Do the markets hate Obama?

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This post is a guest contribution by Paul Kedrosky*, market commentator and venture capitalist who also blogs about financial matters of the day on the Infectious Greed site.

Every time the president or his administration makes a major economic announcement, the Dow takes a dive. But are they actually related? Let’s go deep inside the numbers.

Stock markets hate President Barack Obama. The argument was made last Friday on television by columnist Fred Barnes, and you can expect to hear the claim again today if stock markets fall after the Obama speech to the nation last night.

Here is what Barnes said on Fox News last Friday: “Financial markets are a bet on the future in America, and right now financial markets are betting that the future is grim. When markets dropped 800 points since Obama became president, and 2,200 since he won the election, that is a vote of no confidence on his economic policies.”

Radio talker Sean Hannity repeated and expanded the claim on his radio show Tuesday. It required some selective ignorance on Hannity’s part, as, under the spell of Ben Bernanke’s testimony, the Dow was simultaneously re-tracing its Monday losses. Mind you, no one has ever accused Hannity of letting the facts get in the way of a strongly held view.

Nevertheless, Barnes and Hannity cite two data points in making their claims. First, markets are down 11 percent since Obama’s inauguration. Second, markets have tumbled on days when the Obama administration has made major economic announcements.

There is no denying that US markets have declined sharply since Inauguration Day. The Dow Jones Industrial Average is in fact off 11 percent since the eve of inauguration, which is awful. Given, however, that the current recession is more than a year old, and the most recent downward cycle didn’t somehow start the morning of January 20, we need to put the post-inauguration market underperformance in context.

Please click here for the rest of Paul’s article.

*Paul Kedrosky’s bio is here.

Source: The Daily Beast, February 25, 2009.


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4 comments to Do the markets hate Obama?

  • private investor

    From Investors Business Daily. I will let them speak for me.

    Investor’s Business Daily
    New Era, Old Story
    Thursday February 26, 6:43 pm ET
    Budget: “The time has come to usher in a new era,” the president said in unveiling his budget. If he means burdening the economy with huge new taxes, he’s succeeded. If he means ending budget gimmicks, he has failed.
    In describing his spending plan, President Obama claimed he’s making “the tough choices necessary to restore fiscal discipline” and will “cut the deficit in half by the end of my first term in office and put our nation on sound fiscal footing.”
    The only tough thing about this budget is what it has in store for the most productive parts of the economy. Over the next 10 years, Obama seeks to impose tax hikes totaling a stunning $1.66 trillion on businesses and successful families.
    The “rich” — those families earning $250,000 or more — would have to pay $954 billion more, thanks to Obama’s plan to reimpose pre-Bush era tax rates, set a 20% rate on capital gains and add a limit on itemized deductions.
    Businesses, meanwhile, would have to kick in an additional $645.7 billion through a cap-and-trade carbon tax the president hopes to get enacted allegedly to fight global warming.
    Then there’s the $353.5 billion raised through unspecified “other revenue changes and loophole closers.” Given Obama’s pledge not to raise taxes on the bottom 95% of taxpayers, that can only mean still more taxes for the “rich” and business owners.
    Of course, Obama boasts that his plan also includes $940 billion in tax cuts. But much of this is actually in the form of checks written to people who don’t pay income taxes to begin with — which is technically new spending, not a tax cut.
    Meanwhile, the Obama budget clearly fails to live up to his goal of “honesty and accountability” in federal budgeting. Indeed, it’s full of gimmicks designed to make it look much better than it is.
    Phony baseline spending forecasts. Obama’s budget assumes that the government will continue to spend $170 billion a year on the Iraq War until the end of time. By cutting that number back, he magically credits himself a huge $1.49 trillion in savings over 10 years. [Bush had already announced scheduled end of combat operations and scaling back operations over next 2 years. Obama’s plan released this week does not advance those dates. So it’s NO savings over what Bush was doing. Even CNN, a usual liberal sympathizer, acknowledged the similarity in time lines.]
    Unreasonable assumptions: The budget counts on $316 billion in savings from Medicare, not through benefit cuts, but through efforts to promote “efficiency and accountability.” History has shown that such promises are easy to make, but almost impossible to keep.
    Rosy economic scenarios: Budget forecasts are hugely dependent on underlying economic assumptions. And Obama’s predictions assume that the economy will perform better over the next 10 years than the Congressional Budget Office or the Blue Chip Consensus predicts.
    By 2013, for example, Obama says the GDP will be $700 billion bigger than the Blue Chip forecast, with unemployment, interest rates and inflation lower over the next four years. In the past, Democrats and the mainstream press routinely blasted GOP presidents for such sunny forecasts. Don’t expect the same from them now.
    Spend now, save later: A subtler trick used by the administration is to front-load spending hikes while promising fiscal discipline later. In this case, Obama asks for an increase in discretionary spending of 6.5% this year, but then expects us to believe that he will hold spending hikes to 2% in the following years.
    The president is right. This is certainly a new era. But somehow we doubt this is what voters had in mind when they voted for change last November.

