HERE ARE FIVE basic reasons why stocks are tumbling.
–The U.S. Senate. Despite President Obama’s abysmal approval ratings on all fronts, Republican capture of the Senate–if some polls are to be believed–is suddenly in doubt. That South Dakota, once a surefire GOP pickup, is in play is the latest shock to Republican hopes. A GOP-dominated upper house would severely limit Obama’s ability to do more harm, which would be great for equities.

–Misbehavior by the Fed. Fed hints that it will continue to muck up credit markets (see Why More Malpractice From the Fed Will Hurt the Economy) is a setback to job-creating new and small businesses.

–The profit picture is getting blurry. Reported profits are, overall, still moving up, but the more realistic measure of earnings–the Bureau of Economic Analysis’ national income and product accounts–is gloomy. NIPA numbers come from tax returns; thus, there’s no incentive for companies to inflate their bottom lines.

–World economies are a mess. Germany’s economic growth is coming to a stop, and the rest of the European continent is either in recession or barely showing a pulse. Brazil is slumping, as is Japan. China’s economic growth is problematical. India’s new reform government has been overly cautious, so far. The U.S. economy is still stuck in a 2.5% growth rut.

–The world security situation is worsening. Our President–who, in comparison, makes Jimmy Carter look like a Ronald Reagan–resolutely sticks to his adolescent far-left worldview, that the U.S. is a global menace and must therefore take an isolationist stance. The bungling of the Ebola outbreak only underscores the sense that things are drifting dangerously.

Not all is gloom and doom, however. The GOP, in spite of itself, will do well next month. While earnings aren’t surging, corporate balance sheets are in excellent shape. Any positive change in business taxes next year–there’s a congressional consensus on this–would unleash a torrent of new investment. Following the elections look for intense pressure on the White House–from both parties–for it to do more overseas, such as arming beleaguered Ukraine.

At any rate, trying to time the market is a fool’s game. Ride the storm. After 2016 the U.S. will experience a Reaganesque revival. Markets will go up before then in anticipation of a better era ahead.

source: by Steve Forbes


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