businesstrade.jpg

The Direction of Equities in the Obama Economy

$
Daily Business Report
M A R K E T S
Mercantile
Article Archives
US Economic Forecast for 2012 and the Election Year Cycle
Shop the Local Merchant Economy
Right to Work vs Union State Economies
Rational Tariffs Lower Irrational Trade Deficits
International Business - Davos Style
Banking, Housing and Mortgages
David Stockman's Viewpoint on the Obama Budget Disaster
Regulations Harm Small Business and Protects Corporations
Gas Prices as an Indicator of Energy Costs
Governments Acting as Venture Capitalists
College Education Economics
Industrial Wind and the Production Tax Credit
Medicare and the Ryan Budget
U.S. Corporate Tax Rate Consequences
Corporate Spying and Intellectual Theft
The Foolish Exporting Natural Gas Policy
A Matter of Time for a VAT Tax
Big vs Small Bank Loans
Bankruptcy Trends in the Post Meltdown Era
Money Center Banks and Stricter Financial Oversight
Electric Power Generation under NYS Article X
Growth in the National Debt
Advantages of Chinese Trade Policy
Unemployment as a Lifestyle
Immigration Hurts American Employment
Bank for International Settlements on Big Banks
Small Business Assault from Obamacare
Compound Interest and the Debt Bubble
The Federal Centralization Economy
Parking Offshore Profits Hurt the Domestic Economy
The Record of Olympic Economics
Financial Algorithmic Trading
Goldman Sachs Above the Law
The MF Global Magical Mystery Tour
Destroying Internet Freedom by Taxation
The Permanent Unemployment Economy
Jackals of Jekyll Island - Federal Reserve Audit
QE3 Blowing Up the Debt Bubble
Riots Over Rotten Apple Mania
Gap Between College Costs and Inflation
Counterproductive Minimum Wage Mandates
Derivative Meltdown and Dollar Collapse
Central Banks Game Plan: One World Currency
European Commission Single Supervisory Mechanism
Lunacy of FEMA Hurricane Insurance Subsidy
Taxmageddon Holding Hands while Jumping Off the Cliff
The Direction of Equities in the Obama Economy
Is it FAIR to Tax the Rich out of Business?
California Dreaming: Bankruptcy, Pensions and Taxes
Pay Differential - Private Sector and Federal Government
Long History of HSBC Money Laundering
Swan Dive of 2013 Economy
Federal Reserve May Pause Quantitative Easing
The Economics of Sequestration
The state-owned Bank of North Dakota
Chinese Takeover with Free Trade Zones
Low Interest Rates Impoverish Savers
Bond Bubble Expectations
Currency Wars - Race to the Bottom
Government Subsidizes and Bankrupt Companies
Economics of Gun Control
Refuse to Buy or Sell with the Federal Government
The Cyprus Great Bank Robbery
Keystone Pipeline Blockage
Move Over IMF for the BRICS Development Bank
Obama Budget Proposes Cuts to Social Security and Medicare
The Risk and Reward of Bitcoins
Farm Supports and Social Welfare
Internet and Sale Taxes Dialectic
The Warren Buffett House of Cards
IRS as a Political Hit Squad
Revenue Budget Projections
Google and the NSA Connection
The Roubini - Faber Debate
Hydrofracking Boom or Bust
Goldman Sachs - first learn, then earn and serve
The Federal Reserve after Ben Bernanke
Implications of a Pyrrhic Real Estate Rebound
The New Normal: Part-Time Employmentyment
U.S. & Europe Trade Deal Honeymoon
Detroit City Bankruptcy Blues
J P Morgan and Commodity Manipulation
Strange Business Success Ventures
Business of Evangelism Religion
NFL Marketing Machine
Privacy Gone on Offshore Assets
Chinese Banks Quasi Government Institutions
Forecasts of a Doomed Economy
Financial Meltdown Five Years After
Corporate Profits and Worker Unemployment
Renminbi Soon to Be a Reserve Currency
Rehypothecation of Collateral
IMF Proposal to Tax Bank Deposits
Transfers excluded, JP Morgan Chase is Wired
Insurance Companies Profit from Obamacare
Climate Change by Executive Order
Economics of Non-governmental Organizations
Why Business Franchising is a Bad Deal
The Business of the Christmas Season
China Becomes Largest Trading Nation
Obamacare as a Jobs Killer
Does a 100 Trillion Debt Total Matter?
Underground Commerce is the Real Economy
Technology and the Future of Jobs
The Japanese Debt Economy
Individual Wealth in Perspective
Inevitability of Financial Bubbles
Russian Sanctions Backfire
Is the Dollar and Equities Ready to Crash?
Economic Reality of a Wealth Tax
BREAKING ALL THE RULES
BREAKING ALL THE RULES Forum
BATR Index
hub
Corporatocracy
Reign of Terror
Stuck on Stupid
Totalitarian Collectivism
Global Gulag
Inherent Autonomy
Radical Reactionary
Strappado Wrack
View from the Mount
Solitary Purdah
Dueling Twins
Varying Verity
911 War of Terror
HOPE

SP-500-Chart-11-09-12.jpg

The Direction of Equities in the Obama Economy

Corporate America has the largest cash reserves in recent memory. The product of the first Obama administration, the boards and management of the biggest companies, foregone mergers and acquisitions and cleaned up their balance sheets. Fear was the operative sentiment after the 2008 financial meltdown. Business confidence was marginal at best. Lacking consumer confidence was a natural result of a high unemployment and an insecure job environment. The modest improvements in the economy were a direct outcome of increases in government spending, especially an expansion in public employee endeavors.

