Hoping for Change
I assumed the stock market would have already factored an Obama win and that it would not have seen the 400 point drop that occurred in the few days after the election. But before we use that retreat to confirm the upcoming disaster of Obama's continued economic policies be ready to explain what happens when the Dow recovers.
The large public companies and the stock market they occupy will likely continue to do OK for two reasons. There is no other place to go with money. Money market funds and treasuries pay next to nothing. Interest rates have nowhere to go but up and thus bond prices are likely to fall. Real estate is flat and hard to borrow against. Real estate was long supported by the leverage it enjoyed turning small appreciations into superior returns. And gold is at nosebleed levels. It could rise on fear of inflation but it has a long way to drop. I am further fearful of the massive advertising selling gold. These ads sell the fear of a weakening dollar, yet the purveyors are perfectly willing to exchange their very valuable gold for your paper money. The best argument against gold is from Warren Buffet's annual report noted here.
The stock market is doing OK just because of the lack of alternatives. The dollar may be fine for the very same reason.These advantages, however, are far from permanent.
The second reason that the large publicly held companies may do OK is that the larger companies have the administrative infrastructure to deal with the onslaught of upcoming and recently passed regulations. As the smaller privately held companies close that leaves their market share to the larger companies. Large companies can thrive in a highly regulated environment.
But higher labor costs drive larger companies to get more output from existing employees and it drives smaller companies out of business.
When the collapse hit in 2008 and 2009 there was a spike in unemployment as the shock dropped demand. Many were unable to survive the first phase. But many who were able held on through the shock phase hoping to see a turn. What they saw was talk about a card check bill and Cap and Trade, then the passing of Obamacare and Dodd-Frank. It became clear that this shock was not just a short term proposition. Companies unable to see the light at the end of the tunnel, closed down. Employment never returned to the levels promised by the administration when they passed their stimulus bill. Few small business people were surprised.
I now predict that there will be another uptick in unemployment. (Given my bad call in the election this prediction may not be worth the paper it is not written on.) There is a wave of people who were able to hold on for a longer period, who were hoping that America would reject the stifling policies that burdened their businesses. They were hoping for a change that did not come. I expect many of them to now throw in the towel.
There are many stories out there in your local papers. Some will be accused of laying off workers in an act of spite because their choice lost, but it is rare that people will intentionally lose money just to make a political point. They also know that there are a lot of regulations pending from Obamacare and other regulations that are to take effect in 2013. There is little chance that these additional regulations will be blunted.
The Hope and Change small business people desired did not occur, and we will all be poorer as a result.
Henry Oliner blogs at www.rebelyid.com