Markets Soar as President's Aura Fades

“They don’t ring a bell at the bottom” is an old saying that addresses the futility of calling a market bottom. This week’s rebound was a breath of fresh air in what had been a seemingly endless bear market swoon. It is really too early to know what precipitated this reversal. Was it simply a typical “dead cat bounce” for a terribly oversold market? Were short-sellers, who had been winning virtually every bet for weeks on end, panicked into a “squeeze” situation by the unforeseen rally? Was Bernanke or Geithner’s testimony before Congress enough to reassure despondent markets? Was the rumored possible return of the up-tick rule enough to spark a rally?

It is really hard to know the proximate cause of this week’s bullishness. However, the rebound seems to coincide with a gradual but profound willingness on the part of the press — even reliable supporters of the President — to begin focusing their concern and even anger on the shortcomings of the new administration. Is it possible that this week’s stock market rally was in part due to general relief on the part of investors that the Obama administration may not be either competent or deft enough to pass much of their agenda — particularly those parts considered radical and anti-business?

Face it, the past few weeks have not been great ones for the Obama administration. After getting off to a euphoric start, the wheels have come off the bus. There was the bank rescue plan debacle where the President set high expectations for Treasury Secretary Geithner’s presentation, which then turned out to be light on details. After the misstep, administration officials compounded their mistake by virtually disappearing — which created an information vacuum that fueled much of the stock market’s recent tailspin.

The vetting process for administration officials has been heavily criticized, as many nominees have had to withdraw from consideration either for tax lapses or other issues. The problem is especially acute at the one department critical to dealing with current economic problems — the Treasury. The administration was widely panned in Britain for snubbing visiting Prime Minister Gordon Brown. When pressed on the matter, officials indicated that the press of business on economic matters distracted the President’s team from their duties as good diplomatic hosts. Call it nit-picking or carping or predictable tripe from partisan hacks, however, one cannot help but notice that the President’s once-fawning press coverage has changed. Click on any of the following links: Fineman, Allen, Galston, Paglia, Murray, Samuelson

Markets are discounting mechanisms which anticipate future values based on current information. While no one can legitimately claim that the financial crisis, deep recession or bear market we find ourselves in was President Obama’s fault, it is reasonable to point out the hastened swoon stocks have experienced since the election and especially since the new administration took office is attributable to concerns over the impact of administration-proposed policies. Further, the market’s depression only deepened as concerns grew that the new financial team was either insufficiently concerned about business or perhaps out of their depth.

Yet, as members of the President’s own party and those predisposed to support him in the media have begun to question some of his decisions or even his general fitness for the job, controversial proposals such as doing away with the secret ballot in unionization votes (“card check”), tax increases, health care reform, etc. appear less likely to be rammed through the Democrat-controlled Congress in their present form — if at all. And ironically, the market seems – at least thus far – to have altered its course in conjunction with these fading possibilities and the President’s fading aura.

And this is actually the way it should be in a democracy. Despite what some would have you believe, the stock market is not all about the wealthy. Either in 401(k)s, IRAs or regular brokerage accounts, middle class Americans have considerable exposure to the stock market and have been badly hurt by the protracted bear market. As a discounting mechanism, the market is offering a referendum of sorts on the current economic leadership of the nation and it has, until recently, found it lacking. It is possible that this week’s rally reflects a growing, collective belief that many of the most controversial items on the President’s recently-announced agenda will not come into law. Time will tell, but it certainly is a plausible explanation for a pleasantly bullish week.

Original post

Comments

[jasonjim:]

Obama's reputation would be better served if he would be more proactive in producing rules which help remove the present volatility in the stock market. What is the big deal about not doing something about bringing back the "uptick rule" once again. Short sales by hedge funds are a big problem especially when they gang up with their massive amounts of money like "wolf packs" and target the same companies or sectors. Naked short selling is still allowed for certain "preferred clients". Mark-to-Market is still a problem after several months of Obama being on the job. Is it any wonder that investors, and I specifically mean the middle class investor, is rapidly losing faith in Obama's administration---very little is being done to improve the situation, or if there is it is not being communicated very well.

Mar 14 09:27 AM

[reval:]

I want President Obama to succeed. I voted for him. But, his hyperactivity and trumpeting of various crises that need unlimited money, has caused concern in the markets. When he settles down, the financial turmoil will lessen.

