Saturday, November 15, 2008

Barackonomics Effect on the Markets

The Wall Street Journal featured an op-ed piece this week discussing the impact of the looming Obama presidency on investors. It states that "No President-elect in post-war history has been greeted with a more audible hiss from Wall Street". Indeed, since the election, the Dow has lost 1128 points, almost 12% of its value. Much of this is due to other factors, including dismal earnings reports from the corporate sector, but Obama's stated economic agenda has certainly contributed to pushing the markets lower.

Obama's plan, which he reiterated in his post election press conference, is to raise incomes on those making over $250K, as well as to raise corporate, capital gains, and dividends taxes. As the market reacts with a sell-off to lock in today's lower capital gains taxes, households see their nest eggs shrinking, and panic. The result is lower consumer spending, which is a significant factor in our economy. When businesses make no profits, they close or lay off workers, causing more angst and bad economic news which in turn effects the markets. It's like a Circle of Doom, spiralling ever downward.

Obama had a perfect opportunity to throw the markets a bone during his press conference. When specifically asked whether in this current economic climate he plans to raise taxes, he dodged the question and tapped danced back to his tried and true campaign rhetoric, saying that his plan was for an overall tax cut, and he still believes it is the best plan for the economy. He never answered the question. In some cases, uncertainty is worse than knowing, and this is especially true of the stock market and consumer spending. Uncertainty creates loss of confidence and fear for the future. Obama should have taken the opportunity to reassure markets by saying that he would hold off on any plans for raising taxes, which would effectively stimulate the economy by pricking the balloon of uncertainty which currently hovers over Wall Street.

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