UPDATE (21 November 2008): This missive has been updated from its original publishing. The chart in this missive has been replaced with three more up-to-date charts reflecting current polling figures and market values. (Click here for more information on post election markets)
LONG BEACH/ATLANTA— The current stock market unrest reflects a pervasive fear of the future in the US economy. Further, Barack Obama is leading in the polls, and is leading substantially in some. But how does Mr. Obama’s rise correlate to the volatility in the stock market? Does his rise in the polls mean people are turning to him as a result of the volatility? Or does the volatility in the market mean investors are concerned about Mr. Obama’s rise in the polls?
Much has been written about what impact the Obama tax hikes on capital gains, corporations and wage earners earning over $250,000 may have on the American economy. I personally speculate that Mr. Obama’s tax plans will put quite a damper on the market and will slow recovery from the current recession (and thus I’m not voting for him!). But I readily admit that this is all an academic debate at this point- we will not know for sure until Mr. Obama is elected and enacts his plans.
Some speculate that the current volatility in stock market prices confirms that investors have similar perceptions of Mr. Obama’s plans. They dub the current depressed market as reflecting the “Obama Discount.” Markets generally reflect investors perceptions about the prospects of the economy in the upcoming 6 to 9 months. With stocks slumping, those perceptions must not be good. Some suggest that the stock slump directly correlates to the rise in Mr. Obama’s polling numbers. They argue that the slump reflects a general fear among investors that Mr. Obama’s policies on taxes, labor unions, energy consumption surcharges, and expanded regulation (among others) will be a burden on economic recovery.
But is the “Obama Discount” true? Clearly, the overarching concern impacting the stock market is that we are in the midst of the worst financial crisis since the Great Depression, with much uncertainty abounding. There is no doubt that this is the primary driver of the uncertainty and volatility.
Nonetheless, the market’s movements are not fully making sense. The government has moved swiftly to inject capital into the markets and credit is thawing (ever so slightly). I have argued previously that government movements into the economy may be exacerbating market anxiety, but the conventional wisdom is that these movements are addressing investor concerns about available liquidity and thus stocks should stabilize.
But the conventional wisdom is not happening. The Dow is still dropping considerably, even among companies who offer low priced goods and would seemingly benefit during a downturn (companies such as McDonald’s and WalMart). Supporters of the Obama Discount theory suggest that this unexplained movement confirms investor concerns about the US economy under Mr. Obama.
To test this theory, we created the graph below, comparing the movements in the polls to the movements in the Dow Jones Industrial average.
As you can see, Mr. Obama’s polling numbers move in an inverse relationship to the Dow.
But the question remains: is Mr. Obama rising in popularity because the market is falling and people perceive he can save us? Or is the market falling because Mr. Obama is rising in popularity and people perceive he will hurt us?
You tell us.
TennesseePaul
Stephen VanNuys
Brooklyn Daniel
The Freedom Thinker
Hi! I’m writing from Neuron Global, a knowledge processing and reporting company, whose clients include; Harvard University, the World Bank, MIT, Stanford University and The Society for Organizational Learning.
Currently, we are creating a Special Report on the Current Economic downturn. I am writing you today because we are still in the process of finding out what issues and fears are at the forefront of people’s minds and we very much need help in collecting this research.
I would like to ask for your help since I strongly believe that your blog will be a great medium to get different viewpoints of real value.
We are requesting that you include our questionnaire link in one of your recent recession-related blog entries. In return, we will give you and your readership a free report on Lessons Learned from the Great Depression, valued at $19.95.
