Bad Day for WallStreet Coming

By all estimates today should be a brutal day on wall street, following 4-7% losses in stock indexes all around the world.

The US markets were closed Monday for MLK day, but everywhere else, the market reacted to the Bush plan to return up to $800 to each taxpayer by spring 2008, to fix the US economy,  with a  overwhelming thumbs down.

As we discussed several days ago, the US economy is in, or quickly heading to a recession that will be felt worldwide.

If the Dow Jones follows suit, look for an opening in the 400+ loss range.

Until there is some good news, which may not come until the election becomes clearer, it looks like the beginning of a bear market.

There are also many candidates who would not extend the capital gains tax, which is due to expire in 2010.

It’s our opinion that this uncertainty of the future of the capital gains tax is hurting the market.

There is no good reason to invest in stocks if your gains are going to be taxed as ordinary income.  There certainly is no incentive to hold on to your investments for the year period it taxes to get capital gains treatment.

The elimination of capital gains would  make for a more volatile market with people doing more short term and day trading, rather than holding on for the long haul.