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Paul B. Farrell: Obama or Romney, stock market loses 20% by 2016. Recession, more taxes no matter who wins


Paul B. Farrell
September 20th, 2012
MarketWatch

 

“2013 is gonna be a bummer,” warns Bloomberg BusinessWeek. “Whether it’s Barack Obama or Mitt Romney … someone will have the misfortune of overseeing an economy” with “low growth, persistently high unemployment and huge amounts of debt.”

Worse, the magazine’s poll of 79 economists warns GDP growth will fall further, to 2.1%, with a real “chance the U.S. will be in recession.”

Barack Obama, Mitt Romney

Flash forward through 2016: Politicians still warring, spending billions on re-elections. Recession? Yes. And Wall Street losing another 20% in the new presidential term.

How? Remember, between 2000 and 2010 Wall Street lost an inflation-adjusted 20% of the retirement portfolios of 95 million Americans as the Dow swung violently between a bottom of 6,470 and a top of 14,164. And it’ll do it again this decade, according to many reports we’ve covered in recent years predicting down markets this decade, probably before the end of the next presidential term.

Why? As BusinessWeek put it, economic trends are so bad, “fixing them will be beyond the immediate grasp of an Obama or Romney administration.” You must plan on a recession, inflation, retirement losses, higher taxes.

So what’s your best investment strategy? Get defensive — you’ll have ride out economic storms and bigger political wars the next four years, driving markets down.

10 reasons Wall Street stocks lose another 20% by 2016

Seriously, folks, why bet on the Wall Street casinos again? Didn’t work last decade. Why trust their relentless propaganda? Why bet on a losing game when the house always wins thanks to high fees and high-frequency trading? They’ll repeat the losses of the last decade in a world far more dangerous for investors than it was in the “Lost Decade” of 2000-2010.

If you do buy, consider the stock’s fundamentals, but also factor in the added negative impact of these 10 interrelated macro trends that further guarantee Wall Street will lose another 20% by 2020:

1. Totally dysfunctional Washington gets worse

No matter who wins, Romney or Obama, the war for the 2016 presidency will be far more destructive for America. The dysfunctional, no-compromise political battles will get more deadly for the country. This is behavioral economics at it’s egomaniacal worst: Former House Speaker Nancy Pelosi, a Democrat, admits Congress will continue divided. GOP strategist Karl Rove will start building an even bigger war chest starting New Year’s Day 2013. Billions. Democrats will match Rove dollar for dollar. Hostilities will accelerate.

BusinessWeek warns: “Obama likely won’t be able to pass more stimulus, and Romney will have a hard time lowering taxes. Neither campaign has a convincing growth strategy.” Both promise to reduce the deficit, “but the more likely effect of shrinking the deficit, through spending cuts and tax increases, will be to slow growth even further.”

So count on four more years of political suicide as both parties become more aggressive, mean-spirited and hyper-irrational in a more costly, no-compromise, screw-America partisan war zone.

2. Wall Street has no moral conscience

Since 2008 Wall Street’s greed has been flaunted openly. Why? No restraints thanks to Treasury bailouts, Fed’s chap money, weak regulations, minimal prosecutions and Wall Street’s addiction to its own high-leverage, high-frequency derivatives casino that often generates $100 million profit days.

Investment bankers rule. Retail banking and investors are tolerated. Wall Streeters have no moral conscience. Their too-big-to-fail arrogance has put them above the law. It will get far worse. Only solution? Another 1929 crash. New Glass-Steagall.

3. Lobbyists keep fueling America’s ‘capitalist anarchy’

Forget democracy, America’s now a “capitalist anarchy,” thanks to the explosion of lobbyists running government. This trend shows no sign of abating. Imagine: 42,000 Washington lobbyists today, versus a handful in 1975. One expert estimates 261,000 special-interest “influence peddlers” throughout America.

The Center for Public Integrity reported that “more than 1,750 companies and organizations hired about 4,525 lobbyists, eight for each member of Congress, to influence health-reform bills in 2009.” America’s “capitalist anarchy” is loading the Treasury with deficits. And the debt is guaranteed to negatively impact future market returns.

4. Fed policies keep blowing a bigger bubble

Economist Marc Faber hits hard: “The world is heading toward a major crisis.” The coming collapse will be “caused by Federal Reserve Chairman Ben Bernanke and the Federal Reserve’s continuous printing of new money.” All the Fed’s bailouts, loans, credits and money printing since the 2008 Wall Street meltdown did “not create any long-lasting wealth or create healthy growth.”