For the beleaguered middle class, the Bush blame of an inherited awful economy was little relief. That shabby self-justification excuse is officially over with the prospects of a second presidential term.

The Wall Street Journal predicts in What an Obama Win May Mean for Stocks that watching monetary prescriptions of the Fed is crucial. 

“Anyone who has been following the markets over the last few years knows how important Fed policy has been to the direction of everything from stocks to bonds, oil, gold and other assets. From record-low interest-rate policies to multiple rounds of quantitative easing, Fed Chairman Ben Bernanke has been about as dovish as it comes enacting policies to jumpstart the economy.”

Equities have benefited amply over the first Barak Obama term. The WSJ continues, “No matter your beliefs, the Dow is up more than 50% since Obama took office during the depths of the financial crisis.” The zero interest rate setting and the sparingly granting of business loans caused stocks to advance from a distressed level.     

Now with Obama’s re-election, his ownership of economic circumstances will be hard to escape. The slide in stocks that started as soon as the ballot counting was over, forecasts the lack of confidence that the fiscal cliff will be resolved sufficiently to foster conditions to grow the economy.     

Add in the rapid breakdown in international stability and the prospects that the European Union will implode, does not bode well for the engines of wealth creation. Equities gain in value when the products or services of their underlying companies prosper. Without the reasonable expectation that actual economic prosperity is on the rise the basic conditions for an advance in stock pricing is simply wishful thinking.

Yet, under a fundamental standard, the lack of favorable circumstances does not mean that stocks will simple lose value. Volatility in pricing, often with no distinct connection to price performance, is the norm. The perfect storm for speculative betting seems the more probable course for the markets in the coming years.

The backstop of the Federal Reserve that comes to the rescue of too big to fail conglomerates, is the operative criterion used to keep the financial bubble inflating. As the currency is debased and loses purchasing value, the price of stocks must rise just to stay even.

In addition, the negative aspects of tax increases especially on capital gains and dividends are unmistakable. Investing Daily’s Roger S. Conrad recently reported in Stick With Dividend Stocks.

“Since Election Day last week, the S&P 500 has lost 4.5 percent of its value. And the Dow Jones Utility Index is off more than 5 percent.

But let’s suppose there really is a fiscal cliff and that the worst case forecasts of a 4 point drop in gross domestic product (GDP) prove on target. Such a shock could also trigger a tightening of credit conditions in the US, making it more difficult to borrow.

In such an environment, two things would really count for companies. One is reliable revenue, a business that will continue to produce cash flow come what may. The other is a lack of near-term debt maturities, so management can step back from a temporarily frozen credit market and wait for bond buyers to come back.”

The point is that stocks may not go up in real value while their relative pricing may mirror the overall lack of confidence in the economy in a persistent down market. However, a company with sound financial reserves and low or no debt will have a chance to survive in a depression.

As credit becomes non-existent, cash will be king in the short term. Notwithstanding this message from previous panics, the complexity of debasing the currency adds a new dimension to familiar lessons. Hyperinflation of price stability results in a slowdown of the real economy. Adding further government spending with monetized debt from the central bank cannot infuse productive commerce into an economy where consumer cash is fickle or nonexistent.    

Stocks can only be a sensible investment when domestic mercantilism is oriented towards fostering prosperity of the national economy. Foreign trade will plunge as the worldwide financial upheaval exports its turmoil around the globe.

Solid companies that actually produce necessary items or endeavors have the best chance to retain some semblance of treasure. Nevertheless, the definitive risk for owning equities lies in the danger that the federal government will recall the counterfeit Federal Reserve Dollar, in a desperate attempt to forestall debt repudiation.   

Only algorithmic trading with super computers will squeeze out fractions of price movement and generate returns on capital, because the equity exchanges are now structured to penalize or purge the individual investor from having any chance of profiting.

Market risk is nothing compared to the political hazard of collectivist policies slated for imposition in a second Obama term. In order to generate tangible wealth, the private sector must navigate around all the pitfalls that excessive taxation and destructive regulations impose on voluntary commercial transactions. Equities cannot reward stockholders under a command and controlled - centralized and imposed government. The expectations of an uncurbed Obama dogmatic executive order administration guarantees that stocks will suffer under all the restrictions of any socialistic economy.

When the conditions are unknown, uncertainty runs havoc with equity markets. Conversely, when the socialism of Obamaism is widely verbalized for all to digest, the gamble of stock ownership equates to your level of confidence in the future of the country and the economy. Good luck.

James Hall – November 21, 2012 

 

Discuss or comment about this essay on the BATR Forum

a free speech forum open to the public
BATRforum.gif

This site  The Web 

marketslogo.gif

tumblr page counter