearly in full force.

Oil has had a mini rally in the last week but softening demand should keep a lid on prices for a while. OPEC is praying for higher prices as their own economies seem to be suffering. Slumping oil is also a big drain for Russia and Venezuela. If the United States continues to be proactive in trying to stabilize its economy, it can once again become the global economic and military power it has been in the past. This will be a four or five year process but the dollar has proven to still be the currency of choice in a destabilizing environment.

The United States needs to aggressively develop alternative sources of fuel while also drilling for more oil. We need to become more energy self-sufficient and as the economy bottoms out in the next year or two, perhaps a consumption tax on oil would be one way to limit the demand for gasoline while funding new projects. This should be a key part of the next President's agenda.

Tomorrow could be another positive day in the market as investors continue to pick up bargains but as we have been saying, volatility will continue and as it becomes apparent that the recession is deeper and longer than expected, stock prices will begin to reflect those realities. Quality is key and everyone should take advantage of a once in a life time opportunity to create massive wealth. Five years from now, we will look back and realize how cheap many stocks are today. Let's not forget, high yield bonds and leveraged loans are also creating the same types of opportunities. Be conservative and be smart but don't miss the opportunity.