The link below connects to the Neuron Global’s survey questionnaire:
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It is a fact that there were market issues and financial problems BEFORE Obama started getting crazy in the polls, so trying to blame the slumping market on him is ridiculous. And as far as the market not stabilizing, the banks have to give the money that they received out. This is something that they are not doing because they are waiting. For what? I have no idea, maybe to see who wins the election, if that is the case then things will definitely get worse before they can even hope to get better because it is not like Obama’s financial policies will be enacted overnight. The government never should have given the money to the banks, it should have given it to the people who need it. They in turn, could have paid their bills, and given the money back to the banks. The result would be similar to the idea behind the bailout, but it would actually work because debt would be reduced and the banks would have the money. A win win for all, except those focused more on profit than actually solving the financial crisis. Greed is good, right? Even when it cripples nations? Sure, why not?
unrulytravller’s solution is one of those classic “all ya gotta’ do is” ideas that would be impossibly complicated. To give the money to the “people who need it” the government would have to set up a huge bureaucracy to determine who the people were who needed it the most. After that the bureaucracy would need to determine what bills and how much needed to be paid to select the most needy instead of the most greedy. The bureaucracy would have to figure out how to get the people to actually pay the bills instead of spending it on some thing else. The bureaucracy would probably end up having to pay the bills for the people just to make sure it actually got done; thereby making the bureaucracy even bigger and more powerful. The cost of the bureaucracy would approach the size of the bailout before long. I could drag this out a lot further but you can see that sometimes (most times, actually) the simplest sounding ideas aren’t the best ideas.
Then you have to deal with all the lawsuits from all those responsible borrowers who took a smaller house and a more manageable loan that are now upset because a lot of irresponsible borrowers took a bloated loan for a mansion they could never afford and are getting away scot free with the assistance of the tax money these responsible borrowers are paying. All the while they can only think, “So this is the liberal idea of fair? If only I’d bitten off more than I could chew at the time. I could have been on the brink of bankruptcy and then had the Government bail me out. I would have had a larger house in a nicer neighborhood and I wouldn’t have to pay for it.”
The banks are building cash reserves because the foreclosures have got a ways to go my friends. Designer loans like the 3 and 5 year ARMS, the no doc, the interest only, etc. are still out there in the millions! There were between 80 and 90 thousand foreclosures last month alone! Paulson developed the sub prime division at GS, then bailed with 500 million in total compensation and then they make him head of the treasury. Talk about putting the fox in charge of the hen house.
TS, a liberal idea? It was John McCain pushing the 300 billion dollar bail out of homes in danger of foreclosure and it was none other than the Bush White House the pushed the equally disgusting 700 billion dollar bail out of the banks and the Republicans in the Senate that upped that number to 840 billion, who are you kidding making an attempt to lay that at the feet of the liberals?
Chavez: You seem to be confussing Bush as a conservative. It’s a common mistake. People see the “republican” tag on him and think he represents conservatives (they tend to see that tag and think it means true conservate regardless of to who it is attached). He never really has. He was the only choice that conservatives had that wasn’t as liberal as Gore, Kerry, Nadar, Edwards, and so on.
Also, the $300 billion McCain is talking about is a provision in the $700 billion bailout plan that both candidates voted for. This is the plan that I have been against. It is also the plan that 108 conservative congressmen were against. And I’m not pleased with McCain’s stance on this either. The longer this election goes the more depressing it becomes to see how bad the choice is. Both parties put up bad candidates.
I say the gov should have given the cash to everyone who makes less income than water artificial boundary they want to impose. It makes about as much sense as what they did, and we can already see that the banks are letting the money go anyway, so even if people weren’t paying there bills, the money would be out there in circulation, keeping businesses going, so the banks would still get the money. Whether or not the people spent it on what they should (and you are right there are probably millions of folks who would spend it irresponisbly) the issue of having more money available to the banks (even if in a roundabout way) would still be getting solved (faster than it appears to be now anyway.)
“So this is the liberal idea of fair? If only I’d bitten off more than I could chew at the time.”
