This blog post originally appeared on RealMoney Silver on Jan. 20 at 7:59 a.m. EST.
I fully recognize that the crowd usually outsmarts the remnants and that the momentum in health care stocks and in the overall market has been strong.
The conventional view is that the
will kill health reform and, thus, is bullish for health care stocks and for the market as a whole, but, for several reasons, I think that the crowd could prove mistaken on this one. I would not be surprised to see both health care stocks and the major market indices sell off over the short term.
A Scott Brown Senate win was growing more likely over the course of the past week. This was not unnoticed by investors in health care stocks; the group has already ripped in anticipation of a Democratic loss, and so have the overall markets lifted.
The health care legislation and reform can't die -- it can be modified -- or the Democratic party will have a problem for a long period of time. Moreover, it is unclear whether the Democratic Senate plurality (of 60 votes) will ultimately be a health care game-changer; it might just be a time out. The Democrats won't go down easily and shouldn't be underestimated. I am fairly certain that last night's defeat will not change the President's agenda, nor will it likely push Obama toward the center or in a major course correction. In fact, the Massachusetts Republican Senate win could conceivably result in administration policy initiatives that are much more punitive toward those who are seen as being privileged relative to the ("oppressed") masses (e.g., banks, brokerages and the wealthy).
The Massachusetts Senatorial race was not necessarily a referendum against the administration's policies (health care being one of them); it's broader than that. The populist uproar is geared toward the incumbent, toward anyone in power. It does not run on party lines, nor is it focused on health care. It is the zeitgeist of dissatisfaction, a sign of the times. Maybe it's a function of high unemployment or the electorate ticked off at the wealthy and the largest institutions (especially of a banking kind). This dissatisfaction was expressed in the Democratic tsunami that brought Obama the Presidency, and it was seen yesterday in the Massachusetts Senatorial election that brought Brown the Senate seat. In other words, the mood of the country has been changing for a while, and it is being reflected in a very negative view toward those who have not suffered from high unemployment or from wayward derivative bets (and still got paid). And, as I have written before, this will lead to policies that are arguably needed but, generally speaking, are valuation deflating.
While I recognize that historically political gridlock is generally seen as a market positive, it might not be this time as the nation needs sound direction and leadership, not legislative inertia. Given the complexity and scope of our country's fiscal problems, obstruction and the perception of continued divisive and partisan political agendas and the lack of an overall governmental community (which could thwart desperately necessary legislative solutions) might quickly be seen as a negative.
In summary, on so many levels, it's different this time.
Doug Kass writes daily for
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At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.
Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.