Market Selloff After Obama’s Re-election No Accident – Recession Coming

Nov
14

 

By Charles Biderman

Ever since Obama won eight days ago, stock prices are falling, down about 4% as this is being recorded. So stocks peaked September 14 – two months before the election –when the Federal Reserve announced the current version of quantitative easing and stocks held up pretty much right through an election day rally. But now that the election is over stocks are dropping with no bottom in sight. This is no accident given investors fears of higher taxes and continued big spending, including higher taxes on capital gains, that inevitably will tank the economy. In fact, I believe we are headed for a recession.

 

It is important to remember that on election day, $19.3 trillion was the market value of all US stocks. That $19.3 trillion was not that far below the all time peak reached in 2007 but was also more than double the $9 trillion stock market capitalization at the March 2009 low.

 

To me that is a major reason why Obama won the election. Romney lost not because the real economy is doing anything good, but because lots of people who voted for Obama incorrectly assumed that the high stock prices were a strong indicator that the economy was on the road to recovery. They also ignored, or in many cases, didn’t understand that the higher stock prices were actually the result of Fed manipulation. They also believed the highly suspect data from the BLS and other government agencies that the economy was improving.

 

But now the election is over and stocks are dropping as reality is setting in.

Everything I read and hear says to me and many other investors that the Obama administration is totally committed to raising income tax rates and maintaining virtually all current government spending.

 

To me that guarantees that next year after-tax income will decline in the US by at least 2% if all the current tax increases happen.

 

And, declining after tax income is my definition of a recession.

 

The realization by Wall Street that higher taxes are inevitable next year is forcing tax oriented year-end selling of lots of assets, including stocks. Ironically that will boost income tax collections early in 2013, but capital gains tax collections will certainly crater later in the year.

 

By the way, I don’t care what GDP does. GDP is a joke. All that really matters is income. And that is why we at TrimTabs track after tax income in real-time as best we can as soon as it is available from the U.S. Treasury.

 

I firmly believe that if the Obama Administration gets away with raising taxes and not cutting spending, that will crash stocks through next year. Lower stocks combined with declining take home pay will create a social mood that will not be perceived as pleasant.

 

In fact, that could be why Marc Faber said he wants a tank to deal with what is coming, not just guns.

 

Sooner or later the developed world will come to understand that governments are ineffective at providing services and if governments are not stopped they will bankrupt us.

 

Charles Biderman
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)

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4 Responses to Market Selloff After Obama’s Re-election No Accident – Recession Coming

  1. Ed on November 14, 2012 at 11:24 pm

    Look for the S&P to fall to 1050-1150 range. Now that the election is over, there’s no need to prop up the markets anymore. Wall Street and large banks are the new enemies of the administration since they provided no re-election support.

    Here’s a few “Wake Up” charts from ZeroHedge
    http://www.zerohedge.com/news/2012-11-08/eight-scariest-charts-equity-bulls

    Here’s a CNBC video taken 9 months ago concerning levels of the S&P, VIX, and AAPL.
    http://video.cnbc.com/gallery/?video=3000076031

  2. jack on November 15, 2012 at 12:26 am

    Charles,
    How come no one is addressing the free, no taxes owed…….mortgage short sale rule that is set to expire 12/31/12? That is 6 weeks.
    Does that mean an unemployed person that walks from his mortgage for let’s say a $100k deal he made with his bank, will now get a $100k 1098 bill for taxes due?
    This sounds like a fiscal cliff on it’s own. I have not heard a peep about that free ride being extended, have you?

  3. Chuck Szkalak on November 15, 2012 at 8:09 pm

    “Truth is treason in an empire of lies.”
    - Ron Paul

    Personally – I thank you for having the courage to tell it like it is.

  4. Ed_B on November 23, 2012 at 10:46 pm

    “…and if governments are not stopped they will bankrupt us.”

    Indeed so. While the numbers seem to vary a bit with source, the US government currently consumes about 25% of GDP. This is up by about 1/3 over the historic level of government spending of about 18% of GDP. Every now and then we have people come on TV and tell us that we need to return to the historic norm in government spending and that if we do, all will once again be well. Poppy-cock, says I. It will not be well. While the recent higher level of national expenditure did come in with the Obama administration, I believe that it was already too high when it was at 18% and that it was the sustained spending level of 18% that brought us to the current spending and taxing dilemma.

    Furthermore, I also believe that we simply have a lot more government than any nation can afford to have. Government needs to be cut from its current size to somewhere between 1/2 and 1/3 of what it is today. That level of government would be sustainable, would meet our basic needs, and our debt could be significantly paid down by the increased level of earnings created by a much stronger economy.

    Unfortunately, those who are talking about the future of this nation have either failed to discover this idea or have done so and rejected it. Either way, those who produce seem to be trapped on an unsustainable tread mill that they will soon either stop running on or its rapid and increasing pace will hurl them from it.

    In simple terms, we have reached the point where we can either fund a vibrant economy OR we can fund additional government and all the largess that unavoidably goes with it. Government at all levels is literally consuming this nation by taking the resources needed by the economy. This is unsustainable and just about everyone knows it. There is no amount of taxation that will fund all the government that some feel is necessary. It seems a very safe bet that if the US government consumed 100% of US GDP, they would still be running a substantial annual deficit. This should be a powerful clue that we are not on the correct fiscal path and merely running the wrong way faster will not change that.

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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Mr. Charles Biderman is an associated person of Trim Tabs Asset Management, LLC, an SEC-registered investment adviser. All opinions expressed by Mr. Biderman on this website are solely those of Mr. Biderman and do not reflect the opinions of Trim Tabs Asset Management, LLC, Trim Tabs Investment Research, Inc., their affiliates (collectively, “Trim Tabs”), or any other associated persons of Trim Tabs. No part of Mr. Biderman’s compensation from Trim Tabs is related to opinions which he expresses on this website, elsewhere on the internet, or in any other medium.

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