Or, it’s all Obama’s fault.
The revisionists are already busy.
“WIRE: ‘Obama Bear Market’ Punishes Investors as Dow Tumbles 20%…” blares Drudge.
“Obama’s Radicalism Is Killing the Dow“, says a headline in the Wall Street Journal.
“This Is Obama’s Market, Good and Bad”, writes John Tamny of Real Clear Markets. His article finishes with the statement that, “Whatever direction he takes, it should be clear that today’s stock market is the Obama stock market, so it’s up to him to decide its basic direction.” This article was published on November 25, 2008.
These claims all have one thing in common. They hope to shift the blame for all bad economic news onto Obama so they can claim the market shows his policies are wrong. In order to achieve their goal, they cherry pick the data points and twist recent history to fit their argument.
A recent Bloomberg article stated that, “March 6 (Bloomberg) — President Barack Obama now has the distinction of presiding over his own bear market.
The Dow Jones Industrial Average fell 20 percent since Inauguration Day through yesterday, the fastest drop under a newly elected president in at least 90 years, according to data compiled by Bloomberg.”
The writer goes on to say, “More than $1.6 trillion was erased from U.S. equities since Jan. 20 as mounting bank losses and rising unemployment convinced investors the recession is getting worse. The president is in danger of breaking a pattern in which the Dow rallied 9.8 percent on average in the 12 months after a Democrat captured the White House, according to data compiled by Bloomberg.”
Sounds bad, doesn’t it? Now let’s put things into perspective.
During the late 20’s and early 30’s, Herbert Hoover presided over a huge drop in the stock market. It reached a high of 380 in early September of 1929. By early July, 1932, the market had reached a low of 41. That is a drop in value of more than 90%. Of course, this didn’t happen during the first two months Hoover was in office so, by their reckoning, this doesn’t count.
According to Wikipedia:
After October 29, 1929 the market began to slowly mount a comeback. By next summer of 1930 the market was up 30% from the low of October 29, 1929. But no one would realize the nightmare that would follow. By July of 1932 the stock market would hit a low that made the 1929 crash look like hiccup. By the summer of 1932 the Dow had lost almost 89% of its value which was well more than 50% lower than the low of October 29, 1929. This drop erased almost every gain from stock market since its birth in 1897. It would take the stock market about 30 years to make it back to the 1929 highs
When G. W. Bush took office on January 20, 2001, the market was at 10,578. When he left office on January 20, 2009, the market was at 7,949 – a drop of 25% over the 8 years he was in office. I’ll bet some of the people who got tax breaks under Bush would like to trade them for the value they lost in the market.
By the time Obama took office on Jan. 20, 2009 the market had lost 6,215 or almost 44% of its value from its peak on Oct. 9, 2007. By comparison, the market has dropped 1,323 points or 16.6% of its value since Jan 20, 2009. Overall, the market has lost 7,538 points or 53% off its peak in October of 2007. Most of that loss came while George W. Bush was in office.
It constantly amazes me when investment pundits point to the stock market as the barometer for our economy. Many of them ridiculed Obama for comparing the market to an opinion poll, yet anyone who has studied the market will tell you that it is mostly herd behavior and psychological feedback loops that drive major changes in the market.
The original increase in market value under Bush was driven by easy credit and a false belief in the value many companies put on their assets. This is nothing new. Price to Earnings ratios (P/E) since the early 90’s have been above the historical average. If investors are waiting for this ratio to decrease then the market still has quite a way to drop.
It is time to push back against the claims being tossed out there by the Right and the investor class.
#1: The stock market is not the economy. It is only one indicator of how the economy is doing and not a very good indicator at that, since it is driven so much by emotions and the gambling instinct.
#2: This is not Obama’s market. The market started to tank long before Obama was even considered a realistic candidate by most people. The movement since Obama took office is only a continuation of the current trend on the market.
#3: Economic policies aren’t the major force on the market, yet. The biggest problem for the market is the global economy. It is still unknown how much the financial firms will lose from their lousy investments.
#4: The economy under G. W. Bush was inflated by easy credit. Now that home equity has been wiped out and credit card debt is difficult and expensive the average person has little money to invest. What little they do have sure isn’t going to go into a falling stock market.
#5: The investor class has taken a huge hit from the Bush recession (depression?). They have also been taking hits from fraudulent investments like the Maddof fund or Stanford’s fund. They are justifiably leery of investing at this time.
It is really quite simple. This is George W. Bush’s bear market, just as it is his recession. The market won’t reverse course until the economic factors that are driving its downward trend start to reverse. The change to a new bull market won’t be driven by any policies or announcements by Barack Obama. The market wouldn’t reverse tomorrow even if Obama announced a 100% reduction in corporate taxes. The fundamentals just aren’t there.
I prefer to kill the message instead of the messenger, but I make an exception in the case of these economists. For instance, Professor Michael Boskins, the author of the WSJ article, once released a paper claiming that there was $12 trillion over a 40 year period that wasn’t being counted in future revenues. Unfortunately, for his professional reputation, there was a glaring error in his calculation. One that was about $12 trillion dollars. Oops.
Don’t let the Right own this argument. Push back every chance you get.
[UPDATE]
Just came across this post on HuffPo on the same subject. The author, Jeff Schweitzer, ends his article with the following paragraph.
The Republicans have lost their already tenuous grip on reality. They have lost the concept of shame. They have lost all pride, for nobody with any self respect could blame Obama for Bush’s eight years of mismanagement. No wonder Rush Limbaugh has become the voice of the Republican Party. The patients have taken control of the Republican Asylum.
Another really great article by Robert Reich on this issue.
Key quote:
This bizarre charge wouldn’t be worth mentioning were it not a market test for a more intense attack from Wall Street and Republican media outlets next year as the nation moves into the gravitational range of the 2010 midterm elections. Republicans have made no secret of their wish to blame Obama for the bad economy, and to stir up as much populist rage against his so-called socialist tendencies as politically possible. History shows how effective demagogic ravings can be when a public is stressed economically. Make no mistake: Angry right-wing populism lurks just below the surface of the terrible American economy, ready to be launched not only at Obama but also at liberals, intellectuals, gays, blacks, Jews, the mainstream media, co
astal elites, crypto socialists, and any other potential target of paranoid opportunity.
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