Thursday, February 26, 2009

Another Step in the Same Direction

There is a natural conflict between government and business as both compete for the same investment dollars - government bonds don't come for free, you know. Obama comes down clearly on the side of government. That's a good reason to be less sanguine about the prospects for business in the next few years.

The market decline isn't just a sell-off hangover from the previous administration, this is a search for a new equilibrium point between government and business. With trillions in debt beginning to pour into the market, tax increases on the way and a carbon cap and trade policy with unknown effects about to start, it's no wonder the market is going down.

Here's a Bloomberg story to the point.
Feb. 25 (Bloomberg) -- While U.S. President Barack Obama criticized Wall Street bonuses, his stimulus plan offers bankers the opportunity to boost fees with incentives that may lead to $65 billion in municipal bond sales.

School districts and local borrowers from Pennsylvania to California have already sold $465 million of tax-exempt bonds since Feb. 17 under revised rules in Obama’s stimulus package, signed last week, according to data compiled by Bloomberg. Municipal Market Advisors, a Concord, Massachusetts-based research firm, estimates the new measures may drive more than $65 billion in new bond sales through 2010.
Making muni bonds more attractive makes stocks less attractive. It's a tiny step, but it's in the same direction as all the others.

1 comment:

mog said...

And I don't have any muni bonds in my IRA. People will be hurting here.

The market drops with every pronouncement Obama makes. It's dropped over 2000 points since he's been elected.