The Homa Files

In a post last week — in my post-election analysis — I cited the investment advice of Little Orphan Annie:

The sun will come out tomorrow.

Bet your bottom dollar, that tomorrow there’ll be sun!

But , it was overcast “tomorrow” (i.e. the day after the election) and I was nervous because JP Morgan had been forecasting a 25% market drop if there’s a Blue Wave.

So, I asked, who to believe Annie or JP Morgan?

Well, so far, it looks like Annie nailed it.

After a momentary dip, the S&P has been up over 3% … and all major indices have been at or near historic eyes.

I hope Annie’s advice holds in long-run.
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So, why is the market going up?

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Here’s one analysis cited by CNBC:

For the moment, traders are choosing to believe that the economy will be too fragile for a broad tax hike.

There is one exception: capital gains.

It is playing out in technology, because that is where the capital gains are. 

For top earners (those making over $496,000), current capital gains are 20%. 

Biden’s proposal would raise the long-term capital gain rate to 39.6% but only for those making more than $1 million, but that is a substantial part of the universe that owns stocks, and the bulk of those capital gains are in tech.

While raising taxes on individuals may be controversial, “raising capital gains taxes on rich people will generate far less controversy.  The general public won’t be upset with that.”

Other analysts point to the high likelihood of the Dems spending like drunken sailors under the cover of COVID-relief (for sure, the $2,000 helicopter drop), infrastructure (remember the turtle crossing in Florida?) green energy (remember Solyndra?) and blue state bail outs (viva the lucrative state employees’ pensions).

And, since higher taxes would dampen the economy, some pundits argue that Dems will likely rein in their tax & spend proclivities to keep from getting blown out in the mid-term elections.

We’ll see.

If the market steams forward, I can live with that … and just let the future generations worry about the debt.

After all, that’s what the majority of them voted for, right?

This entry was posted on January 11, 2021 at 10:00 am and is filed under 2020 Presidential Campaign. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.