Tuesday, June 30, 2009

Quiet market belies approaching storm

The S&P 500 has been relatively flat for the last couple of months.

I would be all too happy if the recent lull in the stock market portended a steady future for the US economy, but I see little to look forward to. I feel like I recognize America less and less with each passing week.

We bailed out the auto companies, which didn't work, so now we're nationalizing them? If the DMV is going to start building American cars, then my next car will be a Honda.

The only change I've seen in tax policies so far this year is tax increases, which is precisely the wrong way to bring a country out of a recession. The "cap and trade" bill which passed the House of Representatives (and which was voted on before the bill was even completely written) creates new forms of taxes on energy, meaning everyone from individual families to multinational corporations will have to pay more for living/operating in the United States. Any energy-intensive corporation which has the choice of moving somewhere else will now have a strong incentive to do so.

Despite the unwise tax increases, our government is on course to quadruple the federal deficit this year to nearly $2 trillion, ($2,000,000,000,000) which will increase our total national debt to more than $12 trillion by the end of the year. The only way that our elected officials can deal with our creditors and still get re-elected is to print more money, which creates inflation and reduces the real worth of the treasury bonds held by nations like China and Japan, and by U.S. bond holders.

California, the largest economy in the union, is out of money and is now paying contractors with IOU's. Perhaps they should be given access to the same printers? For that matter, why not just legalize counterfeiting and solve everyone's problems?

In short, it seems like the definitions of "dollar," "stock," and "bond" are changing week-by-week, bailout-by-bailout, and vote-by-vote. If you're thinking of buying a stock today, the question is no longer how profitable the company will be, but whether the company will eventually be bailed out by the government printers like Goldman Sachs (good for stock prices) or nationalized like GM (bad for stock prices). If you can predict what the government is going to do next - or just bribe someone to do it - then you'll be a winner in the stock market. The rest of us are out of luck.


linc campbell said...

I know you're already looking, but I find this image fascinating.


linc campbell said...

Irony has an odd way of being ironic. 24 hours after I sent my prior comment to you the upward bottoms were shattered. Just to emphasize the point, a week long continued downturn followed.