In response, I say why do we (the American people) have to be responsible for the irresponsibility of corporations that knew the market could not sustain itself, gave out bad loans to folks they knew probably weren’t going to keep up with adjustable mortgages, and went ahead with their plans for profit anyway? And they failed to self regulate. If someone if going to get our money (to save the economy) then it may as well be us, rather than the companies that were irresponsible enough to let this happen. Or is that the new American Capitalism: screw up, have the government bail you out, and it will be okay (as long as you are a multi million dollar corporation) and screw the little guy that had a job, was making payments, then got fired so he can no longer afford those payments, cause you know, it’s his fault his company found a country where it was cheaper for them to do business.
Unrulytravller- thanks for returning and continuing a healthy debate.
On this site, we have not been big fans of the bailout either, for some of the same reasons you give. We think it would have been wiser (longterm) to let these institutions fail that made poor decisions. Recessions are one of the unfortunate realities of economics, it just seems they can’t be prevented. Real people suffer through them and it is painful to witness- this one will be especially painful, I fear. However, recessions are a good time to weed out the good from the bad. The badly managed companies should be allowed to fail and go away- it’s a powerful lesson to those who remain that unsound business practices, excessive risk-taking, and unrelenting greed do not pay in the long-term.
I think one of the unfortunate things that is happening in all of this is that people are projecting the irresponsible actions of some (or many) in the banking and financial industry onto every institution in the industry. There were plenty that didn’t take on excessive risks (BOA, SunTrust, Chase, etc), though they did take on some. Before Congress makes knee-jerk, onerous regulations for everyone else, we should ask ourselves: 1) what did these institutions (BOA, etc.) do right that the others did wrong, and to what degree can we trust them to continue doing it without additional regulation, and 2) does anyone have any incentive to take on these excessive risks on bizarre, overly complex derivatives and securities going forward, in light of the ruin that these things have wrought on the markets today? I think they need to answer these questions before setting out new regulations.
Now, I’m not arguing against the need for better/smarter regulation of the industry. It seems clear something in the regulatory structure needs to change. Not being familiar with it, I tend to think it needs to be a reorganization and consolidation of those providing oversight (too many regulators right now) and regulations that provide clarity and consistency of communication between parties involved in financial transactions(e.g. requirements about obtaining documentation for incomes for those getting loans; standardized communications in derivatives and other financial contracts regarding risks relating to those instruments, etc).
But I’m very afraid Congress (and other world bodies) are about to WAY overstep their bounds in reaction to this crisis and bury the system in excessive regulations and restrictions that will slow down the flow of capital and add increased costs to obtaining financing. Long-term, such rules and restrictions will hurt economic growth and ultimately cramp our standard of living.
Unrulytravller – on the issue of giving money directly to the people, I’m not convinced this is good either. Contrary to this method or the bailout, I tend to favor a method of increasing lending to banks and others simply through dramatically lowering the federal reserve rate (e.g. lowering rate to 1% or even 0.5%) or the federal reserve giving loans with a deferral on interest or payback terms (but that does not include equity interest in banks- government control of banks frightens me, but I won’t go into that here). I’m not a banker, so someone may disagree strongly with me here.
I think what the difference is from what you are proposing is that ultimately, the banks would have to pay the money back to the government. That gives them the incentive to go out and find investment opportunities for that money (i.e. they would need to lend, but they could do so at lower rates and that in turn could spur economic growth). Conversely, providing the $$’s directly to consumers will result in a one-time surge in consumer spending that is unsustainable. Millions would flood out and buy things they may not need and it would distort the markets- suddenly, producers would get a false one-time up-surge in demand that may skew their ability to project demand going forward. Further, consumers may be lulled into a false sense that the economic troubles are behind them. As the underlying troubles would remain once the money is gone, I’m not sure this would be helpful. The government has tried these “stimulus” plans mutiple times – in the 1970′s, the early part of this decade and now. I’m not fully convinced that they work. Seem to be bandaids to me.
