Tuesday, October 7, 2008

The Market is always looking ahead

As we watch the carnage on Wall Street where investors are cashing out of the market, it appears nothing can stop this train wreck - not an economic stimulus plan (remember that tax rebate?) and now not even a $700 Billion cash infusion.

Why is nothing helping? Where is that quick fix?
Confidence in the markets has been damaged and as the market looks to the future - it doesn't like what it sees ahead: Higher capital gains tax rates, increased regulation and bigger government. In a nutshell - the move to socialism.

This progression has become clearer over the last two weeks as the election polls have been edging towards Barack Hussein Obama. BHO has promised to increase the capital gains tax and significantly grow government (federalizing health care, expanding the IRS, unprecedented increases in foreign aid, etc, etc). In a lame attempt to defend his tax increases, BHO plays the class warfare card by saying that this tax will not affect regular folks since their 401ks are not subject to the capital gains tax upon withdrawal and only the wealthy who own stocks will be punished.

Does BHO really believe that? Let's go back and review econ 101.

By raising the capital gains tax rate, investing in stocks becomes less attractive. This will cause investors to move money out of stocks and into fixed income investments. As they do this the stock market will decline in value which will in turn hurt the overall value of stock investments and mutual funds that BHO's "ordinary folks" have in their 401Ks, IRAs and other retirement funds.

A bailout will not change this; a tax rebate will not change this. Such tactics are nothing more than band-aids. The underlying issue driving the market downward is lack of confidence in tomorrow. Today's market has lost hope in tomorrow's market.