Charles Hugh Smith
If the economy continues declining into late October, there may be two landslides in the making: the stock market and the presidential election. The stock market is precariously close to slipping into a landslide. If the economy and stock market both continue declining into late October, the presidential election could also turn into a landslide--against the incumbent.
There is nothing particularly partisan about this possibility; people who vote tend to vote their pocketbooks, and a re-election campaign that boils down to "hey, it's not as bad as The Great Depression" is unlikely to inspire great loyalty in voters who are already culturally predisposed to tire quickly of presidents, wars and a tanking economy.
If the economy and stock markets are both slip-sliding away, the opponent need only be "not the incumbent" to win.
Presidents facing re-election in deteriorating economic conditions find their support in the critical non-partisan middle is a mile wide and an inch deep. A recessionary economy acts like a drought on that shallow lake of support, and when it dries up then the incumbent loses, and often loses big.
Let's consider the critical backdrops of the economy and stock market: household income and corporate profits. Market bulls like to tout rising profits as the reason the market can keep climbing higher in a global recession, but before we get too euphoric let's recall that the earnings of 90% of American households have been flat since 1970.
All those fabulous profits were built on two now-crumbling edifices: astounding levels of household debt and a declining U.S. dollar that boosted the critical overseas profits (40% of all profits) via currency devaluation. Now that the dollar has broken out of a multi-decade downtrend and has been rising for a year, those tailwinds have turned into headwinds.
I have yet to read even one market bull who has considered the negative impact of the strengthening dollar on overseas profits. That is a fatal flaw in their argument for ever-higher profits and stocks.
Can the top 5% push corporate profits into the stratosphere?
