Why the Market Bears Are Roaring

So how do the poll numbers fit in? The Gallup Poll Presidential Approval Rating is now 34%. According to Ned Davis analysts, a low presidential approval rating can sometimes be a positive in a contrarian sort of way -- meaning that there is excessive pessimism afoot. Yet they hasten to add that when it is this low, "it's so bad that it's actually bad." During the rare period when the approval rating has been under 35%, the Dow Jones industrials have declined at a negative 6% annual rate.

Now, where it really gets ugly is when you notice that there is only one other precedent for the twin demons of low presidential approval and a midterm election year happening at the same time. That was in 1974, when the market would ultimately slide 45% to a 12-year low amid the Watergate scandal, impeachment hearings and the resignation of President Nixon, not to mention a gasoline-supply and price shock.

The Rise of Mercantilism

But that's not the only big problem that Mr. P sees. He also frets over what he refers to as "neo-mercantilism." Mercantilism, you may recall from economic textbooks, was the main paradigm that characterized world trade in the 16th and 17th centuries before capitalism shifted into high gear. It's a view that politicians, not business leaders, should guide international trade -- and that trade policy should serve strictly political ends.

Modern mercantilists include Vladimir Putin of Russia, Hugo Chavez of Venezuela, Evo Morales of Bolivia, and in some regards, the governments of Germany, China and Japan. Examples are Putin's withholding of natural gas from Europe; Chavez's takeover of foreign oil and gas interests; and Morales' nationalization of energy and mines.

Mercantilism is an unsettling type of economic warfare, says Mr. P -- an attempt to restore power to governments that was stripped from politicians by capitalism. You could almost call it the "weaponization of finance." If it swells, much of the market freedom that we know today will shrivel, he fears, as countries withdraw into their shells and restrict world trade.

On a more practical level, Mr. P says his models show that the industrial metals are four times more expensive than they have been historically, and consumer durables are twice as cheap as they normally are. He believes the gap will close, which means he thinks you should at least take advantage of the recent surge to sell your aluminum, zinc and nickel stocks.