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dpdoor (30.63)

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September 24, 2011 – Comments (1)

Most people think that the economy is heading down but consumers were actually buying more up till September's news media hype over the Stock Market drop. With interest rates low and incredible tax deduction for business to buy equipment (including vehicles) and to do leasehold improvements we should end the year with a bang. So why is unemployment going up and the market going down?

A few months ago the stock market looked like it was a good investment, this was causing a move out of treasury bonds and interest rates went up. Congress and the fed were set on not doing anything because it look like we were on a good track. We were not doing well we were just doing better then the pits of 2009. If interest rates continued up and congress thought they were done helping we would never get anywhere.

Small business were not doing well enough to continue paying their bills, Wall Street looked good but not Main Street. Without helping Main Street the economy will not progress.

Small firms:

Represent 99.7 percent of all employer firms.

Employ just over half of all private sector employees.

Pay 44 percent of total U.S. private payroll.

Have generated 64 percent of net new jobs over the past 15 years.

Create more than half of the nonfarm private gross domestic product (GDP).

Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).

Are 52 percent home-based and 2 percent franchises.

Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.

Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited. [SBA website]

 

Something more was needed but nothing was going to be done with the market not far from it's all time high. The obvious solution; bring down the stock market.

What tools are there?

The Standard and Poors' lower rating on the U.S. credit rating helped. it shook up the markets and actually helped lower interest rates. The government's investigation in to mortgage lending practices and law suite helped drive down the market. What about unemployment, this is the true benchmark. The rate of hiring has be slowed for a month or so in part from Obama's offering of a tax incentive to businesses if they hire; the trick is it hasn't passed yet. This means employers are holding of on hiring, they will wait for the bill to pass then hire.

When the market was up congress was worried about our debt, with the market down they can worry about building the businesses of America.

How far does the stock market have to drop for congress to act? 10,500 that's mild, 10,000 that is were it was in late 2009, DJIA of 9,600 that might work. The Dow 30 at a p/e of 10 would put the market at 9000, hopefully congress won't wait that long. April 2010 to late August 2010 the market had a similar run down to 9600 and from early September to March of 2010 we had a great run up. The market can hit 9600 before mid November and still hit 12,500 by the end of 2011. In 2012 a 15% gain would put the market at 14,300 at the end of the year. After the election the stock market will be on it's own, it only has to be near 14,000 on election day. That would be something for Obama to brag about, the market is back to near it's all time high after averting a depression.

How September ends is important, a rally would help Q3 corporate balance sheets, bad balance sheets would leave room for improvement in the fourth quarter. It is impressive to have a 30% gain in one quarter. This would help when reports come out in Q1 of 2012.

If congress passes a package that creates jobs and helps small businesses then the stock market will rally; short sellers have to cover; the market rallies more; confidence builds to consumers and especially business owners; business owners finally get a low interest rate loan; buy equipment and trucks; they use accelerated depreciation from prop 179 and get more back in taxes then they make in loan payments; create a positive cash flow while stimulating the economy.

In the long run it is more profitable to run the market down now.

1 Comments – Post Your Own

#1) On October 30, 2011 at 6:24 PM, dpdoor (30.63) wrote:

The dow went down to 10500, Bernanke bought more bonds, interest rates hit a record low, The UAW gave in to the auto manufactures, the g7 quadrupled their bail out. Then we found out that last quarter was actually the best in over a year. The dow shot up the most it had in 40 years. Manipulation?

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