If we monitor carefully the major indexes you will notice the sharp decline in recent weeks along with an increase in volume. This perhaps may indicate that we are in the beginning of a bear market and selling may advance in the coming weeks. We can point to several economic and political factors for this decline. Economically we are faced with numerous elements that weigh negative on the economy…housing crisis, financial turmoil - large banks writing-off billions of dollars, high commodity prices, inflation fears, huge deficit, weak dollar, 5% un-employment, slowing consumer and the war.
Politically, we are in an election year where the major issues are the eco
nomy, war, health care and immigration. With no party nominee, the market doesn’t have a sense in which direction the U.S. economy is heading, other than a recession. Politicians are already taking note of the slowing economy. Many have proposed a tax cut with the goal of stimulating the economy to prevent it from heading into a recession. President Bush has proposed $150billion tax cuts to help the economy but many believe this will not be enough. In my judgment it will take more than tax cuts to rescue the economy from a severe recession.
Fed chairman Benny boy stated in a congressional hearing that a tax cut stimulus of $150billion will help the economy avoid a recession. My main concern is, if tax cuts are approve the people that will benefit are the wealthy because they will not spend the money out of necessity like the poor needs, which is to cover living expenses. In addition, with corporate debt levels high I believe that most tax incentives given out to corporation will be spend in reducing debts in their balance sheet. One interesting point I would like to make is the U.S. economy grows on borrowing money. Any tax cut that is approved will be lar
gely spend on paying interest on existing debt and basic consumer needs (rent/mortgage, elect ricity, food, gas, and credit card payments).
Politically, we are in an election year where the major issues are the eco
nomy, war, health care and immigration. With no party nominee, the market doesn’t have a sense in which direction the U.S. economy is heading, other than a recession. Politicians are already taking note of the slowing economy. Many have proposed a tax cut with the goal of stimulating the economy to prevent it from heading into a recession. President Bush has proposed $150billion tax cuts to help the economy but many believe this will not be enough. In my judgment it will take more than tax cuts to rescue the economy from a severe recession.Fed chairman Benny boy stated in a congressional hearing that a tax cut stimulus of $150billion will help the economy avoid a recession. My main concern is, if tax cuts are approve the people that will benefit are the wealthy because they will not spend the money out of necessity like the poor needs, which is to cover living expenses. In addition, with corporate debt levels high I believe that most tax incentives given out to corporation will be spend in reducing debts in their balance sheet. One interesting point I would like to make is the U.S. economy grows on borrowing money. Any tax cut that is approved will be lar
gely spend on paying interest on existing debt and basic consumer needs (rent/mortgage, elect ricity, food, gas, and credit card payments).Conclusion – any tax cut approved by congress will not help the economy avoid a recession. The economic and political fears are weighing heavily on the financial markets as investors don’t have a clear view in the direction the country is heading. Almost every bear market has a decline of 30% or more with an average time of 8months. I feel that the major index will have a 30% correction in ’08. I don’t know when the bottom will be, but when we have a new elected president with a sense of direction for the economy and the country, the market will ease and recover.
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