Hopefully by now, as an experienced American voter, you've realized politicians will promise their constituents anything in exchange for votes: call it quid pro quo incompetency. In most every example, be they liberal or conservative, presidential candidates address voter concerns by publicly declaring how they "understand" middle class problems and will undoubtedly, upon taking office, "support" all "comprehensive" and "bipartisan" solutions introduced by Congress (notice the buzzword theme).
The latest such instance of political malpractice involves Hillary Clinton's egregious war against financial institutions, even though she's a primary beneficiary of Wall Street's "greedy" actions. Ironically, for an individual with an estimated $50 million net worth, Clinton is disgusted by ongoing capitalist practices. In late July, she introduced tax reforms and more securities regulations so as to satisfy her constituents; more specifically, Clinton declared war on 'Quarterly Capitalism,' otherwise known as free market operations.
While visiting New York University, Clinton utilized recent stock market performance as an excuse to eliminate short-term securities trading (stocks, derivatives, options, etc.). According to her, "the system is out of balance," which is undeniably true. However, the causal link is apolitical. Many well-versed economists, investors, and analysts agree current market volatility is due to business cycles - naturally occurring market expansions and contractions older than America itself. However, in Clinton's opinion, this is capitalism run amok. While most attribute present macroeconomic conditions to overheated emerging markets and slowing global growth, specifically in China, Clinton is deceitfully trying to convince Americans that selfish investors are responsible for "decimating" the U.S. economy. As such, she outlined a plan to punish traders who hold assets for short time periods. Hence, under Clinton's plan, in addition to healthcare, the government will fully control private investment decisions... wonderful.
To begin with, investing is a risky endeavor; traders know, and accept, this inherent fact. Secondly, Clinton's 'Quarterly Capitalism' plan actually reflects current Chinese efforts to stabilize the Shanghai Composite by placing restrictions on selling, which has proven disastrous (the index is down 36.7% since mid-June). This compares to the S&P 500's -5.97% performance over an identical time frame. Therefore, I have two questions for Ms. Clinton: 1) why should we replace successful long-term financial oversight with your short-term regulations (this contradicts the main argument in favor of your tax reform plan: time horizons) and 2) must we really dismiss traditional American values in favor of a more bureaucratic, anti-capitalist system?
While Clinton will never address my fundamental questions (why should she?), educated investors can still define the technical problems regarding mandated long-term trading. For those unfamiliar with how securities trade on the NASDAQ and NYSE, liquidity is the most important condition for successful transactions. Liquidity is defined as the ability to quickly buy and sell assets; bottlenecks, like new laws and regulations, hamper liquidity and result in high volatility. Moreover, increased transaction costs yield higher fees and expenses. Thus, Clinton's tax reform ideas will actually exacerbate current stock market performance.
In other words, think of liquidity as water flowing through a creek (pun intended). If no barriers exist within the creek (i.e. logs, pebbles, foliage, etc.), water can easily flow from point A to point B. Now, think of regulations as small rocks; as they are placed along the creek bed, the current changes: it takes more time to get from point A to B. Now, my stance on limited regulations shouldn't be mistaken as support for an unregulated financial system (like in 2008). I actually do believe most markets need some federal oversight. However, Clinton's war on short-term trading is equivalent to placing boulders within our metaphorical creek. In this scenario, it is nearly impossible for water to flow from point A to B. If we replace the creek with capital markets, and the water with securities, think about the ramifications of an illiquid marketplace. Not only would very few transactions occur, but those that did would either be extremely expensive or cheap. In the end, economic principles trump political lies; Hillary's financial promises personify the definition of quid pro quo incompetency.