30 March 2010

What a Difference a Year Makes

It's now a year since the market bottomed out. Therein lies a tale, which I will proceed to spin. This is a tale of tax fiddling, specifically capital gains. Stock sold earlier than one year from acquisition is taxed as regular income, so those who loaded up their trucks with really cheap shares, especially in the financial services (aka, banks and insurance) sector, are now free of that regular income tax.

Whether these folks believe that the recovery is real will go a long way to determining the extent to which the recovery is real. It's kind of like that ouroborus thingee, you know, the snake eating its tail. It could also be considered a self-fulfilling prophecy. If the early buyers are feeling secure, they won't convert to cash in a mad rush, starting, well, now. If they're not so secure, then the rush to cash drives down the market a second time, with those of us who've kept cash just waiting will be around to pick up the pieces.

The only saving grace to this, sort of, is that financial services companies (some of them) is the sector that bounced back with the largest multiple, so any sell off might be restricted there. Let's hope so. And let's hope that Bernanke, Geithner, and Volker and their collective minions have figured this out, too. And have plans to keep those folks secure, and a plan to keep them so for another six months or so.

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