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Tuesday's Super Slump: Has the GOP Lost Its Mojo?


The two outliers no one was willing to forecast was 3% GDP growth from the 4th quarter accompanied by two consecutive months of robust nonfarm payroll numbers.

The key takeaway from last night's "Super Tuesday" is that Republicans discovered what could be Mitt Romney's largest obstacle: his ability to communicate and connect with everyday Americans who lack higher education. The unemployment rate for those without higher education is elevated at 16%. Romney's ability to convince this group that he's focused on improving low-income-earning jobs will likely either make or break his campaign. Last fall Barry Ritholz commented on the art of logos, or placing rhetoric to logic, saying:

Persuasion is clearly a sort of demonstration, since we are most fully persuaded when we consider a thing to have been demonstrated. Of the modes of persuasion furnished by the spoken word there are three kinds.

Ethos: Persuasion is achieved by the speaker's personal character, when the speech is so spoken as to make us think him credible.

Pathos: Secondly, persuasion may come through the hearers, when the speech stirs their emotions.

Logos: Thirdly, persuasion is effected through the speech itself when we have proved a truth or an apparent truth by means of the persuasive arguments suitable to the case in question. (Logic)

Romney has eloquently categorized himself as an accomplished businessman from the private sector. Yet he's also attempting to morph himself to fit many moving pieces and become the key equation to solving the country's puzzled recovery. In my opinion, he would better serve his campaign by standing on a single merit and letting his leadership take center stage instead of attempting to tiptoe toward each demographic.

The best case scenario the GOP could have orchestrated was a swift primary season and the prompt emergence of a Republican candidate to begin challenging President Obama and take the spotlight. After Tuesday's super slump, the GOP nomination remains cluttered and confused. For all intents and purposes we know Mitt Romney will eventually emerge. Yet after a process that is taken to the end, it will come with less fanfare. It will feel more like a moral victory for the winning candidate to limp into the Republican national convention this fall.

What are the Republicans -- or more specifically Romney -- struggling with? The two outliers no one was willing to forecast was 3% GDP growth from the fourth quarter accompanied by two consecutive months of robust nonfarm payroll numbers. These, along with a feel-good rally in the equity markets, are all net positives for Obama. The American consumer and economy have largely been broken since Obama took office, yet thanks to trillions of dollars of quantitative easing, the predominant refrain has become, "It isn't broken, don't fix it." The S&P 500 (SPY) performance year-to-date is off to one of the strongest starts since 1995.

The current risks to both the markets' upward trend and a possible Obama re-election are Iran's growing conflict with Israel, the depth of the United States' support for Israel, and how the oil market reacts to the tension. The Strategic Petroleum Reserve, or SPR, won't be tapped by President Obama because there isn't an infinite supply and the risk then turns to its life span. At this point it would have little material impact. Crude does not become an effective tax on GDP until it is north of $115. Obama will become a manager of expectations in a "do little" mode to ride a potential growing recovery. I predict that he will take a passive approach to Israel, voicing support but going short of backing Israeli Prime Minister Netanyahu with arms.

With respect to equities, there are more crosscurrents currently working their way through the markets than at any time during the bear market rally that began three years ago. Rallies that peaked in April of 2010 and 2011 both fell victim to the end of quantitative easing by the Federal Reserve. Investors have been caught in a world of shadows that led them to believe in false realities. Now the old saying about how many times you can fool the customer has a new spin: Fool me once, shame on you. Fool me twice, shame on me. Fool me three times, shame on...who?
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