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Mark's Market Blog

1-16-10: Massachusetts Special Election

By Mark Lawrence

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The market had a correction this week. People are nervous about China and the PIIGS (Portugal, Italy, Ireland, Greece, Spain, the countries closest to defaulting on their national debt.) While I expect the market to recover early next week, this is not a given. If the S&P continues to fall and closes below 1025 in the next few days, this fall could gain momentum and the drop could be substantial.

S&P 500 October 15 2009 to January 15 2010

China is worried about a real estate bubble, and has raised interest rates and ordered their banks to do less lending. No one knows what this will do, but it's made everyone nervous about Chinese stocks.

Massachusetts will have a special election on Tuesday to fill Teddy Kennedy's seat. Massachusetts, perhaps our most liberal state, is looking like they might elect a Republican according to the most recent polls. This would break the Democrats 60 vote majority in the Senate and put a knife into Obama's health care reform efforts. Over a million dollars a day is pouring into the candidates war chests, plus another million dollars a day in advertising by Political Action Committees. I presume local TV stations are having a great month. If the Republican, Brown, wins, this will be huge: health care reform will be DOA, and democrats everywhere will be in a panic. If the democrat, Coakley, wins, then I expect Obama will sign a health care bill before March.

If Brown, the Republican, wins, what will Democrats do? Some options include 1) lots of lawsuits to delay his taking his seat until health care is passed; 2) finish House-Senate negotiations quickly and pass it in the next 2 or 3 weeks; 3) Flip Olympia Snowe (R-Maine) to the democratic party; 4) Get the House to pass the Senate bill as is, then make a new bill with changes that would only require a simply majority to pass. Of course, this all presumes that centrist Democrats look at what happened in the most Democratic state in the US but don't change their vote on this very unpopular bill.

If a Republican wins in Massachusetts, then you have to figure a Senator from Maine switching from Republican to Democrat is signing her political death warrant. I'll be surprised if Ms. Snowe flips. If the House passes the Senate bill as-is intending to fix it later, Republicans would have no reasonable choice but to fillibuster the Senate until November. I can't imagine that negotiations can be sped up - after all, as Will Rogers said, "I belong to no organized party. I am a Democrat." So I think (2), (3), and (4) are not very realistic. Expect major lawsuits, perhaps winding up in the Supreme Court.

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