The Dow is at 6,594.44. The S&P 500 is 682.55. Obama's hope is not caring over to wall street. So why has the market fallen so far?
(1) Panic. People see the market fall, and try to get out while they still can.
(2) Value. Dividends are being cut and stocks are being nationalized. The recession makes the value of companies in the near future less valuable. The increase in the capital gain tax from 15% to 20%, a 33% increase, makes holding a stock less valuable.
(3) Cap and Trade. This would increase the cost of electricity (and thus the cost of production) for every company. Additional, those companies that produce C02 (like steal and electric companies) will be hard hit.
(4) Budget deficit. The massive spending proposed by the Obama administration and Congress will result in inflation in future years. This makes the value of dollar in future less valuable. Thus foreigners are less likely to buy stocks.
(5) Uncertainty. The massive changes in government makes investors uncertain on what new changes may be coming. Investors do not like uncertainty.
(6) Baby Boom. As the baby boomers move into retirement, they will need to sell their stocks. Without a new source of investors, the market will continue to be depressed.
Things that could happen to raise stock values. (1) The recession/depression will end. Increasing corporate profits and the ability to increase dividends. (2) The Republicans will take over and decrease the capital gains taxes. (3) Innovation. New companies/products arise that create value. (4) Global instability. Foreign capital rush to the U.S. for safety. (4) Global warming is found to be wrong.
Thursday, March 5, 2009
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The Dow is at 6,594.44. The S&P 500 is 682.55. Obama's hope is not caring over to wall street. So why has the market fallen so far?
I believe you're wrong here I believe the markets would have already crashed totally if not for Obama bringing some hope of competent leadership
(1) Panic. People see the market fall, and try to get out while they still can.
Most "common" people stay in the markets until its too late due to lack of access to inside information and believing WSJ,CNBC and similar.... after the hits they still stay in hoping one day it will go back up...only the smart guys or crooks get out early, traders lead people follow, so people have little affect on the markets, they just follow traders
(2) Value. Dividends are being cut and stocks are being nationalized. The recession makes the value of companies in the near future less valuable. The increase in the capital gain tax from 15% to 20%, a 33% increase, makes holding a stock less valuable.
All this happened with reduced capital gains taxes i.e., no saving affect on the markets, raising them should not affect the markets either significantly, perhaps slightly but not significantly, remember markets also soared with higher captial gains taxes ...has no appreciable affect
(3) Cap and Trade. This would increase the cost of electricity (and thus the cost of production) for every company. Additional, those companies that produce C02 (like steal and electric companies) will be hard hit.
Long term, 5 to 10 years, this will reduce electric costs as it will stimulate alternative green energy production, long term costs will be significantly lower and short term 2 to 3 years markets will factor that in, further many new jobs will be created further stimulating the economy, long long term energy from the sun will be almost free.
(4) Budget deficit. The massive spending proposed by the Obama administration and Congress will result in inflation in future years. This makes the value of dollar in future less valuable. Thus foreigners are less likely to buy stocks.
The budget deficit is Bush's fault not Obama's, 3 trillion for oil wars, trillions in tax cuts for the super rich have caused the deficit, Obama has no choice but to raise deficit further because of current credit crisis, again due to Bush Republican and some right wing democrat's deregulation of banking industry
However historically Democrats have done far better job of reducing deficits than Republicans, Republicans spend all our money on war and subsidies for oil and banking.
(5) Uncertainty. The massive changes in government makes investors uncertain on what new changes may be coming. Investors do not like uncertainty.
Some investors thrive on uncertainty it depends what kind of investor you are. Further massive changes in gov't came under Bush much more than under Obama so far, Bush bloated the gov't by 10 plus trillion dollars Obama is only at 1 plus trillion so far.
(6) Baby Boom. As the baby boomers move into retirement, they will need to sell their stocks. Without a new source of investors, the market will continue to be depressed.
The new source is China and India where we moved our manufacturing base thanks to Republicans
Things that could happen to raise stock values. (1) The recession/depression will end. Increasing corporate profits and the ability to increase dividends.
This will only happen if their are people with jobs with money to buy stocks and I much rather have Democrats trying to create jobs than Republicans
(2) The Republicans will take over and decrease the capital gains taxes.
The Republicans got us into this mess, and you would trust them to get us out????? Are you nuts????
