Stock markets can climb a “wall of worry” for a long time if they had reached a severe level of undervaluation.   Which is what happened once the markets reached severe lows following the near total collapse of the banking industry.

Roughly speaking, the market valuations were cut in half during the decline.  And now they’ve retraced about half of that decline.  It is time for a correction.  Possibly, even likely, to be on the order of 10%.

One thing you should never do, short of war or a huge surprise like the banking crisis, is attribute market moves (up or down) to some news of the day.  Long term bull rallies do often have an identifiable “trigger,” such as innovation in a major industry, or easy money and stimulus from governments.

Moves within long term bear or bull markets, however, are better understood with an examination of where the money flows have been and if there’s a point in the near term where the flows have to reverse.   Retail investors and their agents tend to be herd like.  Strong moves are necessary to cause their participation, and as a result they tend to be latecomers.

Most recently a lot of nervous money entered the stock markets late in this most recent retracement.  It was time to pause. 

So what might be a visible trigger for the markets?  Unemployment rates starting to actually drop could be one for a sustainable upside move.  Interest rate increases could work either way.  A rush to grab higher bond yields could drain money from equities.  That would be short term negative.  On the other hand, a solid upward sloped yield curve could be positive if it wasn’t going up from zero, as it is right now. 

Historically, progressive tax rates have been in effect when jobs and income growth expanded.  That’s not commonly understood, but it’s the truth.   The wealthy have many ways to avoid taxation, or at least significantly mitigate the higher rates.  But progressive rates have historically reduced deficits and often push money towards capital investment, which normally creates jobs and increases income.

But the stock market reacts, in the intermediate and longer term, to pervasive triggers.  Something changes and it sucks money into the market. 

In my humble opinion, the next serious bull market will come as a result of government policies and taxes that encourage innovation in the energy, transportation and health care markets.  Initial reaction will probably be negative in the market because such policies normally enhance competition and dominant players are perceived to be threatened–which may turn out to be very false.   But such policies do help provide a solid atmosphere for risk taking.

So ignore siren calls citing some recent political statement or other as a major market mover.  It is very seldom so.  And as for Obama, based on the health care reform effort, not too many major corporations are listening anyway.

It’s really not accurate to describe the Republican Party as conservative.  In fact, in many ways Republicans are anything but conservative.

The best description of this party, the most accurate one, is that it is the party of large corporations.

Large corporations hate competition, for just one example.  If you’re at the top of an industry you want to kill competition because once you’re at the top there’s only one way left to go if competitors are out there.  So large corporations go to government for laws that insure the large corporate interests and diminish competitors.  Wall Street and the Health Insurance industry are two prime examples, but there are quite a few more than that in America today.  Therefore the Republicans will fight regulations on Wall Street and will fight reform of health care.  Suffocating competition is not a conservative principal.

Large corporations dislike taxes, of course.  So they go to government for tax exemptions and lower tax rates.  No surprise there that Republicans always like corporate tax breaks.  They say this creates jobs, but of course the data shows this is patently false.  All it does is fatten corporate profits and executive compensation.  Corporate profits as a share of GDP hit an historic high in 2007.  Yet the private market created no new jobs, net, for the past 10 years–and this after Republican enacted tax cuts.

Corporations dislike any “unnecessary” expense hikes.  So they dislike labor laws and unions in particular.  They also dislike environmental laws for the same reason.  Republicans predictably vote against labor and union laws, as well as most EPA or other environmental regulations.

Republicans say they are for balanced budgets and against deficits.  In 2003 Republican controlled Congress passed an expansion of Medicare but insured that only the existing health insurance industry could provide this product extension.  This dramatically increased the cost of Medicare and concurrently increased the markets and profits for large health insurance corporations.  Up went the federal budget (by the trillions of dollars) and up went the profits of large health insurance companies.  And then the Republican Congress didn’t fund this law.   So up went the federal deficit too.

These actions are the antithesis of fiscal conservatism.  They couldn’t possibly be more opposite to fiscal conservatism.

So if you want to know the Republican position on almost any particular policy issue, all you need to find out is what the large corporations want to happen and you’ll have it precisely.

In a “game changing” ruling the US Supreme Court, by a close 5-4 vote, ruled that corporations and individuals can spend as much money as they choose on political/campaign advertising.  No limits.

The country, of course, is being buried by large corporations who spend hundreds of millions of dollars already buying influence in the halls of Congress.  The Supreme Court has now not only said that’s fine, but if you want to pony up even more, go right ahead.  The Court took the position that our country depends upon free speech and therefore, no limits is legal.

Of course it’s very hard to be heard if your opponent owns all the megaphones.  And the radio stations, and the television stations, and the newspapers.  Which is exactly what is already happening and will now increase.  Can you imagine what this will do to news coverage?  Who in the media is going to report independently when a vast amount of revenue hangs in the balance?

The only cure for this idiocy is new laws, or re-written laws.  The Supreme Court’s role is to interpret laws.  But only Congress can write the laws.  Congress needs to respond to this problem quickly.  Otherwise, in direct contravention to what the Supreme Court says, the vast majority of Americans will have their voices drowned out.  This is a prescription for abuse, and it will disenhearten many who will give up any hope of real change because they will now have no reason at all to believe our governments reflect their desires.

They’ll effectively be knocked out of the voting booth.  Their opinions won’t matter.  Their free speech will disappear.

The only real cure is to finance campaigns publicly.  Once again, the public will have to protect itself from its own government.

There’s an old saw about Congress that watching them write legislation is like watching someone make sausage.  There’s a lot of mystery ingredients in sausage, it is believed, and the making of it is messy.  And so it is too for national legislation.

