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Obama Needs to Start Paying Attention to Markets   March 2nd, 2009
Even if he hates Wall Street, he better start paying attention to it       

 
QUICK OBSERVATIONS

More observations...
 

It is growing more and more clear that, at best, Obama doesn't care or doesn't understand Wall Street and, at worst, loathes it. But considering his ongoing negative effect on the market, he really needs to start paying attention. People are losing money and their ability to retire and their confidence to spend money they earn today. And not just rich people.

A disturbing pattern is forming: Whenever the Obama Administration makes a major economic policy announcement, the market tanks. Big time. And pretty much every time--except once when the market was flat and didn't tank until the next day. Conversely, no major economic policy announcement has led to any market reaction that would lead one to believe that the market has any confidence in Obama's plans.

The importance of this should not be understated.

The stock market is generally considered to be a leading indicator for the economy. That means that the stock market usually moves in a way that predicts the economy that is to follow. So if the stock market is still going down, it's because it expects the economy to go down further. And if the stock market is dropping violently in response to Obama's economic addresses, that's a good indication of the impact that millions of investors--with real skin in the game--think those policies will have.

You don't dump your stock if you think Obama's policies are going to lead to a recovery. You only dump them if you think things are going to get worse... and investors do that en masse on the same day when everyone's seeing the same news and reacting negatively at the same time... hence the major drops whenever the administration says something related to the economy.

I know it's in vogue to hate Wall Street and the wealthy, but it's not just the rich that are losing money here. Pension funds, retirement plans, and individual 401k's are being hit very hard. That means that many people that are about to retire are finding they no longer can because their investments have evaporated.

And, contrary to some ranting I've heard from liberals, this is not because a bunch of "rich Republicans" are intentionally pushing the market down. The rich have no interest in throwing trillions of dollars of their money away to make a point out of spite. The market is going down because everyone is acting in their best self-interest and that requires everyone to make honest assessments of what the government is doing and whether it will work... or whether it might even harm the economy.

Every day the administration leaves the financial sector unresolved, the more it looks like they don't know what to do, and the market will trend lower. And when they finally make an announcement that the market treats as confirmation they don't know what to do, it'll drop drastically.

If the administration wanted to make the market stop on a dime and shoot upwards, they'd announce a suspension of capital gains taxes. It's not like it would "cost" the government much money... the way things are going no-one's going to have any capital gains anyway, so there won't be anything for them to tax. So why don't they just suspend the tax for at least a few years and give the market some incentive and encouragement to perform?

And if the suspension of capital gains applied for the life of the investments, I bet you'd see the private sector come up with a way to value and buy those hard-to-value "toxic" assets real quick. And if investors could buy foreclosed properties with the understanding that there'd be no capital gains on that property when they sold it someday, don't you think they'd start buying them up real quick? Of course they would!

President Obama needs to understand that the market is voting on his economic policies... and they've rejected them. There's a reason for that and, unlike the president's policies, it has nothing to do with partisan politics. It has to do with cold, hard, inescapable economic reality.

Addendum: The cynic in me wonders if Obama is intentionally neglecting the market so that scared investors, with nowhere else to invest their money, decide to invest it in U.S. Treasury bills. As I've noted before, it's possible there's not enough money to fund Obama's deficit spending without just printing money. And if the stock market rallies, investors will invest their money there rather than in T-bills. But as long as the stock market is sliding it's possible that investors will buy the T-bills necessary to fund Obama's spending--and will be willing to accept little or no interest in return. I don't want to believe the president would intentionally let people lose trillions of dollars in the interest of funding his government spending, but considering the potential lack of availability of funds to pay for his spending, and the striking ineptitude the administration is demonstrating regarding the economy, one has to wonder.

Update 3/6/2009: Bloomberg reports:

'Obama should be listening to the stock market more than talking to it,' said Kenneth Fisher, the billionaire chairman of Woodside, California-based Fisher Investments Inc., which oversees $22 billion. 'He hasn't gotten out of the gate well.'


Update 3/7/2009: Almost a week after I wrote the above article, the following article was published:

Some Wall Street economists think President Obama could have voiced some sympathy about the plight of frightened shareholders when he compared the stock market's plunge to an election tracking poll that "bobs up and down, day to day."

They worry that the president is underestimating the important role the stock market plays in the economy's performance, and that the markets' precipitous slide is actually a vote of no confidence in the administration's handling of the economy. There's also a suspicion that Mr. Obama and his advisers think only wealthy people own stocks...

"It's not a tracking poll. It's real. The stock market reflects real money. It reflects real loss," said House Minority Whip Eric Cantor, Virginia Republican.

"The stock market is the country right now. This is where people's wealth is, this is their pension plans, their 401(k)s and IRAs," said CNBC investment guru Jim Cramer, who went from being an Obama voter to one of Mr. Obama's fiercest critics...

Added Mr. Bandholz: "They've done nothing to stop the fall in the stock market, nothing directly." Asked what they could do to turn the markets around, he replied, "They could cut the capital-gains taxes."


Cut capital gains. This isn't hard to fix. Some of the answers are obvious. It seems Obama's resisting them as a matter of politics.

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