Bluepoint daily market view – May 26, 2011

Score “-1″ for the Tea Party Republicans. Democratic national leaders touted Kathy Hochul’s victory in an election for an open heavily Republican favored congressional seat in western New York as a clear sign of public opposition to the Republican plan to privatize Medicare. Hochul, 52, the Erie County clerk who turned the campaign into a referendum on the Medicare plan, defeated Republican state legislator Jane Corwin yesterday, 47 percent to 43 percent, with 97 percent of the vote counted, according to the Associated Press tally. Buffalo-area industrialist Jack Davis, who ran on the Tea Party ballot slot, received 9 percent. It was clear the Tea Party candidate played the roll as the spoiler. It never ceases to amaze me, that very often the very thing you fear or want is counter productive to the efforts you place in achieving or avoiding these things.

The race was closely watched for its implications for national politics, including the 2012 presidential race. After polls showed Hochul gaining traction on the Medicare issue, national party groups and their independent allies helped finance a barrage of local television ads and automated telephone calls to voters. In this heavily Republican district, normally the Democrat would never have had a chance. The Medicare issue clearly scared the normally right wing thinking people to the left.

What this means is that the Republicans up to now, seem to have the political edge in public opinion to usher in their austerity budgets. This would now appear not to be so as easy. The Republicans may indeed have to pull back on this idea and reconsider some of the Democratic ideas – and yes negotiate. If this is a trend in the political thinking of the electorate, this could have strong effect on the Dollar – and the Dollar proxy trades. Initially it could cause the Dollar to go up, on fears of a current budget crisis getting hotter, as Congress wrangles over the debit ceiling bill. For the longer term, it could be Dollar negative as the appearance of more “Dollar printing” via potentially more deficit spending will cause the Dollar bears to come out.

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