  • Peter Venkman

    Nice swipe at host Hannity … How about telling your audience ONE TIME when he has lied about the facts?

  • Frank Lotrario

    FL says that the Dow diving has nothing to do with Obama´s economic announcements. The Dow closed at 7552 on Nov. 20, 2008 so at a 7062 close on Feb. 27, 2009 it is only down 6.4% from the low hit under the Bush administration. In my opinion, it is going to continue to go down and probably stay down for a long time, until most of the deleveraging of the massive amounts of debt that individuals, businesses, and banks etc. have accumulated works itself out. THIS WOULD OCCUR NO MATTER WHO WAS PRESIDENT NOW !!!! Rather than play the blame game like the Republicans and media outlets like FOX love to do, I will say that Democrats, Republicans, banks, businesses, and the government all contributed to encouraging Americans to spend spend spend to stimmulate the economy as they accumulated unprecidented amounts of debt buying things they didn´t need or couldn´t afford, with money they didn´t have as they all tried to live like the “rich and famous.” Can I afford it became can I afford the monthly payment and “save some money for a rainy day” was no longer a part of our vocabulary. This has been going on for 30 years and snowballed out of control over the last 7 or 8. All of you Republicans who keep telling the world how dangerous liberal policies are, please tell me what you did to stop this catastrophe from occurring when you controlled the Congress and the White House from 2000 to 2006. The problem exploded under your watch. Your famous position that that tax cuts to the rich, your heralded 5% who pay 95% of the taxes, will stimulate the economy and create jobs failed. We still have those tax cuts in place and the country is falling off a cliff. Businesses don´t expand because of tax cuts to the rich like you jackasses keep repeating, they expand when the 95% are spending money in the businesses that the 5% own. We see now what happens when that 95% stops spending !!!

    To the “private investor” who let Investors Business Daily speak for him: They ripped apart Obama and his policies quite eloquently. Can you post any article calling Bush and his policies to task for allowing the disaster to occur under their watch……or post an article giving a better path to take to get us out of the mess they left?

    To Peter Venkman and his post challenging Paul Kedrosky to give one example of Sean Hannity lying about facts: Hannity doesn´t lie about facts, HE MAKES UP HIS OWN FACTS like Fred Barnes, O´Reilly, Cavuto, Bret Hume, and most of the other presenters on FOX as they hide in the shadows of complete DENIAL !!!

    1. All through 2008 Hannity and his colleagues kept repeating, ” we are not in a recession; we are just going through a soft patch; the fundamentals of the economy ARE STRONG !!!!”…….THESE STATMENTS DEMONSTATE THEIR STUPIDITY.
    2. They also kept repeating ” tax cuts to the wealthy create jobs. “….THEY GOT THEIR TAX CUTS AND STILL HAVE THEM. WHERE THE HELL ARE THE JOBS ?
    3. On April 28, 2008 Neil Cavuto and his FOX Business News guests were predicting the beginning of the next bull market when the DJI was at 12,891. Charles Payne predicted a DJI of 16,000 by year end. Go to Youtube and log in Peter Schiff Was Right 2006-2007 ( second edition ) and and you will see the total incompetence of of Mr. Cavuto, Payne, Stein, Laffer, etc. This is by no means an endorsement of Mr.Schiff´s investment recommendations because his clients got killed in 2008 also. When I was a young man working on constuction, if I performed my job the way they performed, I would have ” gone down the road kicking stones ” as we used to say. But they are all still at Fox giving advice like they did nothing wrong. I would be embarrassed to continue to go on the air.

    Hannity and his colleagues don´t lie in my opinion, but I do think they are in complete DENIAL, which enables them not to ” let facts get in the way of their strongly held views ” as Paul Kedrosky stated in his piece. Unfortunately investors who were unable to step out of the shadows of DENIAL these past few years, have paid a very painful price !!!!!!

    Frank Lotrario

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