The Supermajority and the S&P 500

It looks increasingly likely that not only will Obama will become president, but that the Democrats will attain a veto-proof majority in Congress, allowing the left to implement its wish list. Concurrent to this has been the startling decline in the stock market, which has variously been blamed on FNMA, the bailout, AIG, the bailout, the nationalization of banks, or... the bailout.

Speaking of the bailout, this is an issue that will simmer to a boil over time. In the last 2 weeks I've given 4 speeches. In each I've asked for a show of hands on how many in the audience support the bailout. Out of about 1000 audience members total, only 6 raised their hands. When I ask how many are pissed about it, nearly everyone raises their hands. Anecdotal, but telling.

Back to the stock market. I decided to graph Obama's "stock" on Intrade (the betting he will become president) vs. the S&P 500 for the last couple of months. As you can see on the attached chart, Obama (in blue) started his run from 50 to 80 around September 18. One day later, the S&P 500 (in red) started its slide from around 1250 to about 980. What is this telling us?

The stock market is a very effective predictor of the economy. As it becomes more clear that Democrats will be in charge, I believe the market is reacting to what it sees as a looming anti-business environment. Card check (the Orwellian Employee Free Choice Act) will slam Wal-Mart stock, which, year to date, is about the only Dow stock to be in positive territory. Interestingly, the market capitalization of GM (unionized) at $3.5 billion is less than the annual total value of all the goods shoplifted from Wal-Mart (non-union) in just one year (about $3.7 billion). Wal-Mart has 2 million employees and is hiring. GM, not so much.

If Wal-Mart were unionized, and all 2 million employees got a $1 per hour raise, that would add $3.64 billion to its costs, wiping out an entire fiscal quarter of its profit. The stock market can figure this out.

Prescription drug price controls? Bad for Big Pharma. Windfall profits tax on oil companies? Bad for Big Oil. Extended Waxman-ite hearings on business? Bad for everybody. Kneejerk anti-business legislation will emerge, with unintended consequences. Sarbanes-Oxley decimated the U.S. IPO market. Mark to market rules enacted post-Enron brought down the investment banks. Climate change legislation (note how they don't call it global warming anymore, hmm..) will impose a cap and trade tax on manufacturing, the very sector the U.S. must rebuild. The "climate change" that is actually occurring in the real world is the economic climate.

The market and its participants see all this, and are acting accordingly. The outlook for starting, or profiting from a business is cloudy, ergo a declining stock market. The outlook for government is good. Too bad we can't buy stock in that.

Follow Ron Galloway on Twitter: www.twitter.com/rongalloway

Comments

[JPHR]

Mr. Galloway advocates that society is to serve business interests.

My guess is that citizens/t­axpayers/v­oters expect society to regulate companies and markets in order that both society and its citizens are served.

[zedthewizard]

you argue that obama's success has caused the market's decline. you ignore all of the conditions that actually caused the decline. it was this decline that aided obama's success -- here is the causality.

was obama to blame for the explosion of the nation's deficit and debt? did obama waste our resources in an inconvienent war? did obama open mortgage broker businesses and give poorly conceived loans? did obama construct the complicated formulas to construct mortgage backed securities creating terrible risk under the guise of reducing risk? did obama shake the trust and confidence in and within this economy and society by being secretive, abusing power, and misleading the public?

i don't know who you are . . . is this a revisionist joke article?

[PT6]

Obama should make an address to the Markets!

Obama Televised speeches PUSH MARKET UP

A pattern is developing:

From -5 to +155 in Roanoke, Virginia Today
From -250 to +108 in Indianapolis, Indiana Oct 8

The Market seems to have Great CONFIDENCE in OBAMA!

Every time Paulson or Bush speak the Market goes down showing NO CONFIDENCE!

[LeftRight]

And one more thing. Since the economy (and the markets!) ALWAYS do better under a Democratic President than a Republican, why would business be mad about the coming Business will be better Presidency????

And why aren't you telling the TRUTH about the fact that the economy ALWAYS does better under Democratic Presidents?

[LeftRight]

Here's a stupid question. If Obama is the President, why do the Democrats need a veto-proof majority in the House and Senate???? You need a FILIBUSTER-proof majority, which is LESS. You need 2/3 in both houses to overturn a veto, you only need 60 votes in the Senate (and NOT the House) to overcome a filibuster.

[PATina]

I think business wants us to believe this... but I personally find it hard to believe that by giving spend happy Americans more money... businesses will suffer.

[BobLablah]

Huh? Obama is going to give people money? Where exactly is he going to get that money? By taking it from Joe the Plumber I guess.

[LeftRight]

I think that you mean Bill the Gates and Warren the Buffet.

[PATina]

Raising the minimum wage... tax cuts for the middle class... lowering health care premiums/d­eductibles­... creating higher paying 'green' manufacturing jobs... increasing teacher salaries... etc.

All of those things will give people more 'disposable' income... and many Americans will 'dispose' of that income by purchasing houses, cars, vacations, entertainment... which, in turn, will boost the bottom lines of many businesses (construction, auto manufacturers, airlines).

The difference in what occurred the past 20 years is that they will be spending EARNED money as opposed to BORROWED money (credit cards, home equity loans).

[Zeje]

Joe the Plumber will also have more money. He's not one of the top 1%. He's like the rest of us -- only dumber.