Friday, October 24, 2008

Markets (and Economy) Tanking Is Now On Obama

The Director of Common Sense has finally acquiesced and allowed the release of important statistical information: Since Obama entered the race, there is nearly a 90% negative correlation between the S&P Total Return Index and Obama Presidential Contracts (on InTrade). This means that as Obama rises, the market tanks.

That information was withheld until now because in the Director's words the argument is "specious". However, two issues compelled the release. First, Obama's lead is now dominant. He is trading above 80 (predicting a near-certain victory), and he has a substantial lead in the important state-by-state polls. Second, markets are forward looking. They are not mired in the blame game of Bush, Fannie/Freddie, CRA, Barney Frank, sub-prime, Greenspan, etc. They have moved past that. They are, as they have always been, the net present value of expected future cash flows.

And therein lies the rub. The expectations are for malaise, and the brand of economic woes that come hand in hand with socialistic, anti-growth, high tax, more government policies (please excuse the redundancies). As the stock market opening bell approaches, the futures are calling for a substantial decline - that on top of already being down roughly 20% this month (and potentially making October 2008 the worst month on record for the S&P). Now it is firmly on Obama.

It is on Obama because the argument has been settled by history and logic. Again, the markets care not about how we got here. They tell a story about where we are going. The path that Obama plans to lead us down is one of economic disaster. Amazingly, that path has been gone down before. Periods of government control via taxation and spending and programs lead to economic downturns (see 1930's, 1970s). Periods of government reduction lead to economic growth and job creation (see 1960s, 1980s).

The future course is clear to see, and the markets are showing the way. Obama wins the election and Democrats strengthen their majority. Income tax rates go up. Taxes on investment go up (capital gains, dividends, interest). Wealth is redistributed. Less people actually pay any taxes at all, thus making it more difficult to fix the problem. Social security transforms further into welfare. Health care is socialized. The economy suffers. There is no growth. No job creation. And then there is no more wealth to redistribute.

At that point, which is quite possibly a decade into the future (if history is any indication), we might restore rationality.

Instead of suffering, why not simply reject Obamanomics?

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