But beware….a powerful lame duck Democratic congress could steamroll insurmountable legislation through from November to January. All of the bills passed in the last two years will require multiple years to restore business and employment back to the previous higher levels, unless they are overturned.

Be prepared, as an investor, to change your thinking pattern of investing over the next few years because of the following:
• The large monetary and fiscal stimulus that was previously applied is running out of steam. (Most of the money was used to shore up union jobs and pensions. Very little was used for any new jobs.)
• Tightening of financial conditions.
• Leading indicators slowing down.
• Public and private deleveraging.
• Higher taxes, more regulation, trade tensions.
• European countries have slowed economically.
• Corporate profitability blossomed due to reduced expenses, but that is over. Consumer demand has fallen off, so corporate profits will drop.
• Deflationary pressure is coming on not just for prices but also for wages.
• Since fiscal and monetary stimuli have been used to the full extent, then another financial crisis will only lead to excessive money being printed.

Watch for the stock market to move sideways for a while with periodic deep drops. Gold will stay steady. Look at dividend paying stocks and short term bonds. By all means, begin moving into tax free, not tax deferred investments that provide guaranteed protection against loss with upside participation.

Watch the stock market during the week before the election. It will tell you which party will win.

According to Howard Silverblatt, senior index strategist at Standard & Poor’s, the S&P 500 index returned about 1.0% in the 1930s on an average annualized basis. Through the end of March 2008, the index sported a minuscule gain of 0.6% so far this decade.

Of course, this follows two decades of astonishing equity gains-the index rose 17.6% during the go-go 1980s and 18.2% in the tech-fueled 1990s. It’s understandable that such a robust period like that would be followed by an epoch of lackluster returns.

Broadly speaking, both the 1930s and 2000s were characterized by crises in financial institutions, which led to equity price declines and a desperate need for liquidity. Last summer, liquidity dried, as banks refused to provide additional loans, slowing down commerce.

In the early 1930s, bankers similarly closed up shop to prevent a run and commerce practically ceased. Franklin Roosevelt, then newly-elected as president, ordered the Treasury to print a couple billion dollars worth of notes and made them available to the banks. Restoring liquidity was not all that different from what the Federal Reserve and foreign central banks have been doing by injecting billions of dollars into their financial systems in recent months.

There is another basic similarity between the two periods. In the 1930s, leverage, correlated directly to stock purchases, escalated in an environment of relatively low regulation and low equity.