The Obama Market Correction?

I was watching CNBC this morning while getting ready for work and they had these two talking heads on from the Obama and McCain camps. One of them brought up a very interesting point. Could the fact that Obama clinched the Democratic nod and McCains relative weakness going forward be the cause for this recent market to sell off?

The guy said that the market is pricing in the cost of an Obama victory and what he will do to our economy. Lets see, Obama announced victory on June 3rd and the S&P was at 1377.66 and oil prices were at $124.46. Currently the S&P500 is at 1261.52 and oil is at $143.57 a barrel. So that is nearly the 10% decline that we would need for a classic correction.

Of course you will say that the market dropped due to oil being 143.57 and you would probably be right. However you could make an argument that the market is pricing in an Obama tax and spend policy that would probably have us in a full scale depression by 2009. No government has ever taxed their way out of an economic downturn. In fact the Great Depression was made even worse due to Hoover increasing taxes.

Also oil prices might be going through the roof because an Obama White House will not increase domestic supply. In fact Obama may be suspected of caving in to environmentalists who would love to see gas go to $5 or $8 a gallon in order to shut down world growth. He already wants to impose the failed Carter era Windfall Profits tax that would simply be a way to raise taxes on domestic oil production and constrain further exploration. In fact many people are saying that Obama is running for Carters second term complete with oil shock and stagflation. Too bad Obama doesn't have a crazy redneck brother like Billy Carter to cheer up the nation.

You can also make the leap that some of the "lets bomb Iran" rhetoric coming from Israel is because they are afraid of an Obama White House. In fact Obama talks about being buddy-buddy with the Mullahs in his so-called "meetings without preconditions." Maybe the Israelis are afraid the US will give up the farm to the Mullahs and not back up Israel when they are staring down possible annihilation.

So you can make the argument that Israel needs to get rid of the Iranian nuclear program while they still have Bush in the White House. I mean Bush stood by and let Israel attack southern Lebanon even though it was a terrible failure. In fact we would probably support an Israeli strike covertly with satellite photos and the like. But Obama might not.

They might think that with Obama in the White House Iran will go nuclear no matter what "pressure" the world communtiy puts on them. There is no way that Israelis will live under the threat of nuclear annihilation. So they need to strike while they still have an ally in the US who will not constrain their range of action.

Maybe they think an Obama White House (unlike a Hillary White House) would stand idly by and let Tel Aviv disappear in a mushroom cloud before he does anything. I mean Obama has anti-Israel people as advisers, wants to sit down with Israel's enemies, and even wants to enrich those same enemies with high oil prices. How can Israel trust the guy enough to stop them from being nuked?

So tensions between Israel and Iran are ratcheting up before Bush leaves and as a consequence oil goes to $143.57 from $124.46. So the investing gameplan for an Obama Presidency might mean staying long gold and oil while shorting almost everything else.