Monday, July 20, 2009

Market Rally

Several people have asked me in the past week how the stock market can be rallying while Lord Obama is pushing hard for Cap&Tax and Government-run medicine.

The answer comes in two parts:

1. Obama's approval numbers are falling and, more importantly, the market calculates that he'll get neither of these killer programs through before the end of 2009.

2. The federal reserve has flooded the system with money and interest rates are incredibly low. The old adage, "Don't fight the fed" is in play. If Obamanomics was ascendant the fed's monetary policy wouldn't matter much-- the market would be falling apart. But with his fiscal policy under strong pressure, monetary policy is key.

OK. But many people listen to the media and hear how persuasive Lord O is at selling his disastrous plans and don't believe that he'll fail to get these things through a Congress with huge Democrat majorities. Perhaps, but look at Intrade. Intrade allows people around the world to trade futures on events-- elections, terror attacks, the bombing of Iran and so forth. Intrade traders currently put the prospects of a Cap & Tax bill passing before the end of 2009 at just 25%. They put the passage of a health care reform bill in 2009 (which doesn't necessarily even include a "public" option) at 45%.

Does this mean all of the problems Obama has brought us will go away? Hardly. But a good market trader knows what a good farmer knows: make money while the sun shines. That good wheat field could be ruined by a hailstorm soon.