The Health Care Reform being considered in Washington DC, is sausage with steroids.  It is 1,000 pages long (much of it written by lobbyists and lawyers working for those who were to be regulated) and literally incomprehensible even to Congress, much less the public.  The deal making has been scandalous, highlighted by sweetheart deals exempting one state (Nebraska represented by Sen. Ben Nelson) from paying taxes related to reform that all the other states would pay.

So one of the most Democrat controlled states in the Union, Massachusetts, elected a little known Republican to fill the remainder of Sen. Ted Kennedy’s term.   Kennedy, the Senate’s No. 1 supporter of health care reform died from cancer and it was the collective wisdom a Democrat of similar beliefs would be a shoo-in. 

The Republican, state Senator Scott Brown, ran against health care reform and handily beat the Democrat, former Mass. Attorney General Martha Coakley.  It is widely believed his election was a full rejection of health care reform, or at the very least the reform being proposed in Washington. 

Brown thus becomes the 41st Republican US Senator and breaks the 60 vote Democrat majority that, theoretically, could pass anything it wanted, including Health Care reform legislation–The Sausage of all sausages.

The national Republican Party wants to believe the Brown victory is a sure sign that all things Republican have now been endorsed by the Democrat dominated Massachusetts.   That “spin” on the election was rolled out as soon as polls showed that Brown could beat Coakley.

Nah.  Massachusetts just said it was tired of sausage.  And no doubt much of the rest of the nation is tired as well.

Health care reform?  Massachusetts is the only state in the nation that already has universal health care.  And it’s popular.  Polls show a 70% approval rating.  Nationally, polls show 77% of Americans support health care reform in principal. 

(This just in.  As a state Senator Scott Brown voter FOR Massachusett’s universal health care system!  This wasn’t widely reported during the campaign.  Got to love the mass media.  Asleep at the switch yet again.  So why was Brown so against a national health care progrem modeled on the Mass plan Brown voted for as a state Senator?  Who cares.  He’s versatile apparently.  Just like most of the members of Congress.)

But they don’t like the health care reform being considered in Washington.  Even progressives like Democrat National Chairman Howard Dean didn’t like the bill.  Supporters of reform basically held their noses and supported legislation that satisfies no one.

And it remains to be seen whether Brown will be a lockstep Republican.  For one he’s pro-choice, a Democrat position.  For another he rails against Wall Street, vowing to fight for all taxpayer subsidies to be paid back–a position identical to his opponent Democrat Coakley.

Brown may be against the health care reform being considered by Congress, but polls show that he’s in the majority there across the country.  Whether he will support a different version of reform remains to be seen.

The real question is, can Congress start making steak, or at least a good hamburg?  Enough of sausage.

On December 24, 2008 I wrote a post arguing that people with underwater mortgages should ”mail in the keys,” and move into an apartment to save money.  They made a bad investment and the smart thing to do is to walk away from it.

In that post I wrote:

“One of the basic tenets in investing is to sell your losing positions and keep your winning ones.  It may be basic, but it’s one of the hardest rules to follow.  Taking a loss, making it real instead of one that exists on a balance sheet, is hard to do.

The same rule applies to business.  Successful businessmen know that taking your loss early is a key to surviving because every business makes mis-steps.  The key to longterm success is to make certain those losses don’t mount to where they sink the ship.

So if this is such an important key to longterm success, how do you apply it to today’s property price collapse?  More specifically, how do individual homeowners apply this rule?  If they are underwater and burdened by negative equity, and interest payments that are crippling their cash flow, the answer is simple: Mail in the keys and move.”

So now Roger Lowenstein makes the same observation in the New York Times.

Referring to what he calls “strategic defaults,” Lowenstein writes: 

“Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanleyrecently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr.declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)…..

There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swapson its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.

The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.”

Of course, homeowners won’t get bailouts if they move.  They will lose their home.  Too bad the same sacrifice is not forced upon Wall Street investment bankers.

Apparently Mother Jones has another political blockbuster edition in the works.  This one deals primarily with the issue of money influence in Congress.

Considered an alternative publication, Mother Jones has been printing the toughest, most straightforward journalism recently regarding Wall Street and Washington DC.  Another alternative magazine, Rolling Stone, published Matt Taibi’s scathing article on Goldman Sachs which created shock waves on Wall Street and DC, as just one example.

The mass media hasn’t been doing this kind of honest reporting, so it’s good that Mother Jones is.  Maybe this edition will shame the major media into action.  But I wouldn’t count on it.

The fact is Congress is bought and paid for.  What you and I want is almost irrelevent against this flood of special interest money.  In industry after industry this lobbying and campaign funding has reduced or almost completely eliminated competition by writing legislation in favor of the existing, dominant corporations.  From Wall Street, to our health care providers, to the food industry, the transportation industry and the energy industry, what’s good for the nation as a whole has been tossed out the window in favor of regulations and laws passed to enrich the few.

Our tax system favors the wealthiest among us.  Our trade policies are written to favor large, multinational corporations that ship jobs overseas.  For the first time in memory, we’ve just gone through a decade where no new jobs, net, were created.

Efforts by the Obama administration for health care reform have been watered down to the point where the legislation is almost unrecognizable compared to what was originally proposed.   Just a year ago taxpayers saved Wall Street with huge bailouts but nothing’s changed, and like health care, reform efforts are being watered down to the point of being toothless.  Meanwhile, Wall Street is handing out an estimated $200 billion in bonuses this year, now that it’s survived because of taxpayer funding.

Read Mother Jones.  It may be your only opportunity to be informed about what’s really going on in America.