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October 29, 2008
The Stock Market as a Window on the Future
Despite the big upswing yesterday, the stock market has been a roller coaster trending steeply downward. There's more to it than the subprime crisis, as George Newman explains in today's WSJ:
The valuation of an individual stock reflects the collective expectation of investors about a company's future profits, dividends and appreciation, and the same is true of the market as a whole. These profits, in turn, are greatly influenced by government policy on taxes, spending, subsidies, environmental and other regulations, labor laws, and the corporate legal climate. Investors have heard enough from both candidates in the last month or two to conclude that prospects for a flourishing, competitive, growing and reasonably free economy in a McCain administration are bad, and in an Obama administration far worse. (In fact, the market's bearish behavior over the last couple of months pretty closely tracks Barack Obama's gains.)
If you don't believe me, please answer a few questions:
• Have you thought of what a gradual doubling (and indexation) of the minimum wage, sailing through a veto-proof and filibuster-proof Congress, would do to inflation, unemployment and corporate profits? The market now has.
• Have you thought of how easily a Labor Department headed by a militant union boss would push through a "Transparency in Labor Relations" law that does away with secret ballots in strike votes, and what this would do to industrial peace? The market now has.
• Have you thought of how a Treasury Secretary George Soros would engineer the double taxation of the multinationals' world-wide profits, and what this would mean for investors (to say nothing of full-scale industrial flight from the U.S.)? The market now has.
• Have you thought of how an Attorney General Charles J. Ogletree would champion a trillion-dollar reparations-for-slavery project (whittled down, to be fair, to a mere $800-billion, over-10-years compromise), and what this would do to the economy? The market now has.
• Have you thought of what the virtual outlawing of arbitration — exposing all industries to the fate of asbestos producers — would do to corporate liability and legal bills? The market now has.
• Have you thought of how a Health and Human Services Secretary Hillary Clinton would fix drug prices (generously allowing 10% over the cost of raw materials), and what this would do to the financial health of the pharmaceutical industry (not to mention the nondiscovery of lifesaving drugs)? The market now has.
• Have you thought of a Secretary of the newly established Department of Equal Opportunity for Women mandating "comparable worth" pay practices for every company doing any business with government at any level — where any residual gap between the average pay of men and women is an eo ipso violation? Have you thought about what this would do to administrative and legal costs, hiring practices, productivity and wage bills? The market now has.
• Have you thought of what confiscatory "windfall profits" taxes on oil companies would do to exploration, supply and prices? The market now has.
• Have you thought of how the nationalization of health insurance, the mandated coverage of ever more — and more exotic — risks, the forced reimbursement for excluded events, and the diminished freedom to match premium to risk would affect the insurance industry? The market now has.
• Have you thought of Energy Czar Al Gore's five million new green jobs — high-paying, unionized and subsidized — to replace, at five times the cost, what we are now producing without those five million workers, and what this will do to our productivity, deficit and competitiveness? The market now has.
I could go on, but you get the point.
That point being, the Change Obamunists bleat about boils down to changing the wealthiest country in the history of the world to a Third World socialist hellhole. The market doesn't seem to like the idea.
The market is forward looking. If it is unhappy with a president, it does not wait almost eight years before the numbers reflect it. If it really anticipated good times under Mr. Obama, the market would have gained 40% in anticipation of the transition. By losing that much, it seems to be saying the opposite.
But there is still hope that rather than disaster under Obama, we'll get damage control under McCain — which may explain the jump yesterday.
The silver lining in all this is that the market has already "discounted" an Obama win, so if that happens you won't wake up on Nov. 5 to find your remaining savings down the drain. If the unexpected happens, you may be in for a pleasant surprise.
By predicting an Obama win, the market has already suffered much of the damage of putting an immature leftist in charge of the government, as if that devastating tragedy had already occurred. As the polls tighten up, the market may be realizing, along with voters, that the catastrophe can still be averted.
On a tip from Varla.
Posted by Van Helsing at October 29, 2008 7:55 AM
Comments
That article was quite insightful. I have a feeling we are going to get more of the same 'change' we were delivered in Jan. 2007.
Posted by: Harris at October 29, 2008 8:14 AM
All these are right on target. However, it isn't that complicated. What will happen mostly is that hundreds of thousands of our best and brightest people who had hope and saw a future reward for their efforts will say. "To hell with it."
They'll spend a little more time with their kids, drink a little more, take dumbed down courses in college, read some junk, play on the computer, come to work late, go home early, and get back aches that put them on disability. They won't hire people, take risks, borrow money to build, study hard science, or call attention to themselves. And no matter how much money is pumped into the system, nothing will ever motivate these people again. It takes hundreds of unmotivated people to do what dozens of motivated people can do. The tax burden will have to increase exponentially. Productivity will fall and continue to fall and there will be no possible solution. Everybody will be much, much poorer.
Welcome to Obama's, Reid's, and Pelosi's utopia.
Posted by: jim johnson at October 29, 2008 9:01 AM
I hope McCain and Palin win.
Many of you will be out of work and my taxes won't go to help you. In fact, my taxes will go down. Sweet!
Posted by: Anonymous at October 29, 2008 10:23 AM
What will happen mostly is that hundreds of thousands of our best and brightest people who had hope and saw a future reward for their efforts will say. "To hell with it."
The pharmaceutical industry illustrates this kind of larger economic dynamic.
For the most part the pharmaceutical industry has hit a brick wall producing blockbuster drugs. This is due to the difficulty of treating complex diseases with a pill that has no side-effects. Add to that, tough regulatory and intellectual property environments.
But what has really been eating away at the industry (and what d’ya know, the ability to make new drugs!) has been relentless demonizing and litigation by liberals. By now average people put the industry on a par with the asbestos industry as dangerous greedheads.
Targeting the pharmaceutical industry as a convenient cash cow has been the industry of liberals. And not to badmouth the deceased, but I often wonder if Peter Jennings had put as much of his career in promoting the importance of Big Pharma instead of attacking it night after night, would he have helped to inch science toward a cure for his lung cancer?
I imagine that eventually, the pharmaceutical industry in the U.S. will follow the asbestos pathway to complete ruin. After which liberals will reflexively look for something else to destroy.
Essentially, decent people create and liberals litigate.
Posted by: Anonymous at October 29, 2008 10:36 AM
Any of you have a job that gives you a fair wage, medical benefits, paid holidays, retirement, and pays disability? Then thank a liberal.
Are the drugs you take safe? Then thank a liberal.
Do you enjoy having freedom of speech? Thank a liberal. The tories opposed
Do you benefit from overtime pay? Then thank a liberal.
Are you glad the Nazis don't control half the world? Then thank a liberal because the conservatives opposed the war.
Do you drive on the interstate? Then thank a liberal.
Posted by: Anonymous at October 29, 2008 2:56 PM
Any of you have a job that gives you a fair wage, medical benefits, paid holidays, retirement, and pays disability? Then thank a liberal.
Are the drugs you take safe? Then thank a liberal.
Do you enjoy having freedom of speech? Thank a liberal.
Do you benefit from overtime pay? Then thank a liberal.
Are you glad the Nazis don't control half the world? Then thank a liberal because the conservatives opposed the war.
Do you drive on the interstate? Then thank a liberal.
Posted by: Anonymous at October 29, 2008 2:56 PM
