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Posted on February 28, 2009 -
Read Reizner's Way to Wealth
By John Reizner |


Background: I remember in February 2007, the Shanghai market cracked, and ours followed sharply downward the next day. However, both our markets and the Shanghai Exchange snapped back shortly thereafter as quickly as they had fallen.
 
This was a wakeup call for me, and the first time that I questioned the American bull market in stocks that began in 2003. I wrote about this in my article, Are Stocks Still Worthwhile Investments: A Reconsideration; The Odds of a Panic, posted in April 2007, where I wrote that there may have been an "unsupported speculative fever" underlying the stock market.

Shortly before I wrote the article to which I referred in the link above, I selected from my investment book collection my copy of John Kenneth Galbraith's The Crash of 1929, referring to the stock market decline of that year. I recall Galbraith's vivid descriptions of the mindset of the stock market players prior to the Crash - how the speculative fever took hold of the public. Galbraith reported that the stock market cracked several times before The Crash, but quickly recovered and resumed its steep ascent until finally that fateful day in October 1929, when the Crash of the stock market marked the beginning of the Great Depression.

In The Great Crash of 1929economist and thinker John Kenneth Galbraith brought the time before the Crash of 1929 and its aftermath into the mind and emotions of the reader with elegant prose and style. A must read for modern investors to comprehend the nature of the stock market Crash we are now experiencing.
 
Argument: The stock market thinks about six months in advance. If it likes what it sees, then it may go up. If not, it may decline, or enter a bear market. I argue that the stock market looked ahead six months prior to the 2008 Presidential election at a possible outcome, and did not like what it saw. It may have seen not only an Obama victory (with potential left wing policies being enacted), but a dramatic worsening of the credit crisis.
 
As we know, the stock market began its decent of 6000 points in June 2008, several months before the Presidential election. I recall visiting the Barack Obama website before the election, and there was a long list of programs proposed, mostly all costing exactly ten billion dollars each. It just seemed strange to me that the campaign would affix the same price tag to most programs on the list, even though the programs may not have been related. It just seemed to be a potential red flag to me. Odd.
 
Another potential red flag on Obama's site was a proposal for the government to fill out our tax returns for us, based on the information submitted by the banks, brokerage firms, credit unions, etc. to the IRS. We would have the option of accepting the government's calculations or not accepting them. If we did not accept it, we could then either hire a tax preparer or file the return ourselves. The reasoning given for the proposal was that if the government did our taxes, we would not have to spend the money on a tax preparer. This just seemed to me to be a violation of my rights. Would the IRS be filling out our returns, or what?
 
The other item on Obama's site was that the proposed programs seemed to cover all facets of our lives. There was a program or proposal for everything, from a person's birth to old age. Is not that cradle to grave coverage? A little bit of Big Brother? I do not know. We are going through very hard times now, and people do need help. I suppose in a way it's a good thing. My idea of old age coverage is long term care insurance. I just hope my insurance company does not go under because it has insured mortgages all over the world.
 
I think what I am trying to say is if we may be headed to democratic socialism and a heavily anti-business platform, it may not be good for the stock market, and the stock market may have been anticipating an Obama victory when it collapsed. See my article, How Obama May Bomb the Stock Market and the Economy in 2009-2010, which contains a link to the Iowa Electronic Market's (a type of futures market), betting on the Presidential Election, showing an Obama lead since late May 2008. Remember, the market thinks six months in advance.

 

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