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Wall Street is Addicted To Government
By Demosthenes | November 24, 2008
So here I am, a person who has nearly all of his wealth, retirement, and livelihood tied up in two things: The stock market and real estate. Yes, I was very well diversified in the market, but that didn’t seem to matter. I watched my life savings dwindle to 50 percent of its previous value. I bailed out because I realized our markets were tied too closely to government intervention.
Naturally, I like to keep my eyes on these markets–both the stock market and the real estate market. I’ve been a keen observer now for about four years. Prior to my investment in those markets, it was only a matter of passing interest for me. What I’ve discovered has truly astounded me. The stock market, and now the real estate market, is totally addicted to government intervention.
When did this happen? I really don’t know, but this discovery has me really worried. The evidence for this assertion is everywhere and can be witnessed on a daily basis. The best instance is what happened last week when president elect Obama leaked his selection of treasury secretary. The market nearly exploded. How did this announcement have anything at all to do with the value of a company? I wish this were anecdotal evidence, but it’s not. Recall what happened when the first attempt at a government rescue package failed in congress. The market took a nosedive. When it eventually passed, it took off again. This clearly implies that the markets are looking to the government to fix things.
This is not just a symptom of our recent economic crisis. This was going on long before that became evident. Back when the DOW was hovering around 14,000, the market eagerly anticipated every single move the Fed made. If the Fed lowered the fed funds rate, the market went up. If it raised it, the market plummeted.
Why should this matter? Well, because the stock market should be concerned with market fundamentals. You know, things like dividends, balance sheets, earnings per share, debt, etc. Now it seems as if none of this matters. The only thing that matters is what the government is going to do to make it better. While I understand that monetary and fiscal policy have an impact on the markets, it should not be the only consideration with respect to valuation.
The stock market should be what free markets represent. It should be the beacon of capitalism. If we ever needed evidence that our country is headed toward socialism, it is the fact that our markets are tied hopelessly to government intervention. Woe be to us.
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