Fuel to the Fire

The intrade.com odds of Obama becoming President is inversely correlated (-.4) with the stock market. In other words, as it has becoming more likely that Obama will be President, the stock market has done worse and worse.

The common narrative on the stock market is that plummeting housing prices triggered a financial crisis which has pummeled the stock markets. Therefore, plummeting housing prices are the root cause.

But I think that the root cause is deeper.

As a businessman/entrepreneur who is running a small robotics technology company, I can tell you that for the last two years, with Pelosi and Reid running congress, and the increasing likelihood of a far left President, I've been very hesitant at pursuing any expansion plans given the additional taxes and regulations that are going to be imposed on businesses during the coming administration(s). I know that many of my associates who run other businesses feel the same way.

The result is reduced investment, reduced expansion, reduced hiring, reduced employment, and reduced wealth creation. Reduced wealth means that most assets like houses are going to have lower prices. That is the root cause of the plummeting housing prices which has caused the financial turmoil.

The great irony is that once Obama finally takes office, the damage will already be complete. The anticipated taxes and regulations will be put in place and the economy will resume growth (though at a slower rate and from a lower level) and Obama will be given credit for "fixing" the economy and Bush will continue to be vilified for having mismanaged it and most of us will learn the wrong lessons and make the same bad decisions in the future.