Thursday, November 06, 2008

Obama and the Market

Well, glad to see the stock markets are having a nice, rational reaction to the election of Barack Obama. I have too much going on for a proper post today, but I thought I would check in to note the situation in the market again this week. After a 320-point rally on the Dow on the day before the election, we are now down broadly close to 10% as of early Thursday afternoon over just the two days since the historic election. And from the levels we were at the day of the election -- Dow 9600 or so -- this is a pretty sick drop.

It's not just Obama, although ultimately, as I mentioned the other day, there is ample empirical historical data to show that the few economic policies he has admitted to espousing thus far are not friendly to economic recovery. But it's also the Congress, which, although stopping short of the Democratic supermajority of 60, still picked up seats in both houses, including more importantly an official majority of 54 senators vs. 44 Republicans and two independents. The combination of both an Obama president and a solidly Democratic Congress understandably has the markets spooked, as anyone with an understanding of history and a deep concern about the financial markets should be. And this is not to say that Obama's approach is therefore wrong, but just that we now have leadership across the board in this country that firmly and publicly believes that there are more important things in America right now than propping up the stock market and the economy at large. That's just the way it is.

I do think there is hope right now with the markets tumbling anew following the election. I am thinking, now that Obama has officially won, we have a window here -- in particular if stocks remain weak and low like they are currently -- for Obama to get talked into coming out publicly with a statement that now in fact is not the best time to be raising taxes. In my mind there is nothing wrong with a president having as a goal of his tenure to raise taxes on the rich and on businesses in an attempt to redistribute that income to those who need it, but also to recognize that there may be a better and a worse time to enact such a policy. In fact, that's what I would want any president to do, to be ready, willing and able to adjust his desired policies to the fact of the times.

If Obama would just come out and let the people of America, and the people of the world, know that he is not automatically going balls-out on raising taxes, this could help the stock market, the psyche of the people of this country, and therefore actually help the economy as a whole. It would be the right move and the right decision. And it would not be a bad sign that the man is backing down from his stated goals. It would be a good sign in my view, less because I think raising taxes is a bad idea right now, but more because for a change it would be nice to have a leader in this country who is not going to turn a blind eye to the problems going on and who is willing to be flexible where necessary in the best interests of the country.

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Blogger StB said...

Raising taxes during economic uncertainty is flat out stupid. But it isn't just the rich that suffere. Middle class suffers when the cap gains tax rises. People take their gains while they can and take advantage of losses to offset the gains. Stocks go down.

But people would buy at depressed levels right? Not if they have to pay more on taxes for making money. Reward does not equal the risk. So they buy bonds.

Not corporate bonds as the risk is not worth the reward because tax free muni yields are better and they keep money from going to the government. So corporations need to find money to satisfy the revolving credit and to pay off the bond issues that mature. Because the taxable market stinks, they have to pay higher rates to sell the issue. Or pay banks higher rates for short term loans because credit is tight and you have to pay more to ensure you do not default.

Earnings go down because you have you expenses are up. Worse yet, revenues go down because that expense is always passed along to the customer. Now the stock goes down further eliminating more capital from being used to purchase.

All because you raised taxes.

Toss in legislature to allow unions to force people into membership and you have an economy in the toilet for years.

3:02 AM  
Blogger Bayne_S said...

StB left out the end result is higher business taxes ended up reducing overall tax collections because each business is now less profitable.

In end lose lose situation

4:35 AM  
Blogger OhCaptain said...

I'm still thinking buy.

Fannie Mae has tripled since it's low.

When people are greedy, be scared. When people are scared, be greedy.

10:59 AM  
Blogger sootedshit said...

Hey Hoy, I was wondering if you could show me somehow how u do screenshots efficiently. I have an AIM account, but more than happy to do whatever.

12:43 PM  
Blogger Hammer Player a.k.a Hoyazo said...

Sooted, what is your AIM screen name?

8:54 PM  
Blogger sootedshit said...

This comment has been removed by the author.

11:07 PM  
Blogger sootedshit said...

my aim is : Billybob1515

11:16 PM  

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