(3) Innovation. New companies/products arise that create value.
Democrats support innovation far more than Republicans
(4) Global instability. Foreign capital rush to the U.S. for safety.
Used to be true, no longer true, now they rush to Europe, China...the US needs stability not instability in the world to come back
(4) Global warming is found to be wrong.
Will have no affect on stock markets if found to be wrong, however if found we can't or won't stop global warming that could have huge negative affect on markets
(2) Value. If you have a $100 gain on a stock, with a %15 long term capital gain, you profit by $85, with 20% tax, you get $80, with a short term tax of 33% you get $67, with 46% rate, you get $54. Therefore the tax rate does affect the "value" of stocks.
BTW, it was Clinton, Dodd and Frank who put in the rule changes that cause the banks to lend to people who couldn't afford their mortgages which led to the housing bubble which caused the banking crisis.
I don't see the relevance of your first comment,.... sure the more capital gains are taxed the less they are worth that's obvious, but that doesn't mean people will stop investing if they make less profit, they will still invest as long as the risk reward ratio is adequate, and history proves that even at 33% people still invested in stocks...personally I think a capital gains tax is stupid for the middle class, it should be 0%, and losses taxes deductible, for all those making less than 250K a year, above 250K then the tax could go up progressively reaching a top limit of 90% for capital gains say for profits in the 100s of millions, this would strengthen enormously the economy overall and bring down our deficit substantially, it would greatly reduce risky speculation as rich investors would be forced to invest more in start ups and new companies and less in stocks and derivatives.
As for your second comment Clinton Dodd and Frank only affected deregulation for making it easier to buy a home, all the other deregulation concerning leverage and insurance came from Republicans which is the real culprit behind the meltdown!!!
"but that doesn't mean people will stop investing if they make less profit, " - but it will determine how much will pay, i.e the market falls.
"all the other deregulation concerning leverage and insurance came from Republicans which is the real culprit behind the meltdown!!!"
Please explain which deregulation actions and how it caused the meltdown. And what efforts the Democrats took to prevent those actions?
"but it will determine how much will pay, i.e the market falls."
History has shown this to be false markets act irrationally, it seems true on the surface but is in fact not true, the world does not always act rationally just ask any physicist about quantum mechanics, markets don't act rationally neither do banks, all banks are insolvent by design and have been for decades, banks run on trust, markets on hope, both driven by greed that's why they need regulation and that's why capital gains taxes don't affect markets whether higher or lower.
As for your second comment check out Democracy Now for your answer here's the link:
http://www.democracynow.org/2009/3/4/sold_out_new_report_follows_lobbying
the main political culprit is phil gramm republican from texas who pushed for the passage of the Gramm-Leach-Bliley Act of 1999, which killed glass-steagal act passed by democrats after the depression and which allowed Citibank to become a mammoth investment bank and leverage 47 times the money controlled by it.
Clinton under intense pressure from Republicans and right wing democrats including those working in his own administration like Rubin, signed the act,... unfortunately, this was a big mistake by Clinton, a democrat in name, but everyone knows he acted like a Republican concerning banking and foreign policy...let's just hope Obama is far more to the left than Clinton and thus acts smarter than Clinton did, but so far, on foreign policy anyway, it looks like he's not. This is why when electing senators and house reps it's not good enough to elect Democrats instead of Republicans but we need to elect more Democrats like Feingold, Kucinich, Pelosi etc who are really to the left not "blue dog" center right types like Clinton...only then will we have a vibrant economy for the middle class and poor (though an economy that sucks for the super rich, they'll all move to Dubai like Cheney's Halliburton). Reagan Bush Republican policies have destroyed our country in order to help the only the super rich get even richer, food quality today sucks big time, even dangerous, coal still unregulated, global warming ignored, economy in a shambles, medical care and higher education way too expensive, foreign policy replete with war crimes, corruption, waste, etc....why anyone would vote Republican for anything after 30 years of hard evidence to the contrary is beyond reason!!! Thanks to left wing Democrats, unions and social activists America became the richest, most free, best place in the World to live and work, ...thanks to Republicans all this progress made by the left in America has been destroyed...why anyone would vote Republican is beyond me unless you were an immoral multi-millionaire, like Rush Limbaugh!
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