Wednesday, March 04, 2009

As the Dow Keeps Dropping, the President is Running Out of People to Blame

(A graph of the Dow Jones Industrial average since the passage of the stimulus bill.)

The Wall Street Journal:

As 2009 opened, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034 on January 2, its highest level since the autumn panic. Yesterday the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. The dismaying message here is that President Obama's policies have become part of the economy's problem.

Americans have welcomed the Obama era in the same spirit of hope the President campaigned on. But after five weeks in office, it's become clear that Mr. Obama's policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence -- and thus a longer period of recession or subpar growth.

That's just what I was saying a couple days ago.


thinking said...

Of course 84% of Americans think the current economic conditions were inherited and not caused by President Barack Obama, according to the latest Wall Street Journal/NBC News poll to be released today.

And this is an accurate view among the vast majority of the people. Think of the absurdity of placing all of this on Obama's shoulders, when he's little more than a month into his presidency.

You don't suppose the drop in the Dow has anything to do with the contraction of GDP, skyrocketing unemployment, slower retail sales, etc? In other words, the market reflects the true fundamentals of the economy, which were the impact of the last several years. Maybe the market realizes that recovery will take time, and thus that the fundamentals will take a while to come back?

This is the Bush recession/depression, no doubt about it.

The true effect of Obama's policies have yet to take effect. The key measures will be 1 year from now, 2 years from now, etc.

Again, it's absurd to make such a short range judgment. Indeed, that is part of the problem; people want instant wealth, and fret about short term movements.

And what about today, for instance? Will the WSJ credit Obama for the market rally that occurred today? Why not? Let's do better, and analyze the markets on an hour by hour basis, and track Obama's every movement, and maybe we can spot some correlations. It's all fair game with this type of analysis.

Making policy on short term movements is part of what got us into this problem to begin with. How much better would we be off if the Bush administration had focused on laying the foundation for a truly solid economy, versus just priming it for a short term bubble?

The stock market was overvalued anyway; those who want normal market purging and correction should welcome this.

And with the economic fundamentals being what they are, would we really want or expect the markets to be zooming upward at this point? That would just be another bubble waiting to burst.

Obama's policies may or may not work, but this movement in the Dow Jones means nothing at this point about the soundness of those policies.

As for the Wall Street Journal, since Rupert Murdoch took over their standards have slipped. Also, let's face it: their editorial board mostly cheered the inflation of the bubble and has a poor track record.

Right now the WSJ is just parroting Rush Limbaugh talking points, who is evidently the true leader of the Republican party.

Brian Hollar said...


You are the one who kept saying we need to act quickly. If the effects won't occur for 1 or 2 years, why was it so necessary to rush the stimulus through without giving members of Congress enough time to read it? Your statements don't line up with each other.

No one is disputing that Obama inherited much of this mess. But the economy is to some extent driven off of expectations. Obama's pessimistic rhetoric has contributed to the market's decline as has the uncertainty created by the size of the stimulus and all of the associated pork. Continual talk of need for the government to take control of economic forces without specificity further spooks investors and drives down the market.

Obama and Congress should be seeking to quell market uncertainty as much as possible. Instead they are doing exactly the opposite and contributing to the market's fall.

thinking said...

The need to act quickly is precisely because it takes time for economic policy in an economy this large to take effect. If we could make the economy turn on a dime, then that would actually afford us more luxury in the debate, since once a course of action was chosen we could ameliorate the situation quickly.

The need for action is also necessitated by the magnitude of pain out there among the people...regardless of time lag, the sooner the help is in the pipeline the better.

So there is no logical contradiction.

Now some of the stimulus will take affect sooner than that, but I just used the 1 and 2 yr markers as an example. But even then it may take more time for the markets to recover, and most certainly at this early point in time one cannot expect the stimulus to have had any real impact.

As for expectations, that is why the longer view is necessary. It's often said the markets may react short term to psychology, but long term to the economic fundamentals.

At this point no one knows, and so expectations have no basis in reality. As for Obama's pessimism, again, I just don't see that. If anything polling data suggests that Americans are reassured by his action; even the approval rating of Congress has gone up as it is seen to be taking action.

In fact, according to that WSJ/NBC poll, 41% of Americans say the country is headed in the right direction, up dramatically from 26% in mid-January, before Mr. Obama took office, and up from 12% before the election.

I also think expectations will need to be readjusted. As one trader remarked, what Wall Street wants now is what they had: a bubble, a way to seemingly get rich quick, with no regulatory oversight.

I'll be glad once expectations are adjusted to focus on what really builds wealth, and not these bubbles that explode in our faces.

But it takes time for expectations to change as well.

As for the "pork" in the stimulus, pls cite some examples. I hear that phrase tossed around by some talking heads on TV, but very little substantiation. The examples I have heard are either inaccurate, or an inacurrate spin on legitimate programs, such as the now famous volcano monitoring, etc.

As for trying to quell market, I don't know that anyone could do that verbally given the bad economic data always coming out. No matter how encouraging the rhetoric, and again, I think Obama has offered up many words of encouragement, that is wiped away with the next number on unemployment, GDP, manufacturing, etc.

Two, again, I think what Wall Street wants to hear is unrealistic and a return to the past. What I prefer is that the Pres and Congress focus on laying the foundation for solid economic growth, not another short term bubble. The Dow Jones will catch up soon enough if that foundation is laid.

Here's my prediction: if the economy recovers, and the Dow is up in, again, let's say 1 or 2 yrs or so...the same people who want to blame Obama now, just one month into his presidency, will be making excuses as to how Obama cannot take credit for the recovery.

This is exactly what happened under Bill the start of his presidency, many conservatives predicted doomsday and the End Of The World As We Know It (EOTWAWKI), and even trotted out the dreaded "socialist" term, but once the economy took off, then the reasoning was that Bill Clinton had nothing to do with it. Now I certainly don't attribute all of the econ growth to Clinton...indeed, no Prez has such total control over the economy...but it's simply inaccurate to deny him any credit.

So I have no doubt that if the economy takes off again, that the same voices will be explaining away that Obama had nothing to do with it.

thinking said...

I should also say that we should not always equate the Dow Jones w/ the health of the economy. Sure it's important, but keep in mind that the Dow peaked at the height of the housing bubble.

So even though the economy was very sick at the time, with huge structural problems, the DJIA certainly did not reflect or predict that.

thinking said...

As more evidence of the problem of using the Dow as some of short term proxy for economic health or future indicator...

The DJIA dropped on Reagan's inauguration fact, the Dow was lower 1 yr as well as 18 months after Reagan took office. Of course the 1980s were a pretty good decade for stocks...but short term analysis would have yielded a different picture...and keep in mind that 12 to 18 months is a lot longer than 30 plus days.

I guess Reagan was too pessimistic.

Then there's the fact that the Dow even went down immediately after Truman announced victory in WWII. VJ Day was Aug 15 and by Aug 20 the Dow was lower. So I guess winning WWII wasn't such a good thing, because the Dow was temporarily lower.

One can go on and on, but the point is that one can only judge true economic merit in the longer term.