Market timing and the mid-terms

I heard some of the sanest analysis of the state of the American economy on the Nightly Business Report last night. The commentator noted that several unique factors had combined to slow growth over the summer — the end of the tax credits for home purchases, the completion of Census work for 500,000 temporary employees and the concern over European debt, which now seems to have abated.
However, he saw the overall trend moving upward.
It reminded me of some history. I was editor of the San Jose Business Journal during the 1987 stock market crash, when the Dow had taken more than a century to reach the 1,000 level.
I don’t think anyone would have ever expected back then, particularly with the savings and loan crisis which followed, that the market would ever reach 10,000.
We’re hearing a lot of frenzied talk about what economic direction the nation should take, particularly for investors.
If you have money in the market, or wish to retire, the facts are pretty clear.
The entire runup from 1,000 to 10,000 occurred during the Clinton administration, when policies included a tax increase which eliminated the budget deficit for the first time in 40 years.
In 2002, I predicted in a San Jose Mercury News article that the Bush tax cuts would lead to another burst bubble like the savings and loan crisis. Just as occurred during the first Bush administration, taxpayers had to ante up almost $800 billion to bail out speculators.
The Obama administration has presided over a 4,000 gain in the Dow in less than two years.
Derided extensively during the mid-term campaign has been the American Recovery and Reinvestment Act, because it hasn’t produced enough jobs.
That may be the bill’s saving grace. The most immediate impact came from the third of the act comprised of tax cuts and another third comprised of various direct payments.
The last third of contracts is probably just beginning to reach the economy. As a subcontractor to ARRA, I know first hand it took over a year from my initial proposal to actually executing the cotnract.
Reports are that many of the states have only spent a fraction of their transportation and construction spending. In California, less than a third of the Title 1 allocation for schools from ARRA has been spent, according to the California Dept. of Education.
So there’s going to be a delayed impact from ARRA spreading out over the next year.
If the function of the market is to predict future economic activity, then wise voters will vote to protect their own personal futures.

Advertisements