If you have been following my articles, you know too well that I am a fiscal conservative. I had been tough on President Obama from the time he took office but I must admit that I made a lot money since 2009. Many of my readers have written me emails asking how the stock market will react if Hillary wins, if Trump wins. First of all I agree with Larry Kudlow that in the short run Trump’s tax plan of reducing individual, corporate and capital gains taxes is good for the economy and for stocks as was proven by JFK, Reagan and Bill Clinton. Reducing tax on foreign capital is also great for the economy because repatriation of foreign earnings is money that will find its way into the stock market. Folks, remember my example on the basics of the law of supply and demand which is again repeated below:
Imagine you are 1 of the 5 remaining finalists on the CBS show SURVIVOR. You have not eaten any solid food in 5 days. Jeff Probst, the host brings out a slice of pizza and gives each person $100. He asks the players to bid an amount for the slice of pizza and the highest bidder wins. Since there is only one slice, it is safe to say that each player would scramble to bid $100 for that single slice even though that slice normally costs only $2 in any fast food court because once that slice of pizza is gone, it’s gone. What if there are 6 or 7 slices? What if there are 20 slices? Then the bidders will not have to bid so much because there are more than enough slices to go around. Everyone can get a slice even with a low ball offer.
How does this relate to the stock market? Well, if billions of dollars keep entering the U.S. economy, where will it go? Investments, new business ventures, real estate and yes the stock market. Very little of it will go into treasuries, due to low interest and some of it will go into bonds. But a great amount of it will find its way into the stock market. Having said that, the polls indicate Hillary will win. Hillary’s plan to increase taxes on those earning over $250,000 and increase tax on corporations from 34% to perhaps 40-50% and reduce estate tax exemption from $5 Million to $3.5 Million will have a negative effect on the economy in the short run. In the long run, economists have long argued whether or not more money in the hands of the private sector is really better than more government spending. Will $100 million in the hands of the board of directors of Procter and Gamble really be better than giving it to welfare recipients? Procter and Gamble would probably invest the money on new equipment, increase hiring, salaries and bonuses and the recipients will spend the money thereby putting more money into the economy. Welfare recipients would probably spend the money on food and household necessities thereby putting more money into the economy. Your thoughts.