Polls conflict. Rasmussen finds Governor Romney will be the next President. Gallup concludes the race is tied. But 3 polls (Fox, CNN, Reuters) found last week that the President was opening a 7 to 9 point lead.
While polling conflicts, US stock markets stopped collapsing and started rocketing up within weeks of the President's inauguration. And that's when Fox News stopped showing graphics of stock prices going down as the President spoke at events (a favorite technique of the network right after the November 2008 election).
As of friday, the S&P 500 was up 74% since the day President Obama was inaugurated in 2009 and 12% so far in 2012. See www.cnbc.com/id/48613570. If the President is re-elected, look no further than the Obama-Bernanke stock boom for why.
Wall Street Journal editorial page, conservative, and Romney campaign silence about the stock boom on President's watch is not surprising. After all, it is a market judgment that rebuts Republican claims that the President's policies are not working and exactly opposite of what they said stocks would do.
The near complete silence about the stock boom from Democrats, however, is becoming strange. Undoubtedly, the Obama team is wary of pointing to the great increase in stock wealth, because markets can turn quickly and for reasons that a President does not control fully. For example, since 2010, European austerity policies threaten a Euro meltdown and repeatedly put downward pressure on US stock prices.
But despite these external shocks, US stock markets keep rising. Like gasoline prices, stock gains or losses shape powerfully political mood and thinking.
Tens of millions of Americans with direct stock holdings or members of pension systems who fearfully watched their wealth vanish from 2007 to March, 2009, today open their investment reports and smile. The cause of those smiles remains one of the most powerful underpinnings of the President's support, even if the stock market boom during the President's term is in a cone of silence.
No President in his first term, since Dwight Eisenhower, has had a bigger increase in stock prices than President Obama. As the election nears and the risk lessens of a market downturn prior to the election, expect President Obama to point to the boom in equities as a market validation of his economic policies.
John: You should probably temper your euphoria at this coincidence. A strong stock market is driven more by corporate balance sheets than a truly healthy economy. Other indicators are more meaningful such as GDP. As this chart shows, we have spent more time over the current 1.5% GDP over the last 30+ years than we have below it, so that is no cause for celebration: http://www.calculatedriskblog.com/2012/08/update-real-gdp-percent-change-graph.html
ReplyDeleteThe fact that stocks are higher is helped by historically high cash levels. How have these cash levels gotten so high? Much of it is reflected in unemployment levels. Despite the fact that unemployment remains relatively stable, it would be much higher if the labor force participation rate weren't dropping like a rock. This chart from Calculated Risk shows the situation clearly, with the blue line showing the labor force participation rate at a 29-year low: http://www.crgraphs.com/2011/10/employment-graphs.html
Stocks in a 401(k) plan don't help families' cash flow if they don't have a job. If the President getting re-elected will get us 4 more years of this economy, that hardly seems like something to celebrate.
The stock price is quite a coincidence. It peaked in 2007, dropped through 2008, collapsed after the Lehman bankruptcy on September 15, 2008, stopped falling by March 9, 2009, after reaching about 6,500 on the DOW. The stop in the decline and the march up coincide perfectly with the measures to prevent the GDP collapse of 8.9% in the 4th quarter of 2008 from becoming a great depression.
ReplyDeleteBut I agree with you that job creation and growth rates--both of which have been positive since March 2010 and July 2009--are not yet good enough.
Demography is also impacting labor force participation rates. The country is aging and that is reducing labor force participation in part. Also immigration, especially illegal immigration, is slowing, as President Obama has deported more illegal immigrants than any President in history. A slowing of US population growth means slower GDP growth. GDP growth is tied strongly with rising population and productivity. US productivity increases have been strong since 2009.
I would bet the Obama campaign does not want to call attention to success in areas popularly associated with the group he is demonizing.
ReplyDeleteThe massive liquidity provided by the Fed has to go somewhere! That somewhere is the stock markets and commodities. It serves to make some people feel that things are going well when they clearly are not! The average person is not in the market and does not trust it as demonstrated by lower retail participation. P. Obama is a Socialist. A central planner and statist who has demonized American Business while catering to a selected few who financially supported his candidacy as fascist and crony capitalists are prone to do. GE and "Green Energy" comes to mind.
ReplyDelete"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as a result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system involved."
Ludwig von Mises