Obamanomics and Future Recession

  1. Obamanomics and Future Recession

    Wednesday, 9 Jul 2008
    Bowyer: The Coming Obama Recession
    Posted By:Jerry Bowyer

    Everyone’s been so busy searching for the alleged Bush recession that they’ve missed what the markets are trying to tell us about next year. As the attached chart shows (courtesy of Professor Mark Perry’s Carpe Diem blog), the current bear market corresponds fairly well with the drop in the probability of a McCain victory.

    Intrade’s presidential future’s market (where investors buy and sell futures based on their estimate of the probability of a particular candidate’s victory) has been tracking the falling prospects of McCain and the rising expectations of an Obama victory. As of this writing, Obama futures are trading at more than a 30 point premium over McCain futures. This doesn’t, of course, mean that the market thinks Obama will win by 30 points. It means that the markets think that he is about 34% more likely to win than McCain. In other words, it’s not a margin of victory; it’s a margin of the probability of a victory.

    I don’t think that the current Dow bear market was caused by last August’s credit crunch. Nor do I believe it’s being caused by a recession that is allegedly starting right now (having failed to appear in the first or second quarter). Stocks are forward looking; when they drop now, it means investors are worried about things that are coming later – 6 to 9 months later. In other words, they’re worried about Obama.

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    And why shouldn’t they be. He’s promised to erase Bush’s investor tax cuts. That means a hike in the tax rates for dividends and capital gains. This means very large additional levies directly on investors. Of course this affects stock prices. It is ludicrous to suggest that adding a tax directly on an asset class would have no effect on the value assigned to that asset. Add to that harrowing scenario our already high levels of inflation, which the tax code treats as a gain, even though it isn’t one, and we’re getting to some very high tax rates on capital. This is happening just as most of the developed world has been cutting its cost of capital.

    The political class is shifting left. We’re likely to get Obama and Nancy and Harry running the most advanced economy in the world next year. The investor class doesn’t like what it sees coming. That’s why it is scaling back. Capital is going on strike, and we won’t come back to the table until we see that we have a chance to a fair deal.

  2. Bingo.

    For middle class Americans (which none of these politicians have ever been) higher capital gains taxes are really bad news, but they just don't seem to hear it or even realize it. Its hard enough to plan for retirement. Adding in the fact that you'll have to plan for paying extra $$ to Uncle Sugar when that time comes isn't going to help the economy now or later.

  3. Every time a liberal even tries to explain how non-trickle down economics is positive to the economy I try so hard to understand their point of view...I just can't.

    Leftist economics essentially comes down to:

    -Suspend all historical data and logic
    -Make a rash economic decisions ripe with unintended consequences
    -Base all economic policies on what is best for poor people

  4. We are in stagflation right now and no presidential candidate is going to change that by using conventional financial tools. No matter how many times the Fed changes the fed funds rate or cuts the interest rate, investors will not respond well to increasing fuel costs and food costs for inefficient ethanol fund allocation. Large companies incurring any transportation/food costs are suffering as are their respectful sectors. Emerging economies in China and India are too blame for the fuel costs not the Oil Companies. OPEC is only going to get larger with the addition of Brazil soon. We should be drilling off shore and in Alaska right now. Global warming is a problem but the opportunity costs of drilling and causing X dollars is wildlife damage is worth having enough oil and cheaper global prices to have a steady and comfortable transfer over to alternative fuel sources.

    Sorr, I'm an economics major and doing my grad work in Applied Econommic Data Analysis aka I couldn't help add my 2 cents

    As for the financial markets, erasing those tax cuts is a bad thing though I'm really am not an incredible fan of the trickle down theory.

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