After 6 strong consecutive days, up on increasing volume, the markets finally gave something back yesterday. "Profit Taking" (an abused TV term) actually took place, as traders locked in recent gains. Its a positive when selling occurs on lighter volume than the prior buying, and we saw that light volume yesterday, as the Dow slid 150, Nasdaq, 85.

The excuse for yesterday's selling was the defection of Republican Senator James Jeffords to the Independent party. That would effectively end GOP control of the Senate, and that, we are told, is what roiled the markets. The big tax cuts is now in jeopardy; tobacco and pharmaceuticals companies are in trouble; oil and other energy firms are doomed; other horrors await us.

Of course, this "theory" is utter nonsense.

The US Stock Markets have done exceedingly well under a divided government -- when one party controls the executive branch (President Bush is a Republican), and the other, the legislative branch. Unless something unexpected occurs, the Democrats will now have a 1 man majority in the Senate -- 50 Dems, 49 Repubs, 1 Independent.

This is actually the best news to come out of DC in a while. Depending upon what silliness occurs, the chaos may present numerous individual stock opportunities.

It also limits the damaging excesses a single controlling political party can wreak.

From a macro-economic viewpoint, the reducing of Bush's enormous tax cut is a positive. Despite all the spin, the vast majority of his cuts would not be scaled in until 2008, or later. It would have no impact -- other than a brief pychological lift -- on the present economy.

By taking control of the Senate, the Democrats force the Republicans to be a bit less arrogant, and more inclined towards compromise. The Dems were looking for an immediate middle class tax rebate -- $500-1000 per family. Unlike the wealthy (how do you think they got that way?), its the tendency of the middle class is to immediately spends its cash. That would be stimulative to a slowing economy immediately. A tax rebate would help a number of economic sectors: Retailers, PC manufacturers, Apparel, Real Estate, Banks, and Brokerage firms.

A small, one time cut is not inflationary. The size of the Bush plan could bring back Reaganesque structural deficits; The deficit is what choked the US economy from 1984 to 1994. Of course, deficit spending is inflationary; and that would cause the Fed to start raising rates, hurting both the economic and market recoveries.

Its now likely that the excesses of W's tax cuts will be curtailed. That could leave us with a smaller, more immediate, non inflationary, economically stimulative tax cut.