If economic conditions weren't enough (and they are) to cause investors to lose sleep, we now have the political influences with which to deal. I contend that equity investors face a double whammy (economic conditions being the first) because government action is usually harmful to corporate well being. We don't know what political actions lie ahead, and therefore, the investor is entering the game blind and susceptible.
New financial regulations are a case in point. We have been given a broad overview of the new regulations. Does anyone know the final specifics of these regulations? Does anyone know what impact the new regulations will have on the earning power of financial institutions? Look at what has happened to GE the last couple of days. It looks like GE Capital may be judged to have systemic importance in the financial system and will face new regulations that may affect the whole company. The stock price reflects the joy (not) with which investors have received the news. The new financial regulations are a black hole which cannot yet be plumbed.
The president has called for new taxes. Does anyone know exactly how much and on whom? This is of concern to everyone. Here in my infamous state of Illinois, our new governor (after we removed Blagojevich so he could try to become a celebrity) has proposed a 50% income tax increase. You read that right--50%. That would put the state at 4.5%. Not only is Illinios not business friendly, it is fast becoming unfriendly to residents as well. I don't think Obama's tax plan, when we get to see it, will be friendly to business or residents either. Until we get the details, we just don't know what it will do to us.
The president is pushing for new medical insurance coverage. A noble idea, and one I agee with in theory. Does anyone know what the details will be or how it will affect businesses and individuals? This is a major undertaking for our country. Some are talking about part of the plan requiring businesses to provide coverage for employees. I don't think that will be good for corporate earnings. Now don't jump at your screen and question my social concern. The fact is investors invest to see companies increase their earnings over time and share the benefits of that increase with shareholders. If companies can't do that, they aren't worthy of investment.
The president is a strong proponent of environmental issues. Another noble issue with which I agree in theory. Do we know the details of his plans to tax carbon use? Do we know if companies can even survive with this new tax?
I think you get my drift. We are in the infancy of an administration that wants to change our social order. Redistribution of wealth is his plan. I doubt that it will be business friendly. I think this president sees business as a necessary evil, a funding source for what he wants the government to do. I am sure of one thing, in my mind anyway, there are too many new rules coming for me to feel confident in equities other than to be strategic, opportunistic, and nimble. I don't like games where the rules change after the game starts.