The 10/10 Rule in 2010
The election season in 2010 has basically begun with the State of the Union address this week. Ignore the rhetoric and the speeches; there are really only two metrics that will determine the success of the incumbent party (Democrats) come November. They are:
- Whether or not unemployment drops below 10%
- Whether or not the Dow can stay above 10,000
Simply put, the Democrats know they need to put a dent in unemployment and they need to keep the stock market above 10,000. The latter may have seemed easier just last week – the Dow has dropped some 600+ points since then, and is now closer to the 10k mark.
The interesting thing is that I’m most worried that the Democrats will do whatever it takes to satisfy the 10/10 rule in their favor. The easiest way to accomplish, maybe the only way, in such a weak real economy, is to destroy the dollar. Print enough money, we can pay for everyone to work (if we can’t find something for them to do, simply have them dig holes and fill them in again!) and we can get the Dow maybe even up to 20,000.
The problem is that there is a non-political metric that measures the validity of the 10/10 rule. That metric is the price of gold. Sure, politicians might be able to fix unemployment and the stock market, but if gold doubles, triples, or more, then the success of beating the 10/10 rule may likely be nullified. Interesting, no?
So, with that said, we can actually add a third “10”. Here is the winning formula for any party:
- Drop unemployment below 10% – real unemployment as we used to measure it (yeah right)
- Keep the Dow over 10,000
- Keep gold under $1,000 per oz.
If you can manage to do all three, you will be able to get the economy on the right path. The problem is that I’m not sure that is possible. You have massive forces that are working to pull the Dow lower and push unemployment higher: deleveraging, weak consumption, toxic assets, crumbling housing market, etc. In an effort to combat these forces, we’re destroying the dollar and pushing gold higher. So, like I said, accomplishing the 10/10 with the third 10 (gold) is easier said than done.
As such, I think that Republicans will probably do well in 2010 elections. I just hope we’re getting Republicans more like Ron Paul, not Republicans like John McCain and Lindsey Graham.