Friday, November 7, 2008

Strange Market

The current market's action confuses me. Whether the market is rising or falling, depends on your perspective. For example, when the dollar goes from Euro $1.60 to $1.30, we say the euro fell 18.75% ($1.60 - $1.30 = $.30; $.30/ $1.60 = 18.75%). The European sees the dollar rise from .625 Euro to .7692 Euro or 23.07%. Who is right? If the "price" of gold rises to $900 per ounce from $800 per ounce, did gold rise or did the dollar fall from .00125 gold ounce to .00111? Similarly with stocks, if the Dow falls from 14,000 to 8,500 did stocks fall or the "dollar" rise? The current "dollar bull market" makes no sense to me. I'd rather own stocks which Zimbabwe Ben can't create at whim than dollars.

"On September 29, the day the House of Representatives voted down the bailout bill, the S&P 500 opened at 1,209 and closed at 1,106, registering a loss of 8.5%. Other stock-market indexes recorded similar declines in share prices. ... Absent a bailout, the gods would wreak economic disaster on this country and probably the rest of the world, too, for good measure. ... On Thursday, however, with the vote on the amended bailout bill looming in the House, the market closed down about 4 percent, and on Friday, after the House had approved the bill, it closed even lower, at 1,099, which was slightly lower than Monday's frightening close. Were the gods not happy after all? ... They sold their souls, all right (what little they had left of them), yet stock prices have continued downward at a brisk pace. Every day this week has brought a further loss. Yesterday the S&P 500 closed at 910, down 17 percent from last Friday's close. And as I write, (Friday morning, Oct. 10), the market is fluctutating violently at still lower levels. It begins to look as though the goat died in vain. Reading the stock market's tea leaves is no easy task. If it were, I would have made myself a billionaire a long time ago. Yet very often politicians and other schemers seize on market movements as proof of a proposition they need us to swallow if they are to achieve their ends (at our expense, of course). ... Let's face it: they didn't have a clue why the market fell on September 29. In truth, nobody knows why it goes up or down as it does on a particular day. Such interpretations are sheer guesswork", Robert Higgs, 10 October 2008 at http://www.independent.org/blog/?p=277. I'll offer an explanation. One thing which drove the market in 1929-30 was the Smoot-Hawley tariff debate. I now suspect what's killing the market was the prospect of an Obama victory and big tax increases.

3 comments:

Anonymous said...

I would say hedge fund liquidations, tick for tick just watch the YEN.

Anonymous said...

Tax increases? You mean capital gains taxes? Who still has a capital gain? With the cap gain tax rates so low for years, anyone who had a cap gain has long since taken it and paid their taxes.

Conservatives always amuse me when they pretend they'd rather sell at a loss now rather pay whatever future tax rate on a gain. Cut off the nose to spite the face, eh? Real believable.

BWoodson said...

the phrase "big tax increases" is susceptible to the same question you posed in the first paragraph. Is it really a "tax increase" when the tax rates will simply reset to their default (pre tax-cut)? So far as i know, Obama hasn't put out any new legislation that changes the tax structure, the democrats will simply let the "tax-cuts" or we could call it a "revenue cut" expire.