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Where Do We Go From Here?
By JLP | November 5, 2008
If today’s market reaction is any indication, I would say things don’t look good:
Remember, the market doesn’t like for one political party to be in complete control.
Topics: Investing | 33 Comments »
November 5th, 2008 at 12:58 pm
Especially when it’s anti-corporate socialists . . . bye bye US jobs.
Canada is run conservative right now, come up here
November 5th, 2008 at 1:00 pm
And it’s been so stable over the past month!
November 5th, 2008 at 1:03 pm
David,
The title of the post is “Where Do We Go From Here?”
November 5th, 2008 at 1:35 pm
I’ve been reading up on Hoover and FDR’s policies made in reaction to the great depression and expect that inflation and unemployment will rise due to new government programs. I am plannion on selling a large percentage of my stock and instead allocating those funds into tax-free bonds.
The uncertainty of Obama’s initiatives is causing market risk to increase without a corresponding increase in expected returns. I’m sure other people will reach the same conclusion and reconsider their asset allocation.
November 5th, 2008 at 1:39 pm
You mean like the first 6 years of the Bush Administration? I’m not meaning this as a flame comment, but I’m wondering where all the political talk is coming from all of a sudden.
November 5th, 2008 at 1:40 pm
That doesn’t really make sense, since I’m sure the markets priced in the 90+% chance of Obama’s victory that he’s had for the last month.
November 5th, 2008 at 1:41 pm
Jane,
Uhhh…we just had an election! It’s big news. That’s why I’m writing about it.
November 5th, 2008 at 1:46 pm
Please see this study:
http://www.investopedia.com/articles/financial-theory/08/political-party-democrat-republican-stock-returns.asp?viewall=1
November 5th, 2008 at 1:54 pm
Here is how I would explain the rally yesterday and the drop today:
- Rally: The impending election of Obama was largely expected (from polls and sites like intrade) and removed one less uncertainty in the financial markets.
- Drop: This still does not change the overall challenges that are ahead for the global economy and the United States. We’re still going to be in a deep recession and possibly the not-so-great depression.
No matter who was elected president yesterday, I don’t think that it would have mattered that much for the stock market today. (Absent of course a repeat of the 2000 FL mess which would only have increased the uncertainty in the markets)
November 5th, 2008 at 1:57 pm
John,
I would argue that the above is more of a coincidence than not, for example, see this blog post that tackles it in a robust manner:
http://blog.wolfram.com/2008/10/16/stock-market-returns-by-presidential-party/
And I’m speaking as someone who is a left-leaning independent who would like to believe the investopedia article.
November 5th, 2008 at 2:07 pm
@JLP: Any chance for some unbiased financial news today?
November 5th, 2008 at 2:50 pm
JLP,
Your blog implies that the downward swing in the market today is due to the election results. I’m just pointing out that it’s been this way for the past month.
November 5th, 2008 at 3:14 pm
JLP, you know that single day movements can be explained by any number of things. I could also argue that 2 days leading up to the election, people thought McCain would win because the stock market went up a lot those 2 days.
November 5th, 2008 at 3:21 pm
FYI, with your last two posts, you have just lost me as a reader.
November 5th, 2008 at 3:30 pm
JLP,
Keep it real brother. Please don’t try to cover material over your head.
November 5th, 2008 at 3:31 pm
The reason the market is down today is in anticipation of the employment data, scheduled to be released Thursday.
November 5th, 2008 at 3:34 pm
JLP,
I love your site and we are probably on the same page politically, but I think you should stay out of politics or risk losing some readership. (It’s your blog and I will read it every day no matter what you do though.)
I think the market and American entrepeneurship will succeed in the long term no matter who is in power politically. Business will adapt and the long term market will go up no matter what the next few years look like.
November 5th, 2008 at 3:36 pm
Franky -
Thanks for that link, I believe it is more representative of my beliefs on the matter and has some good objective math to explore the issue. I wouldn’t argue that either a Rep of Dem president would affect the market more / less than another as the article I posted might suggest. Instead I agree with the final statement of the article you posted:
“It doesn’t matter who is in charge, the market is saying, in the long run it’s going to be OK.”
Arguing about how the market is affected by partisanship is ignoring the reality of real and concrete day-to-day personal finance technique: save, invest, spend less than you earn, repeat.
