Obama Must Take the Market Seriously
Economy: IBD readers don't need to be told there's a little more to the stock market than President Obama led on Tuesday. But if no one else is going to correct the record, we'll give it a shot.
Fielding questions during an Oval Office meeting with British Prime Minister Gordon Brown, the president downplayed the market's continued weakness. "What I am looking for," he said, "is not the day-to-day gyrations of the stock market . . . but the long term."
The stock market, he continued, "is sort of like a tracking poll in politics. It bobs up and down every day. . . . If you spend your time worrying about that, you're probably going to get the long-term strategy wrong."
Obama also said "it's not surprising that the market is hurting. I think what we're seeing is . . . as people absorb the depths of the problems that existed in the banking system, as well as the international ramifications of it . . . there is going to be a natural reaction.
"On the other hand, what you're seeing now is profit and earning ratios are starting to get to the point where buying stocks is potentially a good deal, if you have a long-term perspective on it."
That's quite a bit of analysis and advice coming out of the Oval Office. We didn't realize that our president was such a market maven.
To be fair, Obama isn't the first president to counsel a long-term view when the market gets into trouble. Few chief executives, however, make such specific calls as Obama did Tuesday based on what we took him to mean price-to-earnings ratios.
And who knows? If the market follows through on its strong action Wednesday, his call — that stocks are a "good deal" — may be one for the record books: He will have nailed the bottom, and we'll be the first to congratulate — and thank — him.
That said, we take issue with his comparison of the stock market to political polls, and worry he's not taking the market seriously enough. Far from being something that "bobs up and down every day," the market reflects the opinions of millions of investors and thousands of institutions who are super-sensitive to all that goes on — economically, politically and otherwise.
It's for good reason the government uses the market as one of its 10 leading economic indicators. The market is not, however, a long-term indicator. It looks at what's happening right now and what it will mean for the economy six months or so in the future.
If it believes what's happening now is constructive, it will move higher. If it doesn't like what it sees . . . well, that's why we commend recent market action to the president's attention.
As we noted on a chart that ran on Tuesday's op-ed page, the Dow industrial average has sold off 30% since Obama was elected. And as we noted in another chart a week earlier, it has tumbled 44% from mid-September, when the financial crisis came to a head and Obama moved ahead of McCain for good in the presidential race.
We'd hardly call that "bobbing up and down." We'd call it a savage bear market in which investors obviously have yet to see anything constructive on the horizon. Bear markets usually last nine to 12 months; we're in our 17th with no end in sight.
Whether or not he takes the market's action seriously, the president or someone on his team might ask why this is so, and why the downdraft has accelerated since he came on the scene.