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The way we were…post-Obama

EDITOR’s NOTE:  This is a very long post but essential reading for investors interested in market dynamics.

Recently a statist tried to convince me that the stock market has rallied under President Obama.

  • January 20, 2009  S&P500 @ ~831.95
  • June 3, 2013 S&P500 @ 1640.42

Voila, under this regime the market is up 97%.

Don’t let anyone pull that trick on you.  Markets move in anticipation of earnings. PERIOD.

The two major factors effecting corporate earns are energy costs and government interference (war, tax, regulation).  [The third factor is employee wages.]

A perfect storm was on the horizon in 2008, with origins that started in 2006.  Low interest rates and over consumption spurred by the Bush administration’s policies caused inflation which was evident in sky rocketing energy costs (among other things, e.g. gold, housing and wages).  West Texas Intermediate (WTI) hit an all time high in July 2008 at $143.68.  Raw material costs were soaring and a shock way hit businesses as wholesale prices tried to keep pace.  Add to the mix increased government intervention and the expectations for profits were dismal…the market crashed.  [The collapse of the housing market was a symptom, not the cause.]

Why was there a perceived threat of government intervention?  Barack Obama, the most liberal politician ever within reach of the oval office was about to be elected President; his efforts to transform the country would be facilitated by a leftist Democrat controlled House and Senate.  Linked with already historic energy costs this was the perfect storm to redistribute and destroy profits.

Depending on your political ideology, you may not agree with this narrative.  But the fact that millions of people might have held these views is indisputable.  Remember, markets move in anticipation of future events.  Perception effects the market before reality sets in.  [You may think the fears of these Neanderthal racist bigot investors was unfounded, but that’s irrelevant because they still liquidated their stock portfolios en masse.]

Viewing the chart, you can see the performance of the S&P500 along with key political event of 2006-2013.  Point 1 on the chart shows a rising market and the Democrat takeover of Congress in November 2006- the market may have been anticipating needed constraints on the Bush regime’s profligate spending and multiple Middle East wars.

Point 2 Romney drops out of the race making McCain the de facto Republican nominee.  Neither of these men were liked by the conservative right.  Early in 2008 it looked like the choice for President was between tweedle dum right-leaning-statist McCain or tweedle dee left-leaning-statist Hillary.  The crony capitalist could probably tolerate either one.  [Remember this is late January/early February 2008, Obama is raising more money and he’s won some primaries but he’s not yet the phenomenon that he’ll become.  He and Hillary brutally fight out the primary until early June.]

Point 3 Obama becomes the Democrat de facto nominee and in July the price of oil tops $143.68 (WTI).  The whirlwind forces converged to form the perfect storm.  Markets drops to a two year low.

Point 4 the market is up from lows, the McCain campaign receives its only breath of life when Palin is selected as a running mate.  You may not like Palin but remember this was the only positive bump the McCain campaign received.  The only thing that could have energized the conservatives more than Palin, would have been McCain’s sudden death.

Point 5 Palin implodes during Couric CBS interviews.  At this point everyone knew that Obama would be the 44th President of the United States.  The market goes into freefall in October 2008 and doesn’t hit bottom until March 2009 with the S&P500 closing at $676.53.  The market collapse was the steepest since the 1929 Great Depression.

Don’t try to argue that it was Lehman Brothers bankruptcy or the failure of the House to pass the first version of the $700 billion dollar stimulus package.  The market was up after Lehman and then fell the Monday after the Palin interview, surpassing the Lehman low by a full one percent.  If the drop was only because Congress rejected the stimulus on that Monday, then why did it keep falling and never recover even after Bush signed the stimulus into law later that week?

The fact of the matter is that the markets were petrified at the thought of a leftist dream team consisting of Obama, Reid, Pelosi, and Frank.  It’s self-evident.  The left’s stated agenda was- national health care, union card check, cap and trade, carbon tax, living wage, wealth redistribution…to name just a few.  All the while, two extremely expensive wars were nowhere near ending. [As of this writing, Guantanamo is still open and waterboarding has been replaced with ongoing drone strikes.]

So how did the market get back to where it was pre-Obama (minus inflation)?  Two things, quantitative easing (QE) and the fact that Obama’s America didn’t result in Armageddon (not yet anyway).  QE has resulted in the Fed’s balance sheet increasing to approximately 20% of GDP and the national debt over 100% of GDP.  The trillions of stimulus and QE dollars that have been pumped into the economy correlate to the rise in equity markets.  As to Obama’s agenda, much of it has failed or is in the process of failing.

Republicans took back the House in 2010.  Obamacare is law but its critical parts are being dismantled as the consequences are felt.  Federal agencies have restrained growth but Obama’s other initiatives have all failed to pass the House.  The second term has quickly moved from a lame duck to a cooked goose.  Over 80% of Bush’s tax cuts are now permanent; the Sequester antics made Obama look like Chicken Little; now the scandals are emerging: Benghazi (again), IRS political enemies list, Justice pressuring the Associated Press (no one cares about FOX).

Consider how bad things are in the second term- After the slaughter of 20 children at Sandy Hook Obama couldn’t even reinstate Bill Clinton’s “assault rifle” ban, couldn’t expanded background checks, and couldn’t even limit high capacity magazines. Even with the help of effeminate RINOs he couldn’t muster the votes.  Bush (both of them), McCain and Romney would have all buckled under the reactionary nanny state calls to “do something”.  Second Amendment proponents were lucky to have Sandy Hook occur under Obama’s watch.

The great hope for Obama’s second term was a Democrat take back of the House in 2014.  I haven’t checked InTrade lately but I’ll bet the odds aren’t looking real good about now.

So we’re “the way we were” minus inflation and plus trillions in debt.  Time for another crash?

S&P500 vs Obama regime 1