Bad for Business


The stock market crashed this week after Barack was elected. But did Barack’s election cause the meltdown?

Racked by the credit crisis and the growing likelihood of a deep recession, financial markets have been given to extremes for the last two months, mostly to the downside. The presidential race added to the uncertainty, but it never was the main driver of this market turmoil.

Obama’s supporters believe he has the solutions needed to get the economy growing again. Stabilize the financial system and fix the economy, and the stock market should respond positively — right?

But plenty of people believe Obama’s ideas will be somewhere between hurtful and ruinous for investors over time.

You mean that hope and change might hurt?

Tom Kerr, who helps manage $2.5 billion in stocks for Reed, Conner & Birdwell Inc. in L.A., asserts that many of the policies Obama has espoused are “job destroyers and are bad for all size businesses in America.”

He ticks off his list: “Less free trade . . . more business regulation . . . increased union power . . . higher tax rates on big consumer spenders.”

Kerr also notes that Obama has proposed a windfall-profits tax on oil companies. Kerr suspects Obama would start with Big Oil, then move to boost taxes on other industries — say, the big drug companies.

Would he really do those things, or were those just ideas designed to manipulate voters.

Obama’s image with investors such as Kerr wasn’t helped by the Illinois senator’s comments, in the famous exchange with Joe the Plumber, about wanting to “spread the wealth around.”

“Socialist!” the Republicans screamed. In America, that word is a guaranteed spine-chiller for the richest of the investor class, and even for the not so richest.

Any of the well-heeled who need an excuse to sell stocks now, even with the S&P 500 down 40% from its 2007 peak, can cite another Obama promise: his plan to hike the maximum tax on long-term capital gains and dividends to 20% from 15% for couples earning more than $250,000 a year.

Let’s do the math. You’ve got a $200,000 long-term stock gain to cash in. At a 15% tax rate, you’d keep $170,000 of that. At a 20% tax rate, you’d keep $160,000.

But what if the stock is 25% higher a year from now because the economy is coming out of recession, thanks to — or in spite of — Obama’s policies? If your long-term gain is $250,000 a year from now, and the tax rate is 20%, your net gain would be $200,000.

Giles Almond, who manages $155 million for clients as head of Matrix Wealth Advisors in Charlotte, N.C., says most of his investors are taking a practical view of Obama.

“The gist of what I hear is, ‘Let’s wait and see,’ ” Almond said. “People know that any politician doesn’t end up implementing more than a fraction of what they intend to do.”

Almond, who said he didn’t vote for Obama, recalled that “there was a similar level of apprehension when Bill Clinton came to office.” Whatever else Clinton did, he wasn’t bad for stocks in the ’90s.


No Responses Yet to “Bad for Business”

  1. Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: