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President Obama said recently: "The stock market is sort of like a tracking poll in politics. It bobs up and down day-to-day. And if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong."
I am no economics genius, but I don’t have to be to recognize what is happening in our Country. All I or any citizens have to do, is follow the stock market. These guys are experts. They eat, breath and sleep money. The only reason the market exists is to exchange, and generate money by correctly analyzing information and applying it to determine likely outcomes. They have the latest and greatest computer programs to help them form their opinions. When they’re right, they make money and when they are wrong they lose. They have become very proficient at figuring out what is on the financial horizon, and making buy/sell decisions based on those predictions. The market does not react to current events as much as it prepares for the future. Investors buy stock when they think prices will go up, and they sell when they believe values will drop. They will also sell off long term investments if they fear being taxed for those investments. That is not rocket science, just common sense. Having said that, lets look at what the stock market has been telling us during the last eight months.
In July of 2008, when it became clear that Barack Obama would be running against John McCain, the Dow Jones average dropped 167 points, and that was a modest beginning. The election, the stimulus package, continuation of TARP, the mortgage bailout, and more money to failing businesses all have been answered by additional losses in the market. Since Obama’s election the Dow Jones Average has lost 31%, currently floating around 6500, a far cry from the 14,000 we saw mid last year. The message is clear: The financial institutions of this Country are exhibiting a huge “no confidence” vote. You can blame our current economic woes on the previous or present administrations, but it doesn’t matter. The stock market is telling us loud and clear that what we are doing now is not going to improve things any time soon.
In October of 2008, James Pethokoukis wrote prophetically in US News and World Report: In 1980, anxious Americans voted for lower taxes and smaller government as the solution to the nation's economic ills. Would the opposite prescription also have led to a 25-year economic boom? With Obamanomics, voters may be about to play a fascinating game of "what if." Except it's for real. When Goldman Sachs ran a sophisticated economic simulation of the effect of a total repeal of the Bush tax cuts, the computer predicted a 3 percentage-point drop in GDP. Maybe investors fear that with perhaps a trillion-dollar budget gap ahead, revenue-hungry Dems will raise taxes further than Team Obama is suggesting—right into the teeth of a weak economy.
It looks like we are playing the “what if” game of his article, and we are seeing the results of this flawed economic policy. Nothing is going to turn around until the stock market exhibits some confidence in the future, which means they’ve got to feel good about investing their money in America again, without having to fear losing too much of it to taxes if they do well. Eighty percent of people heavily invested in the stock market, are also in the most at risk tax brackets under Obama’s proposed policies. It doesn’t take Sherlock Holmes to figure out why they are burying their money in the back yard instead of buying stock. They are hunkering down for a future that doesn’t look too bright for them or this Country. It’s time for President Obama to stop treating the stock market like a tracking poll, and start paying attention to what it has been, and continues to tell us.
03/11/09 Update: I was pleased to see yesterday's rally with the Dow Jones Average finishing up over 300 points. Today's 3 point gain was disappointing however, I had hoped for better. In spite of the impressive recent gain, I believe we will see the Dow at 4500 before bear becomes bull.
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