Mar 14 11:02 AM

[LR European:]

Extraordinary! You can no more blame Obama for the deep crisis in global economies (as reflected by market moves) than you can blame the second shift fire-fighters for the fire when they arrive to battle an inferno.

If you insist, perhaps we have an element of disappointed expectation in so far as we really did believe Obama could walk on water and solve any of the problems facing us, but now recognise that he is as limited as any other politician in face of this crisis.

But how many serious people actually believed the man was divine?

Mar 14 11:05 AM

[wavelength:]

The election of a high taxing, anti-business administration has a negative effect on investor sentiment. If you look overseas to countries like the UK or Australia who are compulsed to periodically flirt with far left governements until their economies tank (again) and they revert to the center-right, you can see what a prononced pattern this is. This is not Obama bashing in any personal sense, nor is it an ideologically distorted argument. The current US adminstration is proposing policies antithetical to economic growth, and punitive to business and investment. The market reacts to this just as it does to other negative news. This is actually a good thing and inevitable. Another "inconvenient truth" perhaps. The commentators who are offended by these observations need to understand that nobody is out to insult them or bait them. It is like greenies objecting to back-burning and then taking it personally when a brush fire burns down their house. Fire is doesn't care. It is not ideological. Some actions have natural and inevitable consequences. That's all.

Mar 14 11:18 AM

[henarl:]

I believe that investors were so desparate for any bit of good news after weeks of little but bad that they over reacted when the big banks said (lied?) that they were profitable for the last two months and when the possibility of suspending M2M and reinstating the uptick rule surfaced. Will the market continue up next week? Hope so but doubt it.

Mar 14 11:20 AM

[Jimbo:]

I did not vote for President Obama, but I do want him to succeed. To paraphrase Lyndon Johnson, he is the only President we have , Obama is being hammered by his contradictions: He promised an administration of "Transparency" but it has been more opaque than that of Bush's. He promised to oppose earmarks but has rationalized a bunch of them in the latest bill. He said no lobbyists in appointed positions and we get lobbyists in appointed positions. Too many of his proposed appointees have embarrassing tax lapses. This is galling since lovable Joe Biden said during the campaign that it is "patriotic" to pay taxes. Seems like some of the proposed appointees are unpatriotic by Joe Biden's standard.

Mar 14 11:36 AM

[JDinKC:]

This is such an absurd piece, right off the bat you claim the first few weeks of the Obama administration haven't been off to a great start. Huh? He has done more in his first few weeks than any other President has ever done and his approval remains high and approval for his policies remain even higher. He isn't going to make little short-term prescriptions to help idiotic day traders, but a fundamental strengthening of the market to help the long-term economy. He's inherited a massive recession from Bush and the Republicans and now some wingnut morons who are broke are asking him to wave a wand to fix it. Typical right-wingers, destroy the economy then leave it to the Democrats to fix it.

Mar 14 11:42 AM

[Zhonni:]

Don't mind the author. He sees things clearly when he has his partisan glasses on. He is going to blame Obama for the market's downfall even before Obama could do anything about it, but strip Obama of any credit when the market goes up for 4 days in a row. I think his analysis are ludacris and his thought process twisted.

"The wheels has fallen off the Bandwagon"? His approval is skyhigh and the confidence people have in him has not diminished. Those are the facts. Somehow this man can pull thoughts from his rear-end and call them facts. Get to writing fair and unbiased articles or get a life.


On Mar 14 11:42 AM JDinKC wrote:

> This is such an absurd piece, right off the bat you claim the first
> few weeks of the Obama administration haven't been off to a great
> start. Huh? He has done more in his first few weeks than any other
> President has ever done and his approval remains high and approval
> for his policies remain even higher. He isn't going to make little
> short-term prescriptions to help idiotic day traders, but a fundamental
> strengthening of the market to help the long-term economy. He's inherited
> a massive recession from Bush and the Republicans and now some wingnut
> morons who are broke are asking him to wave a wand to fix it. Typical
> right-wingers, destroy the economy then leave it to the Democrats
> to fix it.

Mar 14 11:55 AM

[JHG:]

I lot of these commenters are very good at throwing people under the bus, but don't seem to have anything substantive to say about getting the oxcart out of the ditch.

To paraphrase Phil Gramm: Stop the whining.

Mar 14 01:00 PM

[bbowen7:]

Lots of Democrats on SA on Saturdays.

