Contrary to what the government would have you believe, the “market” is fairly predictable. There are thousands of leading and lagging indicators that move in certain directions of varying amounts and can predict to some degree of certainty which way the economy is going. It’s not an exact science, but it’s not completely random either.
We often talk about how unpredictable the weather is, but like a falling barometer can indicate rain is on the way, but not how much or exactly when…market indicators can indicate when a recession, or a recovery, is approaching. With this information, we can act accordingly to get in out of the rain…or at least know it might be wise to bring an umbrella.
Almost all uncertainty in the market is brought on by the government. Government can change direction on a dime, increasing or decreasing taxes, regulating or deregulating, taxing or not taxing, bailing out or not bailing out, increasing or decreasing interest rates, going to war or not going to war, printing money or not printing money, etc. It doesn’t even require the action itself to move the markets, merely suggesting the possibility will ensure sufficient damage.
All of these actions can change the market drastically in one direction or another, and this uncertainty involving which way the government will zig causes businesses to not know which way to zag.
Investors can capitalize on these short term market swings and some general market trends can still be extrapolated but for a business person, an owner, a CEO, not knowing how government’s actions will affect their own business, their own industry, their own state or their own customers…the result is paralysis and a drawn out recession.
When uncertainty is everywhere, businesses will do nothing, and wait. They don’t invest or expand, they don’t hire or take on debt. Capital projects are shelved while cost cutting continues. Just as a barometer starts falling and people shutter the house, get out the candles, and settle in for the storm…market uncertainty will break our economic barometer and cause business to rein in spending, R&D and expansion plans…and all the jobs that could have been created along with them.
Government has broken our economic barometer.
We can see this in how government words or actions translate into market movements…
Scott Brown won the Senate race in Massachusetts not long ago. This upset was driven by the desire of the people to stop the tax and spend juggernaut in Washington by electing him as the 41st vote needed in the Senate to kill the government’s monstrous healthcare reform bill.
The result? Dramatic increases in healthcare stock values that took the market up with it now that the healthcare bill was dead in the water.
Meanwhile, not long afterwards, Obama declares, “Never again will the American taxpayer be held hostage by banks that are too big to fail,” as he proceeds with his plans to curb banks and limit risky investments.
The result? No sooner had the words left his lips, bank stocks took a dive..and with it, the market.
That much power, to simply speak and move markets, is unfortunate, reckless and will only prolong this recession.
These roller coasters in different industries caused by the government’s repeated attempts to enforce their ideological views of how the world should be will continue to interfere with business’s ability to predict and react effectively to market changes.
As a result, businesses will remain uncertain and act accordingly, which for me and you will translate to continuing unemployment, stagnant or declining incomes, a decline in public services and increased taxes.