Sunday, October 19, 2008

Wall Street Doesn't Like What It Sees In an Obama Presidency

The Dow Jones is looking at the November Election and Doesn’t Like What It Sees.

The Market often looks to the future. Last Tuesday’s plunge reflected the global collapse of the credit market and the fear of additional large financial failures. The rapid collapse of WaMu, Bear Stearns, Lehman Brothers, the Royal Bank of Scotland, AIG, Fortis, and near misses with Merrill Lynch and Wachovia, is unprecedented in the economic history of the United States. ING Barings is now in trouble. These failures go to the jugular of the world’s financial system.

As of two weeks ago, a recession was inevitable. Everyone knew it was coming. The report of declining retail sales is also not unexpected. It merely confirmed what we already know.

If fears of a recession and the decline in retail sales are not a surprise, the banking system has been saved, and credit markets are beginning to show signs of life, then something else must be at work.

And that is fear of an Obama Presidency, coupled with overwhelming Democratic majorities in Congress. This apprehension, based upon Obama’s past, public statements and position papers, economic ignorance, the track record of the Democratic Senators and Representatives, and their leadership, is of the quasi-socializing of the American economy into a stagnant at best, European economy, a disease called Euroscelorosis.

The tremendous generator of new jobs over the past three decades will come to an end. The United States added 20 million jobs in the 1980’s, an additional 6 million from 1990-1996, and 7.4 million jobs between August 2003 and February 2007. Indeed, from 2002 to 2006 America created more jobs than Europe in the preceding 20 years.

All is at risk. The combined city, state, and new federal tax rates in cities like New York, may exceed 64%, effectively destroying job creation.

That’s if we’re lucky. If we’re unlucky then a depression is possible, complete with inflation. The three possibilities, all unpalatable, are depression, recession, or inflation. The next President will play a large, probably decisive, role in deciding which outcome will ensue.

Mortgage rates are already reflecting these realities. Creditors do not like to loan money if a substantial possibility exists that the loan either will not be repaid or repayments will not cover rising interest costs. Threats of government intervention to change the terms of existing mortgages are spooking mortgage lenders.

Senator Obama’s economic ignorance is shown by looking at one of his economic proposals, To help create jobs, he will provide a 2 year $3,000 credit and no capital gains for small (albeit undefined) small business. When the cost of health insurance alone may be $12,000, and FICA, Medicaid, and other employer taxes and mandates are figured in, a $3,000 tax credit does not justify hiring new employees. The elimination of capital gains for small business sounds great, but is essentially illusory because small businesses normally do not have capital gains.

The forced investments in 8 banks last week send a negative message about the future of capitalism in the United States. The Democrats are promising high taxes, high regulations, large indirect labor costs, protectionism, and forced unionization of the work force. Welcome to Europe

That’s not the change the voters need.

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