Are investor concerns about an Obama presidency influencing the stock market? And by "concerns" I mean "existential panic." And by "Obama presidency" I mean "a tax-hiking and regulatory reign of terror." And by "influencing" I mean "eviscerating." At least that's the overwrought take I get from a few of my more skittish E-mailers. Chillax, y'all!
Now a few of my own (more tranquil) observations about a possible jittery Investor Class, the plunging market, and the now famous Obama Discount Theory:
1) I find it hard to believe that fears about a deep recession are suddenly dawning upon investors and thus are solely responsible for kneecapping the market. I've been hearing such dire forecasts for weeks from top Wall Street economists, and I really think they're already baked into the cake. (And credit markets actually look like they are finally picking up a bit—a plus for stocks.) So with that perception locked in, maybe the future political landscape is finally playing a greater role in the minds of investors, especially with polls showing a possible landslide Obama win and big Democratic congressional majorities. Is it really more plausible to suggest no effect whatsoever from a possible once-a-generation, political sea change, especially one that moves away from the winning economic formula of the past 25 years ? Not even a smidgen of worry? C'mon, now.
2) Obama wants to raise capital gains taxes on a good chunk of the money currently in the market. Nearly 80 percent of total stock holdings are held by people who would be subjected to higher investment taxes. Not only does that hurt their future after-tax returns, but it also undercuts the future productivity of the economy, thus crimping the future stream of earnings generated by corporate America. So the whole stock market will suffer from a sort of collective tax punishment. Hey, even potential Obama Treasury secretary Jamie Dimon thinks raising taxes right now is a goofy idea.
3) Then there's the Joker Scenario, inspired by one of my favorite schemes concocted by the Clown Prince of Crime. It's the one where he poisons various toiletries like shampoo, deodorant, soap, and toothpaste. But only when used in combination are they deadly. Investors might not be worrying so much about a Democratic president, given the current one-way state of the polls, as they are about the combo of Obama + Nancy Pelosi + Harry Reid. And you can toss Charlie Rangel and Barney Frank into the mix as well. Recall what Frank said the other day: "Yes, I believe later on, there should be tax increases. Speaking personally, I think there are a lot of very rich people out there whom we can tax at a point down the road and recover some of this money." Look for Democrat proposals for a "millionaire's surtax" on top of the higher rates from repeal of the Bush tax cuts in 2009. Or how about this idea to do away with 401(k) plans. Maybe the risk of a deluge of ill-conceived ideas is apparently why, according to my pal Amity Shlaes, split power in D.C. produces an average 9 percent positive return for stocks vs. a negative 8 percent when one party holds Congress and the White House.
4) It's certainly true that recent polls have McCain with only a narrow lead, at best, over Obama among self-described members of the Investor Class. Yet I would hazard a guess that active investors are far more conservative—even libertarian—in their economics than the great mass that is 401(k) nation. (That sure has been my experience.) They are likely the ones selling hard right now.
5) Then there's the Great Experiment of 2009. In 1980, anxious Americans voted for lower taxes and smaller government as the solution to the nation's economic ills. Would the opposite prescription also have led to a 25-year economic boom? With Obamanomics, voters may be about to play a fascinating game of "what if." Except it's for real. When Goldman Sachs ran a sophisticated economic simulation of the effect of a total repeal of the Bush tax cuts, the computer predicted a 3 percentage-point drop in GDP. Maybe investors fear that with perhaps a trillion-dollar budget gap ahead, revenue-hungry Dems will raise taxes further than Team Obama is suggesting—right into the teeth of a weak economy. What if, indeed.