The sobering voice of Mr. Market

Like Samson’s hair, Barack Obama’s demeanor is the source of his strength. Newsweek begins its long account of the 2008 campaign with the observation: “Barack Obama had a gift, and he knew it. He had a way of making very smart, very accomplished people feel virtuous just by wanting to help Barack Obama.” Obama’s gift correlates with the inner needs of his audience.

While Obama’s self-awareness has been a source of his strength, one wonders if he has not been misled by it. Fred Barnes quotes Obama letting his hair down with a group of television anchors last week at a White House lunch. Barnes reports that Obama assured them he likes being president. “And it turns out I’m very good at it,” he said.

What could he mean? Paul Mirengoff has rightly identified (here and here) Obama’s “faith in words” as his leading characteristic. In the second of his two posts on the subject, Paul observed:

Obama’s faith in words is, I believe, a function of his life experiences. His faciility with words, both oral and written, is extraordinary — and it accounts almost entirely for his astonishing success in life. Obama has never run anything substantial other than a political campaign, so he has not yet confronted the limits of his words. He has dabbled in lawyering, where words can take on a disproportionate significance, and in teaching law, where words are the be-all and end-all.

But words are not the be-all and the end-all. Reality intrudes and applies its own principle to the inner needs and secret fantasies of presidents and the people. Most notably the reality principle intrudes in the area of national security. Thus Joe Biden sought to prepare an audience of Obama supporters behind clossed doors for a moment of testing: “It will not be six months before the world tests Barack Obama like they did John Kennedy.”

In the first month of Obama’s presidency, the reality principle has asserted itself most notably in the stock market. The stock market certainly pays close attention to a president’s words, but it doesn’t swoon over a president’s soothing style. Rather, it evaluates the president’s words for their likely impact on a given company’s future earnings.

Security analysis generally rests on the proposition that a share of a company’s common stock carries a claim on a share of the company’s future profits and/or dividends. Expectations regarding future profits and dividends are the key.to the price of a company’s stock. The expected future return must be discounted to present value. But expectations of future profits and dividends are the key.

Since it became apparent that Barack Obama would be elected president at the end of September 2008, the stock market has steadily declined. Two weeks afer Obama’s election, Thomas Lifson first charted “The Obama market.” The decline has continued over the past three months. The stock market has dropped 25 percent since election day, but the Obama effect could be observed before then.

Yesterday Obama was asked about the stock market. He advised his audience not to “spend all your time worrying about that.” Bill Kristol sums up Obama’s response under the heading “Don’t worry, be happy.” Obama explained:

What I’m looking at is not the day-to-day gyrations of the stock market, but the long-term ability for the United States and the entire world economy to regain its footing. And, you know, the stock market is sort of like a tracking poll in politics. You know, it bobs up and down day to day. And if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.

With its likening of the stock market to daily tracking polls, this is certainly a rich text. Most notably, as Bill Kristol observes, “the stock market isn’t gyrating, or bobbing up and down. It’s dropping.”

The sobering voice of Mr. Market is saying that the Obama administration and its allies in Congress have done nothing to brighten the prospects of companies struggling to make a go of it in the private sector. On the contrary, they have dimmed the prospects of these companies. The dimming can be measured in the vast destruction of wealth in the stock market. Tony Blankley gets close to the root with his observation that “Obama lied, the economy died.”

Obama further expounded on the sobering voice of Mr. Market yesterday: “[W]hat you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.”

Profit and earning ratios? Along with Jim Geraghty, we begin to suspect that Obama, even if he is a good talker, doesn’t quite know what he’s talking about. Without speculating on his possible lack of knowledge regarding the market, however, we can say with some certainty that when it comes to the sobering voice of Mr. Market, Obama is not a good listener. Not yet anyway.

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