FYI | Nov 09 2006
By Greg Peel
“The new masters of the House, the Democrats, are promoting an economic agenda that would put more money in the pockets of ordinary citizens and government, while leading to greater oversight of big business”, writes AP’s Brad Foss.
The Democrats have made it clear they intend to lower the cost of prescription drugs and curb military spending. Stocks in those sectors fell accordingly overnight. However, beneficiaries include the biotech industry (stem cells), homeland security (more port inspections) and alternative energy.
But either way, the Democrats have won the House but not the presidency, and even if they pick up the final Senate seat of Virginia it takes a six-seat majority to pass legislation. If the Senate is hung, the casting vote passes to – ohmigod – the Vice President. In other words, what we’re in for is two years of not a lot.
The Dems will push to raise the minimum wage – a move supported by many Republicans – so look out Maccas. Hedge funds should also feel uneasy, as more scrutiny is now likely. But on the economic front, there’s not a lot of impact a Democrat-led House can achieve in these next two years. Tax cuts, however, can probably now be forgotten.
So it was back to business for Wall Street, which has acted as if nothing much has happened. The Dow closed up 20 points.
It was a different story in the gold market. Spot gold fell US$9.10 to US$615.20/oz as bemused gold bulls looked on. It could be argued that the gold market was in a profit-taking mood, and just needed a little push, but observers believe the market is reading too much into the Democrat victory.
If the US current account deficit problem was solved, if the Iraqi war would end, if Iran and North Korea could be appeased, and if a weakening US dollar could be halted then the world would be a happy place, and gold would not appear so attractive.
This ain’t going to happen overnight.
If anything, a lame duck presidency is only going to add to uncertainty for the next two years, and after that time, Hilary Clinton is still not going to be able to change the world in a hurry.
Furthermore, note the gold bulls, the Democrats agenda for social issues is more likely to add to inflation pressures, bringing gold back into the frame once more.
Gold headed lower as oil rose another US$1 last night (further cementing gold’s decoupling from the oil price) while all base metals came under selling pressure. This should make for a mixed day on the local bourse, having made its interest rate adjustment yesterday. The SPI overnight was up 6 points.
