Stockmarket and the Obama effect

The announcement by President Obama late last week on measures against the US banking practices had met with negative market response which saw stocks falling all over the world. Indeed the DJIA suffered  its heaviest losses in one day for so many years.

In fact there was already talk about Mr Obama's intention of reining in those banking juggernauts in US whose executives are paid exorbitant salaries and staff big bonuses during boom time and when things went  bust it was the taxpayers' money that bail them out at the peak of the 2008 financial melt-down.

It was discovered that banking practices contributed to the massive crisis. They were helped by financial liberalizations implemented during President Bush's tenure. Banks were using clients' money to undertake risky investments and giving out massive loans. It was likely that those practices had brought huge short-term gains for investors for those banking stocks. Morgan Stanley and Goldman Sachs , two of the famous investment banks were raking in "profits"  then. And now with the proposed limitations to what they can and cannot gleefully do, the gains may not be as high as before so the investors react on a knee-jerk.

A typical Democrat President Obama thinks of the people, not only the rich and wealthy but the middle-class and the poor as well. Why should the wealth be concentrated only on the rich? What about the poor? They have every right to live  reasonably well. While the rich create wealth and business offering jobs for the people, they have a responsibility to ensure that those activities are sustainable and smoothen the economic roller-coaster which is bound to occur as part of the natural cycle. The 2008 market crisis and the credit crunch triggering the global financial tsunami was a steep dive for the common people wreaking terrible hardship for families when jobs were lost and small businesses suffered badly.

President Obama seems to have chosen to put in stricter banking laws rather than tightening regulations and financial control on banking practices. However the whole process might take about a couple of years to materialize as it has got to be presented to and debated in  the House of Representatives and to the Senate etc. The "capitalist" Republicans might not be that easy to convince.

By the way, I came across an article in Wall St journal about five weeks ago on this impending announcement, I sometimes indulge in the "conspiracy theory" angle to the whole market behavior. I noticed a relentless local and regional market rally two weeks after the new year then the sudden drop beginning late last week, I did think about the impending announcement and its effects on the market as predicted by the article's writer.

So short-term small time investors need to be aware of Mr Obama and the Feds' (Federal Reserve) thinking related to the US economy and finance if you do  not want to suffer losses in the stock market. Some big investors and fund managers would have known this potential effect thus the rally and its sudden "planned" withdrawal.

Ben Bernanke

US Federal Reserve Chairman

Instituted important measures to stabilize US battered economy.

(Reuters)
 
Take it or leave it, when the US sneezes, the world starts coughing. Be aware and keep reading the development so as to protect your investment especially on financial stocks and other volatile portfolios.

For some of us, the measures taken by Mr Obama may be good for the world markets in the long-term enabling us to create wealth steadily. Less risk, less return and ....... less excitement!