The Economy, The Elections
and The Stock Market
February 12, 2008
by Ken Mueller
It can be difficult to decipher the news and how it effects the stock market when you are beginning to manage your own investments. Maybe this will help.
Recent FED Actions
An interesting topic for investors now is the Federal Open Market Committee actions taken recently. Last month the Fed got caught flat-footed and acted in a panic. The 3/4 point inter-meeting rate cut and the January 30th half point cut should be felt in the economy by summer.
It takes 6 to 9 months for interest rate cuts to filter down and stimulate the economy. However the stock market tries to look ahead 6 to 9 months so it sometimes reacts immediately to Fed actions.
The $160 billion fiscal incentive plan (stimulus package) just passed by the House will do almost nothing to help, however. In a $14 trillion economy $160 billion is a drop in the bucket.
The only effect might be a psychological boost that the country could really use. As the news media has pointed out, much of the money will end up being spent on foreign goods at Wal-Mart. So who’s economy is Congress stimulating?
The growth that was just reported for the 4th quarter was only 0.6%. I bet the first quarter will be a negative number, and if the second quarter is the same, that makes this an official recession.
The Elections in 2008
The economy rather than the war has now become the top subject in the elections. John McCain has openly admitted his knowledge of economics is weak. Plus with rumors of a recession swirling about makes McCain’s prospects look even dimmer.
With the U.S. borrowing money from China as the only way to finance the Iraq war his plan for a 100 year occupation seems to fly in the face of common sense. Then his support for continued tax cuts for the rich, that the rich don’t even want (or need), is just the icing on the cake.
What could be better for the Democrats? Unfortunately, the Democrats can always snatch defeat from the jaws of victory, as they have done many times in the past.
As for Hillary or Obama, I am vexed. I wouldn't mind either of them. Being a victim of the health care crisis and the economy downturn has cemented my desire for major changes in leadership. Contrary to popular belief, the stock market has done better under Democratic presidents. Really, check the numbers!
Wait For The Bottom
Bottoms in the stock market usually come in doubles. A bottom commonly looks like a W on a stock price chart. The lows in the W are generally reached on big trading volume days. Those are days when everyone is selling because the news is so bad. Panic selling.
The bargain hunters then swoop in buying and drive the prices a little higher. This is the first half of the W. Then what follows is another big selling day for those folks who didn’t exit the market on the first drop. This will form the second low of the W. When the bottom has been established and confirmed, then it is time to buy! Ride the last leg of the W to profit.
You should be watching your favorite stocks in your free portfolio in Yahoo Finance. Remember to check their charts often and wait for the upturn to look like it will continue. If you buy early, be sure to use a stop loss order to sell if it drops more than 7% from your buy point.
Get out and make your vote count this year.
Happy Election!
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