The last man to enter Parliament with good intentions.
Remember, remember the Fifth of November,
The Gunpowder Treason and Plot,
I know of no reason
Why the Gunpowder Treason
Should ever be forgot.
Guy Fawkes, Guy Fawkes, ’twas his intent
To blow up the King and Parli’ment.
Three-score barrels of powder below
To prove old England’s overthrow;
By God’s mercy he was catch’d
With a dark lantern and burning match.
Hulloa boys, Hulloa boys, let the bells ring.
Hulloa boys, hulloa boys, God save the King!
–Traditional English nursery rhyme
It’s that time of year again, dear reader. Tomorrow, November 5, is Guy Fawkes Day, the day that the English remember one of their most notorious villains or most celebrated heroes, depending on their politics.
On this day in 1605 Fawkes, a disgruntled English Catholic rebel, attempted to take down the entire English government—king, ministers, parliament and all—by blowing up the House of Lords during the State Opening of Parliament.
Fawkes was discovered and promptly executed, but he is remembered—in typically dry English humor—as the last man to enter parliament with good intentions.
Perhaps Mr. Fawkes was a man ahead of his time. Though thankfully no domestic political group is advocating “blowing up” Washington D.C., anti-establishment sentiment is the highest it’s been since the 1970s.
The Tea Party has firmly established itself as a political force to be reckoned with on the right by vowing to cut back the size and scope of the government and now plays the role of kingmaker in the Republican Party. Any Republican congressional candidate risks being bounced out of his or her seat in the primaries if they stray too far from the Tea Party line. Despite having an enormous campaign funding advantage and having the support of the party bigwigs, former Massachusetts Governor Mitt Romney may well lose the Republican presidential nomination to an upstart like Herman Cain if he fails to convince the Tea Party of his conservative bona fides.
On the left, the Occupy Wall Street movement is now attracting attention by demanding an end to the bailout culture that would appear to benefit the “top 1 percent” at the expense of the rest. Occupy Wall Street has yet to congeal into a coherent political movement—and I’ve expressed my belief that it never will (see “Occupy Wall Street: What You Need to Know“)—yet even a loosely-organized movement could be able to tip a close primary election. Democrats in left-leaning districts ignore the movement at their own risk.
That is enough about politics. What, if anything, are investors to take away from all of this?
First, expect the regulator regime on the financial sector to get stiffer. Though they differ wildly on many important details, both populist movements–the Tea Party and Occupy Wall Street–cite the bailout culture of Wall Street as a major grievance. The Dodd-Frank Wall Street reform bill has been criticized by both parties for being either too harsh or too lenient, depending on who you ask. I’ve criticized the Durbin Amendment to that bill, which gave the Federal Reserve the right to regulate debit card fees, for being punitive to banks while failing to give any real benefit to consumers (indeed, the end result of the Durbin Amendment was that banks levied new fees on debit cards of their customers, hurting the very people the amendment was drafted to protect).
Still, additional regulation is almost guaranteed. One possibility is the Volcker Rule, named after former Fed Chairman Paul Volcker. The Rule, if implemented, would forbid banks from trading for their own accounts (so called “proprietary trading”). This would mean lower profits and (presumably) less risk being taken by American banks. It should also make banking stocks less interesting as investments.
The other near-certainty is government gridlock. It was just a few months ago that a high-stakes game of chicken between the President and the House of Representatives came dangerously close to forcing the United States into default. It should be remembered that Standard & Poor’s decision to downgrade the country’s credit rating was due primarily to this gridlock and not to America’s ability to pay its bills.
Markets hate uncertainty, and the next round of budget or tax negotiations promise to bring us more volatility. As investors make their end-of-year financial plans–such as funding their IRAs or topping off their 401(k) plans–they might want to keep a little cash in reserve. While I am bullish for 2012, I believe the messy politics of an election year will provide plenty of great trading opportunities to buy on dips.
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