These Fed policies began a couple decades ago with former Chairman Alan Greenspan’s free-market ideology funneling endless cheap money to prop up too-greedy-too-fail Wall Street banks. Now Bernanke’s blowing a new, bigger. more toxic credit bubble than 2008.

5. Trickle-down economics increasing inequality gap

In “The Price of Inequality,” Nobel economist Joseph Stiglitz tells us that “the American dream is a myth … the gap’s widening … the clear trend is one of concentration of income and wealth at the top.”

Huffington Post just reported on a “new study by the nonpartisan Congressional Research Service that has found that over the past 65 years” trickle-down economics does not work, “tax cuts for the rich have not led to economic growth and instead are linked to greater income inequality in the United States.” The study concludes: “Tax cuts for the bottom 90% of income earners can stimulate economic growth and job creation.”

But such facts are irrelevant to billionaires. Only a global catastrophe will shock them awake.

6. Foreign policy and a war of civilizations

The global investment world is far more volatile and dangerous today than in the Bush years. Witness the metastasizing rage triggered recently across the Arab world. America started a preemptive war of civilizations by attacking Iraq under false pretenses, one of the biggest foreign-policy blunders in American history.

That war had the unintended consequences of playing into the hands of our enemies, made them stronger, costing us trillions, weakening America as a military and global economic power. Now there’s no end in sight as anti-American rage spreads, inflaming the entire Arab world.

7. Perpetual growth economics destroying the planet

The classic economic principle of perpetual growth, once a given in economics and politics, is being challenged by “no-growth” research and principles of environmentalists who see most essential commodities as finite, nonrenewable planetary resources.

On one side, for example, energy producers in oil, coal, gas and alternative energy claim unlimited reserves for future growth in their sales, revenues and earnings. They dismiss claims by environmentalists about the unintended consequences of a global population increase of 50% by 2050 and the Earth’s inability to feed 10 billion people.

Nothing will change soon: Perpetual-growth myths win because energy companies lobbyists and campaign handlers have unlimited budgets to get energy-friendly politicians in office.

8. Clueless leaders: new meltdown inevitable

America is again being propelled to the edge of an economic cliff, already burdened with an estimated $29.7 trillion debt from the misguided political decisions of the past decade. Endless deficits lie ahead. Year-end fiscal negotiations will settle nothing, just kick core problems down the road.

The lessons of 2008 were never learned. As the authors of “This Time Is Different: 800 Years of Financial Folly.” put it: “The lesson of history is that even as institutions and policy makers improve, there will always be a temptation to stretch the limits … the ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually ends in tears, seems to have remained a constant.”

9. Next time, taxpayers won’t bail out Wall Street

I’ll bet you’re in total denial about this one. Congress avoids big decisions, till it’s too late. Moral-hazard critics warn that Wall Street’s arrogant too-greedy-to-fail bankers actually believe taxpayers will bail them out again when they trigger the next meltdown. Wrong.

Even if our politicians are dumb enough, Wall Street’s insatiable greed is a force pushing America into massive deficits and debt. Next time the resources simply will not be available to fund another bailout when the bomb goes off, the meltdown ignites.

So don’t listen to Wall Street’s casino croupiers, they’re playing a lethal game of liar’s poker with America’s future?

10. Casino odds guarantee you’ll just keep losing

Reminder: Between 2000 and 2010 Wall Street’s casino was in fact a loser’s game for Main Street investors. The Dow dropped below 6,400 in early 2002, later collapsed from a peak of 14,164 in 2007. Still, between 2000 and 2010 Wall Street lost an inflation-adjusted 20% of the retirement assets of 95 million investors.

Warning: Wall Street will repeat its failed performance, lose another 20% of your hard-earned money this decade. Their game’s fixed. Wall Street’s a loser.

Bottom line, Jack Bogle’s now warned that over 50% of Americans will never make it into a comfortable retirement. You’re stuck in Wall Street’s fantasy casino, a new version of Michael Lewis’s “Liar’s Poker” that’s just a recycled version of Charlie Ellis’ old “Loser’s Game.” In short, the odds are high they will lose a lot of your money again in the coming decade.

Why? No matter who wins the presidency, neither Obama nor Romney can fix America. Get ready folks, it’s really bad out there. It’ll be getting worse.

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