It is not realistic to attribute a week's market moves to political considerations; however, the general premise is correct. It is good for all of those who are dependant upon the economy to see that some of the excessive spending and anti-business measures may be opposed.

This week's bump was due, IMHO, to the major bank announcements that they are making money on an ongoing basis. This is not "the last of days" for the financial sector.

Mar 14 01:37 PM

[fireball:]

on nov. 5 small businesses started cutting employees in anticipation of more punitive taxation. at least that was a common theme for several days in the financial letters i have access to. on nov. 5 i began to sell off investments in a methodical approach because of the increased taxation implications of a far left president. i also took the necessary steps to make sure i would not contribute, pay my fair share, invest in america, be more patriotic by paying more. so far obahahahamahahaha has remained true to his taxing philosophy. retirement at an early age has been enjoyable so far. why is it acceptable for government to take more but i the individual must be punished for being industrious and earning more? this is unscientific observation but many of my friends and acquantences are doing the same or are preparing to as they are sick of being bled by the parsitic left. most people go into a business seeking profit. this is not evil. businesses that do not profit go under and jobs disappear. it is tough to own a business. first to work, last to leave, responsible for all facets. sacrifices in hopes of prosperity. as soon as you profit then political parasites all demand their fair share with the force and threat of law to buy the votes of more parasites. at the same time political figures get caught cheating on their taxes and it is o.k., no fines, no penalties, because it was a mistake, an oversight, i forgot.... "some animals are more equal than others." explained the ruling barnyard pigs.
my solution is tax me less so i want to earn more, stay out of my private affairs, starve the bloated tick of government, lock it in its' constitutional cage and destroy the key.

Mar 14 02:00 PM

[Amitabha Mu...:]

The way market has reacted it is a dead cat bounce and since all the fundamentals of the economy are weak the actual upturn will come after a long period provided the government is disengaged from its quickly conceived and unbusinessman like approach to the area of economic business

Mar 14 02:19 PM

[@TexasER:]

If half of the country were convinced we were headed straight for some sort of socialist hell, then suddenly believed otherwise, I could see it. Maybe.

But I'm quite sure the market cares more about retail sales and unemployment numbers than whatever nonsense a president may be spouting at the time. Republican or Democrat.

Mar 14 08:50 PM

[Conan the B...:]

I'm quite sure the people of the United States of America see that Obama is more concerned about everything but the People.

By the time the vaunted Jobs Stimulus kicks in (2010), another 2-3 Million will have lost theirs.

Lest you forget: "I will create 3 million new Jobs." is now "I will save or create 3-4 million jobs".

Had the Stimulus Package included more for The States in the Union, Income Taxes would not be rising on the State Level. That Includes his home State...Illinois.

Peloosie must get her Plane, Obama can give her one of the Corporate Auto Industry Jets.

Mar 14 11:51 PM

[Fliujniligui:]

Obama did pre-purge markets. From now on, market discount worse possible outcome while many Obama's policies are promising and sound. Now we just have to waid (buy, hoard) and see what happens next. From dow 7000, positive surprise can occur in next 2 years.

Mar 15 04:04 AM

[investor88:]

Markets will find some middle path and rally now. Then the downtrend may resume?

Mar 15 04:34 AM

[Conan the B...:]

investor88: hope springs eternal, but otherwise, agreed.

Mar 15 08:23 AM

[Longwinded:]

I don't think the causal connection between administration policy and market performance is as strong as the author suggests, but, at an anecdotal level, it does seem pretty clear that, for a growing number of people, the line between hope and regret turned out to be pretty thin.

Mar 15 08:43 AM

[SgtSally:]

Another lame attempt to pin the consequences of the Bush presidency on Obama.
seekingalpha.com/artic...

Since his election, a core right wing media question has been - when will it become the "Obama economy". Even before the election, FOX was attributing every down day in the market to expectations that the Democrats were going to win.
Even an Economics 101 student would realize the momentum that is carrying the market now is the consequence of inaction last fall.
Nothing that Obama and the Democrats have done since the election will even manifest itself untill late this summer at best. ... about when many economists (including Bernake) are looking to see improvement. Too bad Bush took a powder the last six months in office!

Mar 15 01:36 PM

[jksisco:]

Political ideology plays a part in stock market gyrations whether one wants to believe it or not. It's a fact, not fiction.

Mar 15 03:17 PM