Stochastic Phenomena Explained!

After last Friday's sell-off on Wall Street I said to the wife as we lay down to sleep--"The stock market will go up on Monday." Now, I know the stock market has to go up or down so I had a 50-50 chance of being right. And it is more likely to go up after such tumbles as people take advantage of bargain basement buying opportunities, so it was unlikely I'd be wrong.

But my reasons for this were the following. After a period of Obama being up in polls following his crushing victory over Clinton, McCain started to close the gap with polls released late on Friday. My reasoning is that, if investors think Obama is going to be elected they are likely to cash out now, while capital gains tax rate stays at 15%. If they think McCain will be elected they are less likely to cash out.

Also, and I haven't checked this but, after a democrat is elected I would expect the stock market to go up as people buy more and sell less due to tax epectations. This effect may be offset by the reality that costs will go up for corporations in the form of greenhouse gas regs and higher corporate taxes. Of course, presidential politics aren't the only factor involved but due to the especially unpredictable nature of future tax costs for investors and corporations it may be a larger factor this year than others.