By Donald E. Johnson
The stock market has plunged since late September when it became
pretty clear that President-elect Barack Obama would become our next
president in January.
Why?
Uncertainty.
While the mounting financial crisis certainly has had a major role
in sinking stocks some 40% year to date, speculators are worried that
Obama will follow through on his promises to raise income taxes on
dividends and capital gains, rescue General Motors (GM), Ford (F) and
Chrysler and make it virtually impossible for private employers to
resist unionizing drives.
Traders are hoping that Obama will realize that tax increases will
push the economy deeper into a recession or even a depression.
Speculators and economists fear that if Obama, House Speaker Nancy
Pelosi and Senate Majority Leader Harry Reid bailout Detroit-based auto
makers instead of letting them file for Chapter 11 bankruptcy, the
country will face a very long and deep Japan-style recession and
depression. Japan made the mistake of bailing out failing banks and
companies instead of letting them fail so new companies could take
their places. This is why Japan’s economy has been depressed for some
17 or 18 years.
Unfortunately, Senate and House Democrats are buying Detroit’s scary
lies that if the auto companies declare bankruptcy, millions of jobs
will disappear. Not true. The companies would re-organize with many of
their current workers under revamped union contracts. Reorganization,
new labor contracts and new employee and retiree health benefit plans
would make the companies competitive and profitable after they emerged
from bankruptcy. And some auto workers would find jobs with Toyota,
Honda and other companies that have factories in the U.S.
If unions win their card check plan, which would take the secret
ballot away from workers during union elections, more than 50% of
privately-employed workers would be unionized in a few years, and that
would Europeanize the American economy.
While Obama continues to pledge that he and Congress will enact
another economic stimulus bill and bailout Detroit, he hasn’t backed
off his plans to raise taxes or payoff the unions that helped elect
him.
Investors also are worried that if Obama nationalizes health
insurance markets, cuts defense spending and imposes onerous
regulations on banks and Wall Street, the economy will be in for a
rough ride, and they’re right.
So, we wait and watch.
Obama’s staff and cabinet appointments as well as his public
comments between now and January 20 will offer important clues for the
markets. As the markets sink, the pressure on him to clarify and revise
his plans will increase.
Because there’s so much uncertainty about Obama’s plans as well as
about the world financial markets and economies, many financial
advisers reportedly are telling client to stay out of the markets until
we know more.
(I own GM.)
Don Johnson is a former editor at Modern Healthcare. He blogs regularly at The Business Word Inc., where this post first appeared.
Categories: Uncategorized
“After Obama announced his candidacy, homeowners and speculators alike realized that the future is uncertain and that there was no guarantee that housing prices would always rise, especially if Obama became President one day.”
So, they realized that continued market lies were no longer going to fuel inceasing values?
If you wanted to post about “uncertainity” you should have mentioned Paulson. His comments today were some of the most inpet and pathetic by a federal official in quite some time (probably since Katrina). It is readily apparent is has given up and is saving the monumental problems for the next guys.
I really liked Don Johnson in Miami Vice, but this is really a little bit much.
Jesse, I liked your post, and the line “the time when investors realized that George W Bush could not run for a third term” made it clear that your post was ironic. Nice.
There’s stupid, there’s really stupid, and then there’s this.
And let’s assume for a moment it’s true – what then? It shows that ‘investors’ are the most dim-witted, thoughtless creatures imaginable.
Let’s take the Defense spending example. Assuming that the US is not going to continue involving itself in trillion dollar fiascos that literally blow-up big chunks of capitol on a daily basis, how is continued investment in defense going to benefit the long-term economic interests of this country?
Oh wait, I just answered my question – ‘investors’ don’t do long term. They do quarterly. Period. So you know what? Forget about these guys. They don’t get it. Which also means that have no idea where to invest. Which means they’re not really ‘investors’ at all. They’re short term speculators and wannabe market manipulators who shouldn’t be trusted to manage the contents of an empty paper bag, let alone investments in the most comples economy in the world.
With regard to health – it’s no secret that our ‘system’ is in precarious shape – costing more and delivering less than that of any other industrialized nation, making it a serious drag on the economy, and a major barrier to recovery. And these ‘investors’ think that changing that in a manner that delivers more and costs less is a bad thing? Again, who are these people? More importantly, who are the morons still trusting them with their cash?
Portfolio Magazine has some ideas, illustrated with unnerving clairity here: http://www.portfolio.com/executives/features/2007/11/19/Blaine-Lourd-Profile
Bottom line: this isn’t really about Obama.
This is the most ridiculous piece of partisan hackery I’ve ever read. You’re actually attempting to blame Obama’s election for the stock market losing half its value?
The fact that Lehman Brothers, Fannie and Freddie, Merrill Lynch, AIG, WaMu, Wachovia, and other marquee names went under; a major mutual fund breaking the buck and needing to be insured by the federal government…what, just a coincidence? Auto sales plummeting in September by 30-50% across the board? Payroll dropping by 100,000+ jobs for 2 straight months? Consumer confidence falling to an all-time low? The market just didn’t notice that stuff because stockbrokers were all glued to their TVs, watching the presidential debates and hitting refresh on pollster.com? Or wait, all that stuff is somehow Obama’s fault?