Sure, there are better options than giving the money to consumers (banks or otherwise), but what I am saying is given the choice between the companies getting the bailout money, and the American people getting the money, give it to the people directly. The troubles you speak may still be there, but if even half of consumers were responsible, the banks would get the money anyway, so they could then start lending again, with more confidence. And yeah, lower the reserve rate so that they can find more investment opportunities at a lower cost. Yeah, it is a band-aid type situation, but as with any wound, the bleeding needs to be stopped before any actual healing can be done. And right now, I’m not convinced that the bleeding has been stopped, even with the bailout and slight increase in new homes sales for Sept. In fact, I’m not even sure how to explain the increase in home sales, unless this whole financial crisis is a fabricated excuse to fleece the taxpayers even more than they already have by corrupt companies and government officials (Repubs, Dems, and Independents alike).
unrulytravller: “In response, I say why do we (the American people) have to be responsible for the irresponsibility of corporations that knew the market could not sustain itself”
I don’t think we should. The issue I have with this whole business is, why should the responsible bare the burdens of the irresponsible in this situation? Banks certainly made their mistakes and bad moves. But individual American’s aren’t entirely without blame. No bank told American’s to run up massive credit card debt. No bank told American’s they had to buy massive, gas guzzling SUV’s. Americans were already living at $1.10 level for each $1 earned. Pointing the finger of blame only on a handful of CEO’s is granting a pass to bad behavior by some American citizens. (Not all American’s took out bad loans and I’ve read in various places that the subprime loan debacle makes up no more than 15% of all mortgages issued, but this figure could be flawed).
On the other hand, I’ve heard some describe this bailout as a measure taken akin to the suspension of liberties during a time of war. I’m not sure if I agree with this either, but it is an interesting angle. I’d like to read more about this perspective before I comment more on it though.
Great discussion. I’m disgusted on the extreme with the bailout. But I have to offer a completely different viewpoint.
It’s really about biblical living. People being independent and responsible for their own lives, not relying on others, but relying on God. This is what we’ve all gotten away from with huge credit card debt, huge home loans, and more, but what is scary is that it is so pervasive across society.
As Paul points out previously. We’ve been spending more then we earn. The government could be expected to act in such a manner but now that the American people and American business are following their leadership we’re headed to a rough place I’m afraid. The bailout only allows the snowball to continue to pickup speed and size. The real solution isn’t regulation, bailouts/welfare, government, business, others, etc. The real solution is a return to Virtues. All great societies prosper under virtues, whether they are Judeo-Christian or some other form (look at the Greeks and their famous virtues, the Roman’s and Cicero’s writings, America at it’s foundation, the Bible and the creation of Isreal with writings of Moses, David, and especially Solomon, etc.). Patience, independence, integrity, hard work, frugality, healthy living, faith, optimism, wisdom, etc. (make your own list)
As a father of 3 and one on the way my fear is that we are selling our children into slavery. Slavery both from a lack of knowledge and slavery in a very real sense to foreign ideals and powers.
Considering McCain jumped in the polls (at least the two main polls – Rasmussen and Gallup) and the stock market jumped 890 points, for this test study to be 100% accurate, the chart should be updated with this lastest information. Thanks.
Obamanomics: Your wish has been granted.
Christopher – thanks for dropping by. I definitely agree that we as a nation have lost site of our principles and there seems to be little left in the way of biblical living in much of modern America. Excess living is part of the root cause of this recession. Hopefully it will be a powerful lesson to many.
As for your comments on debt, I hear you. It’s dangerous we have borrowed so much as a nation for many reasons.
I’m starting to become a deficit hawk myself. I think someone needs to run for office who takes fiscal responsibility seriously. No more promises of spending that we can’t afford. It’s gotten way out of hand.
Stephen/Paul;
Here is a story I thought you might find interesting and a bit scary as well. It’s a bit of a barb against Obama but it’s interesting.
http://elections.foxnews.com/2008/10/30/clinton-suggests-obama-uncertain-economic-crisis/
Freedom Thinker: Ha! That’s pretty funny. When Brooklyn Daniel was watching the DNC speeches he called me and said, was it just me or did Bill seem like he wasn’t to pleased or impressed with Obama?” Ever since then Clinton has praised McCain, Palin, and questioned Obama in very covert ways.
