Posted on 10/27/2020 6:26:10 AM PDT by Kaslin
Why is the stock market so high? I get asked this riddle every day.
The standard answers we hear these days are that the market is anticipating another $2 trillion Donald Trump-Nancy Pelosi stimulus bill (either before or right after the election) and investors are craving another drink from the federal firehose. Deficit spending has apparently become the crack cocaine for investors.
Economists at the Federal Reserve Bank, UBS, Bank of America and Goldman Sachs also tell us that a President Joe Biden would be bullish for the markets because he will deluge the economy with even more deficit spending in the trillions of dollars. UBS even says that a Democratic clean sweep would be "moderately bullish" for stocks. And people actually pay economists for such lame-brained analyses. The historical evidence shows the market does best with divided control of Washington and worst when Democrats run everything.
More importantly, government spending stimulus bills have never worked anywhere, anytime, at any amount. They are NEGATIVE for the economy, and the increased government spending in the end only crowds out private spending, investment and profits. Just look at the Obama years and the anemic growth rates for four years of "stimulus."
The unavoidable truth is that debts must be paid for now or with interest later -- and the taxes to pay for the spending will assuredly punish investors, and hard. For example, a major feature of the Biden tax plan is to raise the corporate income tax from 21 percent to 28 percent and to raise the capital gains tax from roughly 24 percent to 40 percent.
These are direct taxes on stock ownership. If the government takes a larger share of corporate profits, then, by definition, the shareholders get a smaller share. This should get capitalized into the value of shares of stock. Right now, under the current tax code, a shareholder has an after-tax rate of return of about 60 percent on the stock, with the other 40 percent going to government taxes. Under the Biden tax plan, the after-tax return on the stock falls to about 48 percent for the shareholder, with 52 percent snatched away by the government.
Someone please explain to me how this scheme RAISES stock values.
To be honest, I don't have a good explanation for why the market has been so dizzyingly high, except for the fact that the economy is doing MUCH better than anyone expected during the pandemic.
But here is another explanation. Perhaps the market's collective wisdom knows something about this crazy election that pollsters and political pundits aren't seeing. Maybe the market is making a bet that President Donald Trump will defy the odds and win. Right now, the betting odds have him at 40 percent.
Don't forget that the unexpected Trump win four years ago caused a massive market rally hours after he was declared the winner -- a rally that lasted three years. Maybe investors don't want to be caught surprised a second time. The only sure bet is that if Trump loses and Democrats sweep, the rally in the stock market and the real economy will come to a screeching halt.
The stock market reflects algorithmic trading patterns. If institutional traders can make $50 million in the next two hours, they don’t give a rat’s behind about Trump or the economy.
Actually yesterday’s big drop off is, IMO, a sign the Market expects a Biden win.
Joe loves crony capitalism.
Savers can be cheated by the Federal Reserve year after year.
It is recovering today somewhat yes?
Why is the stock market so high?
Because there are no other places where you can make much of a return these days. Bonds and banking margins are so tight that you won’t keep up with traditional return models that drive investment.
Of course, multiples of earnings are getting a little out of hand on some of the internet and tech stocks. This is while the returns for normal stocks have been mired for a few years.
Finally, recall that MOST trades on the major exchanges are driven by computers—there is not a human being within a mile of the transaction. They are the biggest, fastest, and most cold blooded trading computers in the history of trading. A computer doesn’t give a shit if selling your company short hurts you and your employees. Some analyst programmer thinks your number should be “X”; and “X” it is.
The markets factor in a lot more than domestic politics. Having said that ... if the dems take all 3 branches i would think the markets would fall.
The U.S. basically works as a fascist system where the functions of government and major corporations have become increasingly indistinguishable. The stock market would thrive under a Biden administration because he’s been bought and owned by Wall Street for his entire adult life.
Not yet. Down slightly but still down.
The drop off yesterday has to do with the idea of a resurgence of COVID.
Whether the idea has any validity or not is beside the point.
History shows normal downturn centered around each Presidential election AND another downturn between the end of December through January.
We are living in abnormal times so this may not be 100% the case this year or next.
My personal anecdotal experience:
The NY times fully expected a market crash if Trump won in 2016. I was in private practice with an Engineering firm and literally the day after the election we had clients coming in that had been hesitant about their projects afraid that Hillary would tank the economy. They came in and told us to hit the ground running and we never looked back.
Now the inverse is happening where we have developers telling us to hurry because they want get their projects done in case Biden wins and they get shut down.
I view the other way as an indication Trump will win followed by massive civil unrest.
Either way...the market is very, very nervous.
If you are a middle class or rich investor in Italy, Saudi Arabia, the UK, Hong Kong or Spain, which stock market would you put your savings in? Remember there are Covid-19 riots in Italy, the Middle could devolve into war, Brexit is still being figured out, people in Hong Kong want to leave, and Spain has just allowed local governments to restrict movement and impose Covid-19 shut downs until April 2021.
Countries around the world are spending money they don't have. That will cause worldwide inflation. The best investments during inflation are commodities, land, and yes stocks. In other countries there is the much higher risk of confiscation of assets.
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