Voting With Their Wallets

Bill Otis sent us this email today:

McCain’s bounce had evaporated, and Obama re-took his lead in the polls, in mid- to late-September. At that time (September 19, specifically), the Dow Jones stood at 11,388.

By the end of September, as Obama’s lead widened and solidified, the Dow had fallen to 10,325.

It continued its slide through October. The day after the election, it dropped 486 points to 9139.

By inauguration day, when reality could not be finessed any longer, it had fallen to 7949.

In the month since the inauguration, it has continued to drop, and is now at 7530 [Ed.: Now 7466.]. This is the lowest it has been in 12 years, lower by a considerable measure than it was in the immediate aftermath of 9-11 (when the denizens of Wall Street had to fear not just for their portfolios, but for their physical survival).

To sum it up, the market has lost a third of its value in a scant four months — the four months in which it became clear that Obama would become, and then did become, President.

We hear all the time that the market dive is due to factors that occurred on Bush’s watch. That sounds quite plausible; indeed, it’s partly true. But mostly it isn’t, because it misses the central fact that the direction of the market is about the future, not the past. In other words, the market is much more about expectations than about the financial report for last quarter (which has almost always been anticipated and thus discounted). So it’s not Bush’s or Paulson’s blunders that have put the market where it is today. It is the (unfortunately realized) expectations about Obama’s stewardship of the economy that are driving this train, or trainwreck.

Paul comments: Of course, Obama re-took the lead in September, I would argue, because people figured out that the economy was collapsing.

I think that’s right. There is much in the current economic crisis for which Obama can’t be blamed–the real estate bubble that led to the financial collapse, which started to come to light in the fall and assured Obama’s election. Obama is responsible for all of that only to the extent that he was one of many in Congress who did nothing to help solve the problem. And he was, of course, very much on the take from Fannie Mae and Freddy Mac.

But granting all of that, it seems clear that investors are now voting with their wallets. In my view, just about everything the Obama administration has done (or announced its intention to do) will hurt the economy. The “stimulus” bill, to name just one example, was a joke. Obviously a great many investors agree; hence the ongoing decline in the stock market and the record prices being paid for gold–the classic hedge against bad government policies. The declining stock market and related price shifts are registering a vote of no confidence in the Obama administration and the Democratic Congress.

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