I was watching the Simpsons the other night. It was the Halloween special where the two aliens assumed Clinton and Dole’s roles in the election. Marge was washing dishes watching the news. The news began:
Kent: Kent Brockman here, with Campaign ’96: America Flips A Coin. At an appearance this morning, Bill Clinton made some rather cryptic remarks, which aides attributed to an overly tight necktie.
Kodos: I am Clin-Ton. As overlord, all will kneel trembling before me and obey my brutal commands. [crosses arms] End communication.
Marge: Hmm, that’s Slick Willie for you, always with the smooth talk.
Stephen/Paul;
I need some help. I’m trying to decide who to vote for on Tuesday and am really stuck. I’m looking for a good agrument for whom to vote. Reading your blog’s I know you don’t support Obama, but that’s not really my problem. I know that Stephen use to be really strong for a two party only government don’t know if he still is I’d greatly appreciate any thoughts or help you all could give on my philosophical cal-de-sac I appear to be in, I’d greatly appreciate it. It’s outlined in my blog at the following link.
http://www.thefreedomthinker.com/2008/11/best-of-intention.html
Is the Freedom Thinker a former attendee of a small Christian liberal arts college in TN? Do we know him? He speaks of WV and I am wondering if it is who I think it is.
BaldMan: Yes. He has pondered if you were a chip off the old block.
Well by all means I wonder where this man is at nowadays. I haven’t talked to him in forever. Please tell him to shoot me an email sometime…. He doesn’t appear to post to other webgroups anymore.
Like I’ve said elsewhere, the Obama discount is a tough call. We haven’t really taken a position on it on the missive, other than to throw it out there for debate. But the news articles have been breaking the last day or two and there are suggestions these movements have been at least partially caused by fears of Obama. Much is left to be debated though. We still don’t know precisely what Obama is going to do.
But the energy surcharges, the potential for tax increases, and the heavy regulation of the financial sector are almost sure bets- and those won’t be good for the economy. No sir.
WOW…. that is a brilliant post and that last graph is just devastating.
[...] Poll Numbers Vs Dow Jones Avg’s Posted on November 7, 2008 by Texas Hill Country American Missive UPDATE (06 November 2008): This missive has been updated from its original publishing. The chart in [...]
Thanks for stopping by Texas Hill Country. We’re in for a wild ride with Obamanomics!
Found another good explanation for this in the Wall Street Journal yesterday that I hadn’t previously thought about. The WSJ suggested investors are taking “losses” right now, in anticipation of Obama’s increase in capital gains taxes. Obviously, under tax rules, investors would be allowed to carry these capital losses forward, within certain limitations, into future periods. This would allow investors to offset the losses against future capital gains, thus paritally shielding those future gains from Obama’s increased taxes. Makes a lot of sense to me. I think there is something real going on here that is directly Obama related. Not all of it is Obama related, surely. But there is a big part of it that is.
Man – things are looking worse and worse!
Treasury yields are setting record lows and the Obama team is starting to talk about this downturn lasting 2 to 5 years. I think Obama is going to stumble out of the gates and fall flat on his face. The expectations for him are too high and the realities of what he can reasonably accomplish with the economy are too dismal. I think the recent drop is not Obama related- it is more Hank Paulson monkeying around with TARP (the “troubling asset relief program”).
But man it doesn’t look good. It’s going to be too easy for people to project this on Obama…
Just when you thought it was safe to go back into the water, enter President-Elect Obama. The man who is going to save the world by any means necessary. By the time he is done, we will all be up a creek without a paddle and higher taxes than one would dare imagine. That higher taxes part means EVERYBODY, so do not be fooled by the smooth talking president-elect.
