I know I said I'd take a week off. I got to thinking, though. Here's where my little mental adventure took me.
On 13 Feb 2008, President G.W. Bush signed the Economic Stimulus Act of 2008. At the beginning of the week the Dow Jones Industrial Average opened at 12,182; by the end of that week it had risen to 12,348. On the day the bill was signed the DJIA opened at 12,552; it closed on the following trading day at 12,377.
On 3 Oct 2008, President G.W. Bush signed the Troubled Asset Rescue Plan. At the beginning of the week the DJIA opened at 11,140; by the end of that week it had fallen to 10,325. On the day the bill was signed the DJIA opened at 10,484; it closed two days later at 9,447.
On 13 Feb 2009, President B.H. Obama signed the Economic Stimulus Act of 2009. At the beginning of the week the DJIA opened at 8,281; by the end of the week it had fallen to 7,850. On the day the bill was signed the DJIA opened at 7,933; it closed on the following trading day at 7,553. By 9 Mar 2009 the DJIA was at 6,547.
On 23 Dec 2009, the US Senate approved the Healthcare Reform Act commonly known as "Obamacare". At the beginning of the week the DJIA opened at 10,330; by the end of the week it had risen to 10,547. On the day the bill was passed by the Senate the DJIA opened at 10,464; it closed on the following trading day at 10,520.
On 2 Aug 2011, the US House approved the Debt Ceiling Increase Compromise commonly known as the "Boehner Plan". At the beginning of the week the DJIA opened at 12,144. On the day the bill was passed the DJIA opened at 12,130; it closed on 4 Aug 2011 at 11,896.
So, what is the history lesson? It appears that the markets do not seem to mind when the rules are changed, as in healthcare reform, as long as there are rules. However, when there are no rules, as when Congress or the President take upon themselves to dispense cash pell-mell, the markets react poorly. Probably because there are either no rules, or the rules are so arbitrary and are likely to be enforced capriciously that it is impossible to predict the outcome of the game.
Remember the Bush Tax Refund? It was ridiculous, but the rules were very clear. The Dow did not like the fact it happened, as witnessed by the "day after" number, but it bounced back quickly.
Likewise, the rules of Obamacare are written so that there is some chance of certainty. The Dow seems to be indifferent to it.
Every other time in recent history where our government has felt compelled to "rescue" our economy it has meant disaster for the financial markets. And that means disaster for senior citizens living on earnings from their 401k or other retirement savings. That means disaster for investors who look with a jaundiced eye toward the very likely prospect of an insolvent Social Security Administration and who are depending on their ability to amass wealth in preparation for retirement. It even means disaster for young people saving for college and investing 529 plans, etc.
So, what do we do? We remind each other and our representatives of these financial facts. We ask them to learn from history so that they do not repeat it at our expense.
On 13 Feb 2008, President G.W. Bush signed the Economic Stimulus Act of 2008. At the beginning of the week the Dow Jones Industrial Average opened at 12,182; by the end of that week it had risen to 12,348. On the day the bill was signed the DJIA opened at 12,552; it closed on the following trading day at 12,377.
On 3 Oct 2008, President G.W. Bush signed the Troubled Asset Rescue Plan. At the beginning of the week the DJIA opened at 11,140; by the end of that week it had fallen to 10,325. On the day the bill was signed the DJIA opened at 10,484; it closed two days later at 9,447.
On 13 Feb 2009, President B.H. Obama signed the Economic Stimulus Act of 2009. At the beginning of the week the DJIA opened at 8,281; by the end of the week it had fallen to 7,850. On the day the bill was signed the DJIA opened at 7,933; it closed on the following trading day at 7,553. By 9 Mar 2009 the DJIA was at 6,547.
On 23 Dec 2009, the US Senate approved the Healthcare Reform Act commonly known as "Obamacare". At the beginning of the week the DJIA opened at 10,330; by the end of the week it had risen to 10,547. On the day the bill was passed by the Senate the DJIA opened at 10,464; it closed on the following trading day at 10,520.
On 2 Aug 2011, the US House approved the Debt Ceiling Increase Compromise commonly known as the "Boehner Plan". At the beginning of the week the DJIA opened at 12,144. On the day the bill was passed the DJIA opened at 12,130; it closed on 4 Aug 2011 at 11,896.
So, what is the history lesson? It appears that the markets do not seem to mind when the rules are changed, as in healthcare reform, as long as there are rules. However, when there are no rules, as when Congress or the President take upon themselves to dispense cash pell-mell, the markets react poorly. Probably because there are either no rules, or the rules are so arbitrary and are likely to be enforced capriciously that it is impossible to predict the outcome of the game.
Remember the Bush Tax Refund? It was ridiculous, but the rules were very clear. The Dow did not like the fact it happened, as witnessed by the "day after" number, but it bounced back quickly.
Likewise, the rules of Obamacare are written so that there is some chance of certainty. The Dow seems to be indifferent to it.
Every other time in recent history where our government has felt compelled to "rescue" our economy it has meant disaster for the financial markets. And that means disaster for senior citizens living on earnings from their 401k or other retirement savings. That means disaster for investors who look with a jaundiced eye toward the very likely prospect of an insolvent Social Security Administration and who are depending on their ability to amass wealth in preparation for retirement. It even means disaster for young people saving for college and investing 529 plans, etc.
So, what do we do? We remind each other and our representatives of these financial facts. We ask them to learn from history so that they do not repeat it at our expense.
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