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Tuesday, June 10, 2008

John McCain Vs. the Stock Market

Last week, I analyzed the effect of Barack Obama's policies on the stock market. I found Obama's policies to be overwhelmingly negative toward the stock market. To be fair, today I will analyze the policies of John McCain on the stock market. While I found Obama's policies to be nearly universally negative toward the market, McCain's policies offer a very mixed bag. It is difficult to predict exactly what the sum total effect would be and if I had to make a prediction I would say they would be slightly positive.

The most positive effect of McCain's policies will come on the issue of taxes. Not only will McCain strive to make the tax cuts permanent but he intends on cutting the corporate tax rates. I believe there is no greater stimulus to the market then the announcement that the Bush tax cuts would be made permanent. If McCain is actually able to accomplish this, this would a major boon to the market. Furthermore, by lowering corporate tax rates, he would also make U.S. companies more competitive and provide a better economic atmosphere for them to compete.

Along the same lines, if McCain is able to follow through on his promise to curb spending, that is yet another policy that will be met positively by the market. Big spending leads eventually, circuitously, to upward pressure on inflation and thus interest rates. Fewer things are more damaging to the stock market than the prospects of higher interest rates. If the market sees a President that is taking tangible steps to curb spending, that is something the market will view very positively.

The biggest problem area for McCain has to do with global warming policy. While McCain has fancied himself as a free market reformer on global warming, his policies are actually entirely more government mandates and interference. He is in favor of some sort of cap and trade bill. While he was against the one recently debated, he has shown an inclination to pass some sort of legislation on the matter. This sort of a bill would put serious pressure on energy costs for companies. It would make them less competitive and significantly increase their expenses. If this measure ever passed this would be viewed very negatively by the market.

Along the same lines, McCain has offered no substantive plan to curb the exploding rise in gas prices. Like Barack Obama, he is against drilling in ANWR along with several other places. If oil continues to go up precipitously, all the tax cuts in the world are NOT going to save our economy. Without any sort of a plan to take substantive action to curb the rising cost of oil, that is exactly what is going to happen. So far, I have heard absolutley nothing in terms of substantive plans to deal with this looming crisis, and if you think $4 gas prices hurt just wait till you see what even higher will do.

On mortgages, McCain initially took the position that the market, along with myself, would probably like. He initially wanted a hands off approach. This the market would likely have responded positively to. Since then, he has called for a significant mortgage bailout. In my opinion, this is a mistake and the market will likely see it the same. This will likely have negligible effect on the market. The more important issue will be whether or not, and more importantly, how many new regulations McCain attempts to stick onto banks, mortgage companies, and financial services companies in general. If McCain is tempered in new regulations then that will likely have a positive effect on the market. If tries to come down with a heavy hammer, that will likely be viewed negatively.

All in all, you have a fairly mixed bag of policies toward the market. McCain is for the most part a free market, lower taxes, and smaller government politician. The market loves that. Still, he takes an entirely big government approach toward global warming and has no plan to resolve the issue of higher gas prices. This will be viewed negatively. The sum effect remains to be seen.

For the other side, here is my analysis of Barack Obama's effect on the stock market.

1 comment:

Anonymous said...

I think that the great challenge when lowering corporate tax rates is getting people to realize that taxes on corporations are ultimately paid by (ie come out of the pockets of) their employees and customers (and to a lesser extent, shareholders in lost stock value compared to potential). The person who comes up with a way to explain that to the "average American" will have the means to launch an economic revolution.