Markets didn’t collapse because traders are uncertain over whether Obama is a closet muslim or socialist or whatever lie of the week the right wing is faxing around on its talking points. Markets collapsed because of the sudden and unambiguous CERTAINTY that the major financial bets they’d made were terribly, terribly wrong (a point that smart people had been making for quite some time). The uncertainty they have now is exactly how bad these bets were, who exactly is holding those bets, what else those bets are going to take down with them, what anyone can do to fix the problem they created with these bets, and also, whether or not the real economy will go to hell in a handbasket and it’s time to put everything in T-bills or perhaps the mattress.
And on card check, employers can use card check today to decertify a union. We’re supposed to believe it’s not intimidation when your boss starts muttering about layoffs and hires people to demand you sign a paper to get rid of your union, but it is intimidation when a 25 year old tries to convince you it’s in your best interest to sign a paper to form a union so you can get better healthcare and wages? Really, it can’t be undemocratic end-of-the-world intimidation in one case and not the other.
This is such a crock of nonsense.
Irony, MG, irony.
“2. The stock market has dropped precipitously since September 2007, the time when investors realized that George W Bush could not run for a third term and that he would likely be replaced by someone else. This uncertainty about the future sent markets into a tizzy, leading to 40%+ declines across the globe”
This is arguably the most ignorant/puzzling thing I have seen written since the financial crisis really hit home with Lehman failing. Makes the pundits at CNBC look lucid in comparison.
Donald Johnson gets his main point right, but misses the larger trend. I would like to make three additional points:
1. Obama was trailing in the polls in September when the markets suddenly dropped and John McCain famously said “the fundamentals of our economy are strong.” Then Obama surged in the polls, never to trail again. Although some liberal commentators have ridiculously suggested that this is evidence that Obama’s rise in the polls was partially *caused* by the drop in the market, all right-thinking people realize that this is just evidence of the supreme efficiency of markets. The markets saw Obama’s surge in the polls BEFORE it actually happened. It’s the wisdom of crowds.
2. The stock market has dropped precipitously since September 2007, the time when investors realized that George W Bush could not run for a third term and that he would likely be replaced by someone else. This uncertainty about the future sent markets into a tizzy, leading to 40%+ declines across the globe.
3. Indeed, the housing market has been in a massive downturn since 2006 or so, about the time when Barack Obama announced his run for the Presidency. After Obama announced his candidacy, homeowners and speculators alike realized that the future is uncertain and that there was no guarantee that housing prices would always rise, especially if Obama became President one day. This self-fulfilling prophecy led house prices to plummet.
In other words: thanks a lot, socialism.
This post is something I would expect to see from someone on Fox News with a political agenda.
The rally before Obama was elected was completely unfounded based upon what still has to play out (e.g., financial sector still isn’t shored up as Citibank is circling the drain and BOA is more and more likely that it will need another injection of TARP funding or private money to stave off further stock drop prices and further increases in the spread on their credit defaults).
Even if you follow the old rule of thumb that the market is looking ahead 6 to 9 months the news is awful. Given that most economists who are credible have written off at least Q1 and Q2 as losers (negative GDP growth) and all now the spectre of deflation looms large, any rally in the market is completely unfounded.
What did Obama possibly have to do with any of this and more to the point if McCain had been electing would the market somehow magically maintained the pre-election rally based upon the incredible tide of poor news rolling in now and in the near future?
Right… Blame the financial collapse on Obama… Apparently he single-handedly issued trillions of dollars of credit default swaps, and approved thousands of risky mortgages. Could Obama change the “anything goes” gambling atmosphere? Sure. But to pin the upheaval on the markets on the prospect of Obama’s possible election and now his inauguration? Ridiculous, not credible, and laughable.
His tax plans only raises taxes the top 5% of income earners (those who earn $250,000 a year or more) and certain high-earning small businesses, while LOWERing taxes for everybody else. And somehow you think this idea is dangerous for the economy? Somehow hundreds of our most thoughtful and prestigious economists endorsed his plan. It’s too bad you want to pin the blame on the actions of one person instead of the actions of thousands of executives at financial companies that were only to happy to gamble with money they did not have.
I haven’t yet made a decision on the union card check law but all the rest looks ok to me. This country needs to ask some very fundamental questions about our culture of rapid, unregulated expansion based on consumption, debt creation and environmental degredation. Does the government owe us never ending economic expansion at the expense of the environment and our health? Does the government owe the healthcare industry the present unsustainable profit system when citizens cannot afford to get basic healthcare? We have a growing waste disposal crisis where one community is pitted against others to take their garbage. This country spreads millions of tons of sewage sludge containing thousands of toxins on farmland, polluting not only the land but the water. In NC we continue to weaken what few environmental protections we now have through the rules review and setting function of government departments, that look to play along with industry, rather than protect our citizens. And of course the coming global warming crisis is all about expansion based on consumption and waste. Does the government owe us foreever rising stock and home values based on debt? Does the government owe us a bailout everytime we spend beyound our means? Does the government owe Wall Street a blank chech to operated with no responsibility or ANY social solidarity, while they get millions in bonuses for working against the interests of the country? Does the government owe Detroit billions due to their own continued mismanagment and union greed? What kind of a world do you see passing on to your children and grand-children? Is it the one we have now where the only value we hold is consumption and debt without responsibility?
I say to investors PLEASE stay out of financial markets, it’ll give us a break from unsustainable growth and global destruction. It will give us time to figure out what’s really of value.