Partisanship has very little net affect on your ability to accumulate wealth.
November 5th, 2008 at 3:53 pm
Wow. I had just decided to add this site to my reader but will be removing it now. Politics probably not so good for a financial blog …
November 5th, 2008 at 4:15 pm
Yes, I think your number of readership chart will resemble that stock graph.
November 5th, 2008 at 4:23 pm
JLP,
Signed up two days ago to your feed, and this will be the last entry of yours I read. Your advice was recommended highly, which makes me question the source that linked me here.
November 5th, 2008 at 4:51 pm
so is this also a graphic representation of where this blog will be going from now on as well? i’ll take a 300pt. stock drop any day over another 300 dead innocent civilians, just sayin.
November 5th, 2008 at 4:53 pm
I don’t see anything wrong with your comment, except for what Jane said. I think the markets would like for conservatives to always be in power, since conservatives are more often on the side of business and growth.
Whether your other readers like it or not, politics does affect the financial world. Also, you’re comment wasn’t against any one party or group; it was a generalized statement.
November 5th, 2008 at 4:56 pm
wm… are you talking about the 292 people that were murdered in Chicago in the last six months, or the 221 killed in Iraq during the same time period?
Seems to me our troops are more safe in Iraq than in Obama’s home town.
November 5th, 2008 at 6:20 pm
I don’t understand what the big deal is with my post. We had an election yesterday. One party won. Today the market drops NEARLY 500 POINTS.
November 5th, 2008 at 6:35 pm
It isn’t just that I view things differently than you. Your posts, and more so, your response to the criticism do not show maturity and respect for others beliefs. Our country took a vote, and we decided on one candidate over the other.
You only get one vote. And the stock market doesn’t even get a vote.
Don’t worry–if things are as bad as you anticipate, Republicans will make a big comeback in 2 years, and again in 4. McCain will be too old (or will he!?), but someone else will come along. Or maybe Obama will do a great job, and you’ll change your mind (or rather, somehow find a way to credit Bush or Regan for any success). We just have to wait and see
November 5th, 2008 at 7:08 pm
So everytime the market drops the next 4 years will it be blamed on Obama or the Democrats?
Seems kind of unfair since it was Bush and the GOP that got us here.
November 5th, 2008 at 8:28 pm
While the Republicans and Bush were both in charge, everything was great (and they got little to no credit, even though it all came after the .com burst and the terrorist attacks).
Then Nancy and the democrats stepped in and things blew up. The explosion of course was Bush’s fault (even though it was all related to Fannie and Freddie and Republicans have been calling for reform there for years).
I’m pretty sure if things stay bad, the Republicans and Bush will still be to blame. After all, Obama’s never done anything wrong in his whole life, and Nancy and Harry are too slick for anything to stick.
It’s too bad people don’t realize that neither legislation nor politicians create prosperity. It’s the ingenuity, hard work, and risk taken by individual Americans that create the economic prosperity in America. Unfortunately, most of the time politicians just screw things up.
November 5th, 2008 at 9:21 pm
We didn’t have an election 3 weeks ago when the mkt dropped 900 points so I don’t get the analogy you are trying to make. And we didn’t have an election three months ago when the mkt started dropping. We had a financial implosion totally unrelated to an election. The reason crime is on the rise is because people feel desperate when they lose their jobs and they have no source of income or public assistance. The republicans don’t understand the correlation between cutting spending on social programs and trickle up crime rates.
November 5th, 2008 at 9:33 pm
To use one day to try to extrapolate the next 4 or 8 years is a big stretch…I know you’re emotional about the election, but even you can see the folly in the logic.
And I know historically the market does best when one party controls the white house and another controls congress, but you should really give some sort of examples of what has happened in the past when a party took control of both.
November 5th, 2008 at 10:12 pm
It’s really very funny to hear people, including “financial experts,” newspeople, neighbors, etc. tie one day’s market move to a specific reason. How many people and institutions sold and bought stocks today for how many reasons? Sometimes I think it’s akin to the “priests” who would read entrails for our predecessors on our distressed planet. Whatever your political point of view, the market goes up or down for reasons determined by your specific viewpoint. Face it: the market is brutal and objective and whatever it does, it does for its own collective reasons. Ever notice that you can tune into six different financial outlets and get seven different reasons for the market’s recent actions?–Jim L.
