The Corner

The Obama Discount Cont’d

First, there’s Pethokoukis at US News:

I think it would be an absolute cheap shot to blame the falling stock market on Wall Street’s sudden realization that Barack Obama will very likely be the 44th president of the United States. But is fear of a potential Obama presidency playing any role at all in the weakness? How many investors, I wonder, buy into the theory of economist Peter Morici, hardly a conservative mouthpiece, who says, “Obama’s tax and redistribute policies will not resurrect jobs, wages, or the price of stocks in American retirement accounts. Ordinary Americans who have to earn their livings outside the cosseted confines of Wall Street will be not much better off two years from now. In fact, Obama’s policies may make economic conditions worse.”

Now, it is an interesting economic experiment that we may be about to undertake: Do exactly the opposite of what we did as a nation the last time America was in deep economic trouble, coming out of the 1970s. It’s like we are going to replay the 1980s, but with Ted Kennedy as president.

I am absolutely not a market expert (indeed, I’m still cross with the the scores of Wall Street bigwigs who read the Corner who never gave me a winning stock tip). But that sounds reasonable to me. Then there are these charts a reader sent me (1. McCain’s intrade #s, 2. The DJIA, 3. Obama’s numbers)

Now, it’s far more likely that the causation and correlation suggested by some readers is backward: the markets tank for non-political reasons and Obama does well as a result, rather than Obama does well and then the markets tank. Still, I think Pethokoukis’ point that Obama’s success may make investors more pessimistic about the future has some plausibility to it.

Finally, it sounds like this reader has it right (and I should correct a bunch of emailers who seem to think I was suggesting McCain blame Obama for the crashing markets, which I think would be ludicrous).

Jonah,

The suggestion that markets are down because of Obama’s rising in the polls shows a preposterous misunderstanding of economics, and McCain will be (rightly) pilloried if he tries to make that claim. I have no doubt Obama will be an utter disaster for business and economic growth/recovery in this country, but the markets are reacting to fact that unemployment is way up (and climbing), manufacturing numbers are way down, housing prices are still falling, credit has seized up, overnight funding is near impossible to acquire at anything but prohibitive cost, there continue to be real questions as to the solvency of financial institutions and their nightmarish balance sheets, etc. Just about every piece of data that comes back these days is negative, with the exception of falling commodity prices and a strengthening dollar, as Kudlow correctly mentioned last week. Companies growth prospects in this kind of environment are bleak at best, and the markets are reacting in kind. In addition, the ban on short selling of financials rolled off today, so some of the downward pressure that had built up over the past week released itself today.

We’ll reach a bottom of the market eventually, however–and I mean no disrespect to the previous e-mailer you quoted below–it’s naïve to suggest the continued hammering we’re all taking has anything material to do with the political zeitgeist.

Senior bosses of mine say this is the worst they’ve seen the capital markets function in their 40 year careers; that kind of situations doesn’t arise because of Bill Ayers and stump rhetoric. Keep your chin up, though. Even though I think I’ve aged 20 years the last few months, things are never as bad as they seem.

Update: Club for Growth has another chart which, again, I think shows  how much Obama has benefitted from the market meltdown.

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