Obama Bear Market Continues

The precipitous decline in the stock market since Obama was elected continues. The Dow has closed below 8000. Is 6000 the next stop?

Let's see, what might be some reasons for the decline?

Obama's promise to increase taxes, particularly taxes on dividends and capital gains.

A government under the control of Democrats in both the Executive and Legislative branches.

The Democrat's impending bail out of the UAW, which will divert resources from productive areas of the economy to one of the least productive industries in the US.

The push for unionization of large swaths of the American economy, which will raise costs, lower productivity, and lower profits.

So-called "universal health care," which will be enormously expensive while reducing incentives for people to be gainfully employed.

The upside: We don't have to worry so much about Obama "spreading the wealth around." A large part of the country's wealth is in the stock market. The Obama Bear Market is ensuring that there is very little wealth left in that pot to spread around.

So, Seattle, you got what you wanted. A "feel good" election. What's next?

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The Obama Bear Market

We are approaching a 1,000 point decline in the DOW since Obama became President-elect. It is starting to look like the modest increase in the market on Nov. 4th was probably just some market participants taking a long shot bet that McCain might somehow pull off a victory. McCain was rather convincing in those last few days when he declared that he had the "big Mo."

At what point do we need to start facing the reality that the decline in the stock market is due to Obama's vision for our economic future? When one looks closely at his plan to increase corporate taxes, increase taxes on capital gains, and increase taxes on dividends, a decline in the stock market of roughly 40% from the point where it became clear Obama had a chance to win is about the logical amount of decline one would expect. And that's what we got.

We are past the point where the prolonged and continuing decline in the equities market can be attributed to the financial crisis. That was a crisis of the "system." While the cost of bailing out banks that took on too much risk is controversial, I doubt that there is much controversy as to whether it has worked. The Federal Reserve has dramatically increased the money supply while the Treasury took steps to ensure the solvency of the balance sheets of the country's banks. Yes, there are some uncertainties still out there, such as just who has Credit Default Swap obligations hidden on or off their balance sheet, but overall, I think the market believes that the credit crisis is over. It was "historic," like Obama's election, and it is now history.

So, what is pulling the market down now? The coming "depression" that Obama so elusively alludes to? Business cycles come and go. This one may be made worse by the temporary freeze-up in the credit markets, but there is no logical reason that it should be of "depression" dimensions. If anything, given the Federal Reserve's massive increase in the money supply, we should be bouncing out into some new bubble. (Let's see, first we had tech, then real estate, what could be the next bubble? ... Perhaps industries focused on Federal contracts?).

No, the market is digesting the reality of Nov. 4 and the policy positions that Obama has clearly articulated. Higher taxes generally. Higher labor costs due to Federally backed labor unions. Increases on all of the taxes that affect risk taking. Protectionism. Carbon taxes. The intent to bankrupt the coal industry. Government involvement in a host of issues, even to the point of setting private industry's pay levels to achieve that red herring of gender pay equity.

While the 40% decline mentioned earlier reflects increased taxes on corporate profits, dividends, and capital gains, the continued long, slow decline we started November 5 reflects those things listed in the paragraph above.

Either Obama needs to appoint a few people to positions quickly that inspire confidence in the market (Treasury Secretary, for example), publicly change his tune on these issues, or both. Otherwise the DOW will likely settle below 7000 by the end of this year or early next year. And stay there for years to come.

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