November 6th, 2008 at 11:26 am
“Where do we go from here”?
Either up or down. But not right away. Really, if I and all the posters here knew answer to this question we’d all be rich.
Seriously, while I voted for McCain, and I don’t like many of Obama’s proposals, I agree with poster’s above who said the democratic victory was priced into the market already. Markets are always looking ahead. There is plenty of bad economic news to justify the drop. In fact, there was no really good news to justify the rally preceding the election except for there is a lot of cash on sidelines. What the market will do will depend on many things.
@Term pro life: “While the Republicans and Bush were both in charge, everything was great (and they got little to no credit, even though it all came after the .com burst and the terrorist attacks). Then Nancy and the democrats stepped in and things blew up. The explosion of course was Bush’s fault (even though it was all related to Fannie and Freddie and Republicans have been calling for reform there for years).”
It’s not just Fannie and Freddie that caused this crisis. Have you ever heard about 2004 SEC decision – part of Bush’ deregulation – that exempted 5 major investment bankers (Lehman, Merill, Bear Stearns, Goldman Sacks and Morgan Stanley) from limits on leveraging so that they can invest in mortgage-backed securities? Do you think it is a coincidence that 3 out of these 5 companies are out of business? The fact that these companies were leveraged 30 to 1, even 40 to 1 in some cases amplified the problems exponentially. So both democrats and republicans contributed. Also, the crisis was years in the making, so it is wrong to say “oh it was great then”. It was great because we had this huge real estate boom that prepared us for this crash. Crediting Bush for good years during real estate bubble is just as wrong as crediting Clinton for good years during internet bubble or blaming Bush for internet bust.
@Adam: “I’ve been reading up on Hoover and FDR’s policies made in reaction to the great depression and expect that inflation and unemployment will rise due to new government programs. I am plannion on selling a large percentage of my stock and instead allocating those funds into tax-free bonds.”
If you read anything about the Great Depression, you’d know that they didn’t have inflation, they had deflation. 40% deflation between 1929 and 1933 alone. By definition recession+deflation is called “depression”; recession + inflation is called stagflation. Also, Hoover raised interest rates after the 1929 crash. I don’t see the government doing the same thing. Yes, new taxes are bad for economy, but we aren’t exactly talking 90% top rate. The difference is measured in a few percentage points. I am not sure at the moment what it’ll do to my employer: on the one hand taxing foreign income would be bad as I work for a company that sells lot of stuff overseas; on the other hand Obama promised more tax breaks for investment in R&D, and my company does a lot of that. At any rate, nobody really knows what the actual actions will be. Programs and promises are one thing. What really happens is quite another.
Also, markets look ahead, so do you seriously think what you know hasn’t been considered by many fund managers by now and isn’t already priced in?
If you are so sure about stock market going down – sure, feel free to sell. But if you are mistaken, and if we are indeed close to the bottom, then you’ll end up selling low stuff that you probably bought high. If you think you are sufficiently smart to predict the movement, why didn’t you sell last November? Or bought bonds at the height of credit crisis when you could get 7% on tax-free municipal bonds and 18% on some corporate bonds like AmEx? The yields are coming down now. Two weeks ago I saw 6.5% yield-to-maturity (YTM) on some NY state bonds (AA and AAA), the following week when I transferred some of my cash to the brokerage, I only got 5.3% YTM (AAA, 10-year remaining. This week I bought a little more, but could only find 5.3 YTM on AA bond that matures in 2024. By the time you get to it, you’ll not be able to get even that. Incidentally, I didn’t sell stocks to invest in bonds, I used my cash for it. I was 40% in cash before this crash in taxable accounts and 50% in stable in 401K. At the height of credit crisis I transferred a little in high quality corporate bond fund. Now I am actually considering moving some of stable value money back into stocks. But not right away: a little at a time.
November 6th, 2008 at 4:50 pm
Term life pro… i’m talking about illegal wars.
If you want to compare it though, give this a look http://www.iraqbodycount.org/database/
Seems pretty far from the stats you mentioned about Chicago.
This isn’t the place for this discussion, I know. So I’ll leave it at that…