The Market sucks

[@DCGoldPants]

well, another crappy day. I just wonder was (W) is going to say about this. I believe just a few days ago he thought it was strong. We need somebody to do something right....for a few weeks. No scandels please.

[W&M]

At this point, the president has little more influence on the stock market than an enthusiasic cheerleader. The president can't do much to change the fundamentals ... the ultimate touchstone of corporate performance ... unless congress were to send him a bill eliminating the capital gains tax in an effort to spur investment. Otherwise, what more can he do? Monetary policy is already loose. Income tax breaks don't really impact corporate fundamentals.

I suppose the best thing he can do is seek to buoy rapidly eroding consumer confidence. I suppose there are some measures he can chase: starting with separation of research and underwriting. But laws are already in place to deter corporate fraud. I hate to say it, but Enron and WCOM and Global Crossing and QWEST are NOT instances of government failure, they are instances of wide spread fraud. The fact is, peolpe already broke the roles, and went to greath lengths to subvert disclosure and reporting obligations. More disclosure obligations wouldn't solve much ... but perhaps it would calm the masses.

Sadly, the pres will get blammed for this market crash and recession, even though the illegal conduct began before he took office, and the dot.com crash and the beginnings of the recession were in progress too.

But if there is any good in all of this, many firms are stepping forward and voluntarily adopting transparent accounting policies (such as expensing options and revealing debts) inorder to improve their market valuation. The fact is, this isn't an instance of market failure, this is the marekt doing what's its supposed to ... it's correcting over-valuations, returning to fundamentals, disciplijnging the programed adn momeentum traders, and appropriately devaluing stock issues based on the risk that messy books are masking fraud. In short, the market is working, it's just that corrections are painful, and it's hard to see the big picture.

Of course, to the extent all of us are young, and plan to initiate a long-term investing plan ... it's much better to start investing in Dow that's valued in the 7000's then one that's in 13,000's.

[mardi gras skin]

I'm dumping all my savings back in the stock market next month. The stock market was supidly high 2 to 3 years ago and I pulled out. The stock market is approaching stupidly low now.

[Brave]

I couldn't agree more, Mardi Gras.

I just refinanced a mortgage and walked away with a little money at closing that I wasn't sure what I was going to do with. I'm thinking it belongs in the stack market. Even if it continues to drop some in the short term, once a recovery starts I would look for it to get to around 10K again before levelling off.

[skinsfan44]

W&M, I couldn't agree with you more(with everything you said). Cutting the capital gains tax(or eliminating it) would be a kick in the a$$ the market needs. I invest for the long haul, so when the market go's down, I know it will go back up and keep making me money.

[gbear]

I'd like to point out one thing that I am sure is probably be overlooked by those wanting to rid us of the capital gains tax. To do so right now, might mean a tax increase for most people this year.

I was reading in the NYtimes about the gov. shortfalls this year because most people will be writing off losses on their stocks. So if you stop counting hte increase in value as income, then you probably end up wiping out people's losses as well.

Of course if we still allow people to write off losses, then basically, we have a gov. insurance on stock prices. I'd avoid that if possible. Anyway, getting rid of the capital gains tax is something I've wanted for awhile. I just wonder if the people touting it now realise it would mean a tax hike this year for many.

[fuji869]

I invested some money in a Mutual Fund about two years ago and I have lost half my investment. :cuss:

First the Presidential Election, them the .coms going out of business causing the NASDQ to drop, then 9/11 and now the corporations with the bad book keeping.

[redman]

don't sweat it, fuji. My 401k's looked pretty bad too. Just ride it out.

The economy is strong, even if the market is having to sort out flaws right now. It'll pick up. It's why they always say, "Invest for the long-term."

[W&M]

Redman, you hit the nail right on the head, and it's a point most people miss. Teh economy is strong right now. The four biggest indicators of a healthy economy are all up right now:

- the growth rate for GDP is still near 3% ... twice that of 1995,,

- inflation remains very low at 2.4% ... lower than 1995,

- productive gains are almost double higher than 1995,

- and Real wages (i.e., adjusted for inflation) are 13% higher than 1995.

- Corporate investment in information technolgoy is far greater than 1995

Basically, other than consumer confidence, every important fundamental indicator for the economy is positive.

The problem is, people are mistakenly assuming that the equities market is a barameter for the economy ... and that's not the case when the equities market was overvalued to begin with.

Equities are falling down because: of corporate fraud; spending is low (people are actually saving instead); and b/c prior valuations of assets were premised on unrealistic growth rates of a 1,000 percentor more.

Now the market is coming back down to a proper valuation, but through it all, the economy still moves forward and grows.

If you want put all of the "overvaluation" in perspective, consider this ... the major indexes (S&P, DOW, and Nasdaq) have sustained a 10% annual growth rate from 1995 (the beginning of the boom) until today. And from a historical perspective, a 10% growth rate is considered good.

GBEAR, your point about capital gains is true. This year, many people will probably report capital losses, which functions as a tax deduction. But of course, you are only allowed to report $3,000 of capital losses in any one year ... so it's not the biggest benefit in the world. Needless to say, losing this benefit would be a welcomed trade-off for those hoping to spur corporate investment.

And while they are at it, it wouldn't be a bad idea to standardize the tax treatment of business entities, so that corporations are taxed in the same way that partnerships and LLC's are taxed. The double taxation of corporations makes no economic sense, when partnerships and LLC's have pass through treatment. In fact, if you want to stop corporate fraud, take away the incentives for Corp execs to churn as much money inside the corporation prior to making distributions and reporting profits. You'll notice you don't have the same disconnect between a managers incentives and its investors when dealing with the partnership/LLC structure.