Markets Priced For Pessimism

Clearly, the market is pesismistic about the U.S. economy. It doesn't believe growth or earnings will rebound in any meanginful manner anytime soon so they're either demanding premium return on their money up front or they're moving out of equities (which is the case with mutual funds) and into bonds. The 'flight to quality' move.

It may be looking to bottom out.

It doesn't take a brain surgeon to figure out Obama is bad for business. He made his ideological choices and is sticking to his 'us v. them' angle. People can split hairs all they want about his "you didn't build that" remarks - about how it was taken out of context - but the bottom line it's a stable pattern of commentary that has become all too common with the President.

It's all about perception.

The markets are taking him at face value. And they should.

The degree of the pessisimism, of course, may be exaggerated but even if we remove some of the fear out, there's simply no confidence in the market - or this administration to make things work.

Obama wants tax and spend, speaking largely to people who aren't invested or are unaware that whatever holdings they may have in pensions or other investments are indirectly exposed to the markets, and he'll probably get it.

For their part, small business, the backbone of the health of an economy, will get clipped and expect more misery. High taxes don't necessarily lead to revenues and if they do, they may not even be enough to cover interest payments on the deficit. They're inefficient and will only prolong low productivity.

People will continue to start businesses, but it won't be in an optimum business enivornment.

If there are positive signs, I'm not seeing them.

Want to invest? You'll have to adjust your expectations downward. Now is the time for the real players to move in. Politics impact markets. All investors can do is silently make their voices heard by moving their money around into places they determine to be fit for their money.

Don't take it from me.

Read this excellent overview of what's going on here.

"...In short, as I see it, the market is priced to lots of bad economic news that has yet to hit the tape. The market may end up being right, of course, but there are reasons to think that the market may be too pessimistic. At the very least we know that the market has had plenty of time to work itself into a frenzy of concern, since there is no shortage of things to worry about: political gridlock in Washington, a president who is anti-business and anti-wealth, trillion-dollar deficits for as far as the eye can see, a Middle East in turmoil, a huge increase in regulatory burdens, the onset of ObamaCare—which promises wrenching adjustments for one-sixth of the nation's economy, millions of underwater mortgages, and monetary policy that is far advanced into uncharted territory, to name just a few. It should not be surprising or controversial to discover that, in a time bad news is in plentiful supply, that the market is priced to pessimistic assumptions...."