Agreed on the taxes bydesign001. The markets have turned positive over the last week b/c of the new $800 billion “guarantee” money promised by the government and to a lesser extent b/c Obama has come out with a pro-market economics team promising more stimulus spending. I’m surprised people are so short-sited though. That stuff may “help” in the short-term (I’m not convinced it will yet, but we’ll see). But there will be long-term consequences, I fear.
Higher taxes are virtually guaranteed to pay for all of this- meaning there is a trade-off for any stabilization the economy may get now. The chances for future economic growth will be hampered by higher taxes.
Further, I’m surprised I don’t hear more about inflation. Maybe I’ve got some things to learn myself about monetary policy (I’m no expert by any means). But it seems to me that all these 100s of billions in printed money to address these problems will inflate the currency, meaning we will be “taxed” through higher prices for basic goods and services. Obama is going to be burned for these big-time “stimulus” plans, I think, if inflation starts to hit in a big way.
So how exactly did you code the polling data, and whose polls are you using? Did you assign specific dates for the poll values to be assigned to, as polls occur over date ranges? And if you used more than one poll source, could you please identify the weighting you gave to each value included for one particular day?
I am currently conducting research on the correlation between market movements and poll results, and would appreciate if you could please diclose some of you methodology and your sources for polling data.
Poll numbers were extracted from the Real Clear Politics Average of Polls during the time of the campaign. The final “poll” number for each candidate is the election result. The market values are the DOW Jones Industrial Average as reported by Yahoo after the close of the markets.
March 2009:This is no longer an academic exercise.
Nor is it funny. The market is a perfect measure of current expectations on future economic health. The expected effect of socialist policies on free markets is clearly negative. I you want to debate some better ideas for immediate improvement…see 1982 and 2002. Cutting the captital gains tax would send a signal that would bounce the market overnight. This is not about improving the economy, it is about CHANGING the economy. Hold on to you hats.
Agreed, RedManBlueState. The recent bounce notwithstanding, Obama is no good for long-term investments. His micro-management approach to engineering our economy to be “fairer” for our children is going to lengthen and exacerbate this crisis. 1981-1982 was the worst recession since WWII before this one. Reagan got us out of that thing and his economic policies touched off 7 years of unimpeded economic expansion- the second longest such stretch in our nation’s history. Even Clinton (at the urging of a Republican Congress) enacted positive, pro-market, supply side policies in the 1990′s in response to the 1990-1992 recession (which was also a bad one). Obama, radical ideologue that he is, is reversing all of the Reagan/Clinton policies as the “failed policies of the past.” Instead, he’s loading us up with onerous regulations, expanding government, increasing government spending at rates that far outstrip inflation rates over the past few years, redistributing wealth through his proposed tax code, etc. My prediction is we will enjoy zero substantial growth under the man and his policies- we will see another recession (and soon!) after we get out of this one, if Obama has his way economically. He’s just so anti-growth, anti-capitalism there is no way he will be successful.
[...] on this site that the stock markets have generally not responded well to Mr. Obama’s political rise in the polls before the election or to his subsequent economic plans after the election. We [...]
[...] OBAMA DISCOUNT: Is Obama’s Rise in the Polls Causing A Drop In Stock Markets? See Our Chart and Ta… (Posted on October 23, 2009, Total hits of 985) [...]
Hi!. Thanks for the blog. I’ve been digging around looking some info up for a project, but i think i’m getting lost!. Google lead me here – good for you i guess! Keep up the good work. I will be popping back over in a few days to see if there is updated posts.
Mornin, incorrect information artificial, specially from the major news corperations with the big slants to the left or right. Did you see last nights O’Rielly factor? haha, that was rediculous! Sorry, I’m rambling along over again. Have a Wonderful 1!
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[...] considering the great September we just had. Looks like we are still stuck in a bear (and that Obama discount might still be priced in). I guess the short of this is, with gold recently making new highs, and [...]