Rules in stone

One of the problems with our amazing democracy is that we are too quick to change the rules.

Enron?  Holy shit!  Here’s Sarbanes-Oxley  (whoops, no IPOs…ever)

Market down?  No daytrading if you’re under $25k in your account!  (huh?)

Financials down?  No short selling!  (and therefore no short covering i.e. buying either)

Taxes up, taxes down, taxes up, taxes down.  More from these guys, more to these guys.  Less from these guys, more to those guys.

Ugh.

Markets perform best when the rules are known and rarely changed.

I believe one of the things that is really killing this market right now is an uncertainty as to how the rules will be changed.  Will Obama REALLY raise taxes that much?  Are capital gains going to be crucified?  How will the NEXT big bank to fail be dealt with?

The problem isn’t the answers to these questions being good or bad, but that we don’t have the answers at all.

You can price in bad rules.  You can price in good rules.  Hell, you can even price in no rules.  But…you can’t price in unknown rules.

I mean…the stupidest rule in all of sports has to be the rewarding of fouling at the end of basketball games by forcing the opposition to take a single free-throw whether they want to or not.  Despite this rule’s idiocy, it is KNOWN, and coaches on both sides can coach to it and fans can root for outcomes appropriately.

Let’s get the rules set.  The markets of stocks, politics and overall economy will react and then play the game from there appropriately.  In crisis, TIME and UNCERTAINTY are the enemies.  We can slug the knees of both by putting the rules in the kiln.