IBD: Market Dive Due to Impending 'First Socialist President,' Taxes, Protectionism

There has been an unreality in the reports on the falling stock markets for at least the past 10 days. Each day's plunge seems to have been exclusively due to the "global economic crisis" and/or the supposed "freeze on credit."

Oddly enough, the admittedly small bank where I have my business accounts is having absolutely no problem funding mortgage, home-equity, and other loan applications from qualified borrowers -- a fact I confirmed just before posting this entry. With all due respect to the global business press, if there's truly a "freeze," how can that be?

I've put forth an alternative explanation to the media meme a couple of times this week myself, but an editorial at IBDeditorials.com yesterday brought out a major element of what I have been saying much more forcefully and articulately. Remarkably, though the possibility seems pretty obvious to me, and I suspect many others, I have seen no one in the business press covering daily market events even mention the obvious and quite likely alternative that follows.

The editorial, "Investors' Real Fear: A Socialist Tsunami," teases with the plaintive question, "What is it about the specter of our first socialist president and the end of capitalism as we know it that they don't understand?"

The editorial's body begins thusly:

The freeze-up of the financial system — and government's seeming inability to thaw it out — are a main concern, no doubt. But more people are also starting to look across the valley, as they say, at what's in store once this crisis passes.

And right now it looks like the U.S., which built the mightiest, most prosperous economy the world has ever known, is about to turn its back on the free-enterprise system that made it all possible.

It isn't only that the most anti-capitalist politician ever nominated by a major party is favored to take the White House. It's that he'll also have a filibuster-proof Congress led by politicians who are almost as liberal.

Throw in a media establishment dedicated to the implementation of a liberal agenda, and the smothering of dissent wherever it arises, and it's no wonder panic has set in.

And there's more (bolds is mine):

..... All the while, it ensures that nothing — absolutely nothing — will be done to secure a sufficient, terror-proof supply of our economic lifeblood — oil — a resource we'll need much more of in the years ahead.

The businesses that create jobs and generate wealth are already discounting the future based on what they know about Obama's plans to raise income, capital gains, dividend and payroll taxes, and his various other economy-crippling policies.

The editorial further notes that 100 economists, including five Nobel winners have signed a letter warning against Obama's proposed high-tax, protectionist plans. Have read about that anywhere else?

The editorial's shortcoming, sadly more than minor, is that it does not assign any blame to current actions already taken or under consideration by Congress, the Treasury Department, and the Bush Administration. These would include the passage of the so-called "bailout" bill a week ago, and the possibility that the government will take preferred equity positions in certain banks and insurance companies.

Stock values are fundamentally based on discounted cash flows relating to a company's expected future earnings. Government interventions in companies' operations have almost always led to reduced, if not disappearing, earnings, simply because profit is no longer the primary driving motive. The massive proposals currently under consideration are especially dangerous in that respect. If earnings expectations dive, so do stock prices. Those, more than an economy that grew by 2.8% in the second quarter, seems to be a more plausible explanation for the recent steep declines in the equity markets.

Yet the day-to-day business press seems to be in lockstep ignoring what IBD has plausibly raised. Why?

Cross-posted at BizzyBlog.com.