THE BLOG
11/17/2008 05:12 am ET | Updated May 25, 2011

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?

2008-10-17-STOCKOBAMA.jpg

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.