Tuesday, November 2, 2010


How about a lighthearted diversion, hmm?

"Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what's going to happen next. Delicious ambiguity."
-- Gilda Radner

Emily Litella was an old woman with a hearing problem, a fictional character played by Gilda Radner in regular appearances on Saturday Night Live's "Weekend Update" segment. Emily was believed to be modeled after Gilda Radner's childhood nanny, Elizabeth Clementine "Dibby" Gillies, who was hard of hearing.

Emily would be attired in a rumpled dress and, peering through her glasses, her high-pitched voice would utter a series of well-anticipated verbal faux pas. These would include such classics as "saving Soviet jewelry (Jewry)," "endangered feces (species)," "violins (violence) on television," "busting (busing) schoolchildren," "conserving our natural racehorses (natural resources)," and "youth in Asia (euthanasia)."

The news anchor (Chevy Chase or Jane Curtin) would invariably interrupt Emily and point out to the error in her lines. Emily would wrinkle her nose and say something like "Oh, that's very different..." then meekly turn to the camera and say, "Never mind."

In real life, Gilda Radner's answering machine had the following message: "Hello, this is Emily Litella. I'm not home right now, but I will call you back as soon as possible. Just leave your name, number and what time you called after you hear the sound of the JEEP."

So, with apologies to Gilda Radner, I make the following offering on this important Election Day:

Jane Curtin: "And now a new addition to our Update team is correspondent Emily Litella with tonight's commentary. [Applause] Well, Miss Litella, you've badgered us all for a long time and now you have a job. Welcome."

Emily Litella [Bespectacled little old lady with squeaky voice]: "Oh, well, thank you, Jane. It's very lovely to be part of a news team. Ah, tonight's commentary is very important. But, what is all this fuss on CNBC today about the mid-term erections? Erin Burnett, Michelle Caruso-Cabrera and even that nice one, Sue Herera -- all they are talking about is mid-term erections. Now, let me warn you it is terrible and disgusting that there are discussions about erections all day long by everybody on a television channel. And with these midterm erections, what's next? Midweek erections? This is outrageous! I can't believe that I am hearing this on CNBC."

Jane Curtin: "Miss Litella."

Emily Litella: "What, what?"

Jane Curtin [Speaking slowly and clearly]: "Miss Litella, you've done it again. CNBC's correspondents are talking about midterm elections, not midterm erections."

Emily Litella: "Ohhhhhh. Well, I'm sorry. [Squints and grins, into camera.] Never mind."

Jane Curtin: "Miss ... Miss Litella. Let's get something straight. We've put up with your slight hearing impairment for a long time now and in the beginning it was cute. But now you're part of a news team and we like to report the news accurately. Now, if you don't report the news accurately, we'll have to let you go. No job is permanent. Do you understand me?

Emily Litella: "Oh, yes, yes, I do. I'll ... I will certainly do my best. I'll try to do better, hmmm."

Jane Curtin: "Please do."

Emily Litella: "Bitch." [Applause -- after a moment, Miss Litella briefly holds up two fingers behind Jane's head to the crowd's delight.]

Jane Curtin: "That's our news for tonight. Good night and have a pleasant tomorrow."

A government divided is not a price/earnings-expanding event, nor is it a recipe for a new leg of a bull market.

The market has continued to be boosted today by the growing probability that the Republicans will comfortably win a House majority -- though the likely outcome is that the Senate will remain controlled by the Democrats.

Despite protestations from several talking heads (e.g., Strategas and Bank of America/Merrill Lynch) over the last half hour on CNBC, a Republican Senate majority would likely require wins in California, Connecticut and Washington state. Victories in these states by the Republicans are unlikely.

In all likelihood we will be left with gridlock after the midterm elections are over.

My view is that while gridlock is seen historically as a plus for the markets, it's different this time.

The domestic economy faces numerous challenges to growth -- in the form of an overleveraged consumer, still-elevated joblessness and large fiscal imbalances (local, state and federal) -- that need to be addressed posthaste.

Indeed, the current anemic trajectory of growth exposes the economy to policy mistakes, a further drop in consumer and business confidence and other unknown and exogenous factors (such as geopolitical risk).

Stated simply, a government divided is not a price/earnings-expanding event, nor is it a recipe for a new leg of a bull market.

Banks Still Stuck

A new leg of upside for this sector looks difficult.

The banks continue to act poorly, and a sustained new leg to the upside seems difficult under this circumstance.

I am not a political analyst, so I have no special insight into the elections;
Nearly all elections make little difference to discounted cash flow;
It's a fair bet that some -- and perhaps most -- of whatever outcome there might be is reflected in prices.

Run, don't walk, to read 'A Hedge-Fund Manager's New Groove' in the Wall Street Journal.

Perhaps this is as much a reflection of the times and of the state of the markets as the shorts become longs.

No comments: