Did President Bush's Speech Spark the Rally?

We admire and enjoy Larry Kudlow's show on CNBC.  It is not because of the host's opinions, with which we often disagree.  Larry is incorrigibly bullish about the economy and the market, and it does not hurt to get that perspective.  What we really like is his ability to get a range of strong guests with serious and well-developed conclusions.  It is a great way to get a fast read on the main perspectives from the day's activities.

An Astonishing Proposition

We were more than surprised by Larry's assertion that President Bush's New York speech had sparked yesterday's market rally.  We looked hard to see evidence of his tongue in his cheek!

The reason is simple.  The market has had a pattern of selling during the speeches of anyone from the Bush Administration.  It has been one of the most predictable and tradable "calendar" events of the last few months.  In our office we discussed how to trade it.  The market seemed to "want" to move higher before the speech.

Why?  The old lows in the S&P 500 had been breeched, at least for a few minutes.  InTrade, the prediction market site had just started a futures contract on whether these lows would be taken out.  This contract lasted for about one trading day, which might be a record for brevity of duration.  You can still trade whether the DJIA hits the lows again, now trading with a wide market around 50%.

There was plenty of buying interest at the old low, even before the President's speech.  The market paused, and we speculated that traders would be cautious in front of the speech and more buying would ensue afterward.  There were also plenty of trading calls on RealMoney, including Jim Cramer's prediction of a closing spike.  (Full disclosure.  We contribute and believe it to be a valuable source for trading ideas.  We were long-time subscribers before writing there.)

This trading expectation, caution before the speech, buying afterward, was our expectation, as long as there was nothing really bad in the speech.  Just get it over, and let the market resume normal trading.

The Speech

The President had a number of applause lines by praising New York, the free market system, and America.  There was nothing really new, and no one expects much from the waning days of the Bush Administration.  Our view is that the Bush policies came far too late, but we respect the President's decision to react aggressively, and against his instincts, when faced with severe economic problems.  But there was nothing in the speech to move the market.

Other Takes

The Wall Street Journal called it a "Gloomy Picture."

Dealbreaker asked if anyone was listening to the free-market message.

In a thoughtful assessment, Felix Salmon parsed various segments of the "peculiar speech" calling it "a mixture of free-market platitudes, cryptic code, and outright weirdness."

The new blog from MIT, The Baseline Scenario, was the most critical.  There are many interesting observations, but here is the conclusion:

For the record, I’m for free markets, not socialism. But I’m not for a lame-duck president making campaign speeches when what we need are real solutions.

Larry Kudlow's Conclusion

We return to the Kudlow conclusion, not so much because we believe he is serious about this, but because it illustrates a typical problem of interpretation for investors.

Anyone trying to interpret the markets is constantly considering news.

• Is it "new" news or "old news?
• Is it really relevant?
• What would have happened in the absence of this information?

There are so many factors involved, and only one result.  The temptation to make a false inference can seem compelling.

Readers may wish to review our warning about interpreting market action:

Do not just make a knee-jerk reaction.  Think clearly.  Think about what is happening and the causes.  That is the only way to spot opportunity.

Somewhere between Miss Moss's Latin class in high school and Neil Browne's excellent instruction in critical thinking, we learned about a prominent logical fallacy.  Once you know it you will see it every day.

Post hoc, ergo propter hoc.

You can look it up, but it means "after this, therefore because of this."  It is one of the most common errors in logic.

Comments

[malach hamo...:]

George Bush couldn't spark a rally at a little league game. The "random walk" on Wall Street has morphed into a series of direction-reversing panics with all the activity reflecting waves of shorting and short-covering.

2008 Nov 14 06:22 AM

[CLH:]

Yes you are right the rally started before the speech. The speech was an inspirational speech and one of the best Ive heard. By the way the credit crisis will solve itself. The gov can only make it worst and only the market can solve it. The speech was what was needed.

2008 Nov 14 06:24 AM

[tginomorebush:]

bush speech to spark a rally ...... bull...... bush couldn't spark a plug!

Thank God for Jan 20th 2009!!

2008 Nov 14 09:17 AM

[chinooking:]

lmao at the thought.

2008 Nov 14 09:47 AM

[bored2tears:]

Kudlow, like too many on CNBC, is a joke.

2008 Nov 14 11:04 AM

[Smarty_Pants:]

Was the speech/rally just a bit too coincidental? Perhaps some Plunge Protection action was involved?

No telling, but what other 'news' could have sparked such a huge rally out of nowhere? Economic data is getting worse by the day.

2008 Nov 14 11:20 AM

[Jason Rines...:]

This President's main failing was the ability to communicate intent. Perhaps the speech coincided with the facts that Mr. Paulson had been reigned in a bit and the market had a more favorable opinion of U.S. Treasury not squandering endless trillions down a black hole. Just a guess.


On Nov 14 11:20 AM Smarty_Pants wrote:

> Was the speech/rally just a bit too coincidental? Perhaps some Plunge
> Protection action was involved?
>
> No telling, but what other 'news' could have sparked such a huge
> rally out of nowhere? Economic data is getting worse by the day.

2008 Nov 14 11:59 AM

[xsuddensam:]

Is this article for real or is it a spoof.? I thought I was reading a script from Saturday NIght Live. I have to admit that giving Bush credit for a sucker's rally makes sense, but praising that flag waving luntic Larry Kudlow is just too much.

The opinions of Kudlow, Cramer, Radigan, Gasperino and the rest of the blowhard, always optimistic stock market touts on CNBC are not at all credible. They've painted a rosy picture all the way down from last year's highs. Today, all you hear from them is the word "bottom". Next you'll be hearing Cramer's favorite slogan:

BUY! BUY! BUY! BUY! BUY!

Anyone who seriously listens to these clowns needs to get a grip.

2008 Nov 14 03:51 PM

[Tony Petroski:]

The day before the Bush speech, the big sell-off on Wednesday was on many media sources (e.g., Nightly Business Report) attributed to Paulson's comments about the TARP no longer being a TARP, a fact known to every investor for at least two weeks. The next day when the market rallies, the explanation is bargain hunting/bottom fishing.

The establishment media will do everything it can to tar Bush or Bush cabinet members as bad guys that destroy economies. Selloffs are the fault of the Bushies. Rallies happen for technical reasons. One of the reasons I'm bullish is that the news is soon to improve dramatically as the "Obama Miracle" begins to transform our economy and the establishment media moves from calling the glass half empty to calling is mostly full.

2008 Nov 14 08:13 PM

[venividivici:]

I think you are dead right Cranky Investor. I think you are being a little too generous to the guys on CNBC, xsuddensam.

2008 Nov 15 07:44 AM

[xsuddensam:]

venividivici,

I had a good day and I can afford to be generous ;-)


On Nov 15 07:44 AM venividivici wrote:

> I think you are dead right Cranky Investor. I think you are being
> a little too generous to the guys on CNBC, xsuddensam.

2008 Nov 15 09:46 AM

[X-15:]

The Bush speech, real intent was to keep the market from blowing through key support levels...
lame speech for a lame Duck ...........and I voted twice for him.

The bush team failed on so many levels


Vietnam in the desert

Largest Real Estate bubble in history

No energy plan - 700 billion per year overseas oil bill

No serious effort, at all, to Veto excessive Government Spending

............thereby setting the stage for intense pressure on the dollar and supra-inflation.

Where are the regulators?
The safeguards?

What is the FED, SEC, and Treasury paid for?
For that matter in light of 9-11 what are the CIA, NSA,and the FBI paid for?
See a pattern here?


.

2008 Nov 16 12:06 AM