The Stock Market as a Window on the Future
Despite the big upswing yesterday, the stock market has been a roller coaster trending steeply downward. There’s more to it than the subprime crisis, as George Newman explains in today’s WSJ:
The valuation of an individual stock reflects the collective expectation of investors about a company’s future profits, dividends and appreciation, and the same is true of the market as a whole. These profits, in turn, are greatly influenced by government policy on taxes, spending, subsidies, environmental and other regulations, labor laws, and the corporate legal climate. Investors have heard enough from both candidates in the last month or two to conclude that prospects for a flourishing, competitive, growing and reasonably free economy in a McCain administration are bad, and in an Obama administration far worse. (In fact, the market’s bearish behavior over the last couple of months pretty closely tracks Barack Obama’s gains.)
If you don’t believe me, please answer a few questions:
• Have you thought of what a gradual doubling (and indexation) of the minimum wage, sailing through a veto-proof and filibuster-proof Congress, would do to inflation, unemployment and corporate profits? The market now has.
• Have you thought of how easily a Labor Department headed by a militant union boss would push through a “Transparency in Labor Relations” law that does away with secret ballots in strike votes, and what this would do to industrial peace? The market now has.
• Have you thought of how a Treasury Secretary George Soros would engineer the double taxation of the multinationals’ world-wide profits, and what this would mean for investors (to say nothing of full-scale industrial flight from the U.S.)? The market now has.
• Have you thought of how an Attorney General Charles J. Ogletree would champion a trillion-dollar reparations-for-slavery project (whittled down, to be fair, to a mere $800-billion, over-10-years compromise), and what this would do to the economy? The market now has.
• Have you thought of what the virtual outlawing of arbitration — exposing all industries to the fate of asbestos producers — would do to corporate liability and legal bills? The market now has.
• Have you thought of how a Health and Human Services Secretary Hillary Clinton would fix drug prices (generously allowing 10% over the cost of raw materials), and what this would do to the financial health of the pharmaceutical industry (not to mention the nondiscovery of lifesaving drugs)? The market now has.
• Have you thought of a Secretary of the newly established Department of Equal Opportunity for Women mandating “comparable worth” pay practices for every company doing any business with government at any level — where any residual gap between the average pay of men and women is an eo ipso violation? Have you thought about what this would do to administrative and legal costs, hiring practices, productivity and wage bills? The market now has.
• Have you thought of what confiscatory “windfall profits” taxes on oil companies would do to exploration, supply and prices? The market now has.
• Have you thought of how the nationalization of health insurance, the mandated coverage of ever more — and more exotic — risks, the forced reimbursement for excluded events, and the diminished freedom to match premium to risk would affect the insurance industry? The market now has.
• Have you thought of Energy Czar Al Gore’s five million new green jobs — high-paying, unionized and subsidized — to replace, at five times the cost, what we are now producing without those five million workers, and what this will do to our productivity, deficit and competitiveness? The market now has.
I could go on, but you get the point.
That point being, the Change Obamunists bleat about boils down to changing the wealthiest country in the history of the world to a Third World socialist hellhole. The market doesn’t seem to like the idea.
The market is forward looking. If it is unhappy with a president, it does not wait almost eight years before the numbers reflect it. If it really anticipated good times under Mr. Obama, the market would have gained 40% in anticipation of the transition. By losing that much, it seems to be saying the opposite.
But there is still hope that rather than disaster under Obama, we’ll get damage control under McCain — which may explain the jump yesterday.
The silver lining in all this is that the market has already “discounted” an Obama win, so if that happens you won’t wake up on Nov. 5 to find your remaining savings down the drain. If the unexpected happens, you may be in for a pleasant surprise.
By predicting an Obama win, the market has already suffered much of the damage of putting an immature leftist in charge of the government, as if that devastating tragedy had already occurred. As the polls tighten up, the market may be realizing, along with voters, that the catastrophe can still be averted.
On a tip from Varla. Cross-posted at Moonbattery.