The Market Speaks

by Steven M. Cohen  •  Feb 10, 2009 at 1:31 pm

http://www.buyselljump.com/2009/02/market

We are not yet far removed from the euphoria generated by the inauguration of our new president. Approval ratings are a sky-high 70%, the networks still dote on every little White House detail concerning kids and pets, and the serial appearances President Obama makes, seemingly daily, do not yet grate on the nerves.

So how can we even begin to assess the performance of our 44th President? Most Americans are pulling hard for his success and their good will has plenty of momentum to keep it going through the hard times ahead. A few, at the margin, are beginning to fall one way or the other; some are disappointed that he does not seem to be emulating Bill Clinton by moving to the center after running on the left, while others are elated that it appears his campaign pledges were genuine. And, of course, it is far too early to draw any conclusions.

It is not too soon, however, to pay serious attention to the one critic in a position to weigh in with a meaningful preliminary judgment: the market. Apolitical, brutally quantitative, with no hidden agenda, the market ignores oratorical flourishes and is immune from personal charisma. But it is not mute; it speaks in simple and unambiguous terms, oftentimes loudly. The message it is delivering thus far on the Obama administration is not a positive one.

As goes January, the statistical evidence tells us, so goes the market for the ensuing year, in most instances. The market has just completed its worst January on record. The market experienced its worst performance for an Inauguration Day in 116 years. It seems that the general jubilation surrounding an event as unique as Obama's ascendancy has somehow bypassed the collective judgment of market participants. It is not hard to see why.

We see a president who incessantly reminds the American public, which is already painfully aware that things are generally awful, that we are in a "crisis" of vast proportions and long duration, and that it is an "emergency" that calls for immediate and dramatic action by the federal government. While no one should underestimate our present economic woes, perhaps the public would be better served with a more balanced message: No, this is not a garden-variety recession, not part of the normal economic cycle, but better days lie ahead. Market participants have heard little that resembles FDR's "nothing to fear but fear itself," but instead see a president who, in a rather transparent way, uses the ensuing misery to build public support for a dubious "stimulus" bill involving heretofore unimaginable levels of government spending. We will be getting a new New Deal without the comfort of FDR's fireside chats. The entire process reeks of politics, and the market doesn't like that.

The dire economic message is only a part of this president's negative remonstration. Through word and deed, Americans are reminded of their callous disregard for the rest of the world. Thus, the new Administration, in flamboyant repudiation of its predecessor, in its first hours moved to close military prisons and immediately shut down military prosecutions of known terrorists. We now must reach out to Third World tyrants with an olive branch instead of the threat of force. There is the constant suggestion that we must wipe the slate clean of our past transgressions. Since the stimulus proposals contain so many items having little or nothing to do with economic recovery, perhaps Congress should throw in a provision for the establishment of a National Penance Day, where we dress in sackcloth and ashes in recognition of all the ills our country has visited upon the world for the last eight years.

These presidential edicts, the initial signature acts of a new Administration that evidently could barely wait to issue them, this body language suggesting America's need to make amends, portrays us as a weak people without a mission. It signals to friends and enemies that we have lost the confidence that enabled us to take decisive action in our historic role on the world stage. Drowning in guilt, apologizing to the world, a people turned soft—the market doesn't like that.

Perhaps most troubling to market participants is the process by which the original stimulus package was born. It was not, after all, a bill generated by the new Administration, the one with all of the financial experts who milled around in the background as props for the president's first press conference. Instead, it came right out of the pages of the Speaker's notebook, along with major contributions from Harry Reid, Barney Frank, and assorted other political soul mates; it made the new president look less like a leader than an enabler for Nancy Pelosi and friends. Making things worse was the pile of special interest pork larded onto the bill, legislation whose alleged purpose was to alleviate the nation's economic distress. Instead of a blueprint for economic recovery, Democrats presented the American people with a wish-list of programs they had been unable to get by a Republican administration. Only years of pent-up frustration could have generated such a nakedly obvious political stunt. Politics trumping the urgency to attend to the nation's economic well-being—the market doesn't like that.

Market confidence is undermined by the evident amateurism and mistakes that the new Administration should have avoided. Increasingly populist rhetoric and merciless bashing of feckless Wall Street executives is unbecoming to a President—as well as to the office itself--whose spectacular speechifying talents propelled him into the White House. Worse still are the bungled appointments that suggested either sloppy or incompetent vetting—strange, since the President has surrounded himself with politically experienced people who should have known better. A governor possibly involved in a criminal probe, a nominee for the post of the nation's chief tax collector who doesn't pay all his taxes, a health "czar" and former Speaker of the House with similar tax delinquencies—not the hallmarks of an Administration prepared to hit the ground running to stem a financial panic. Not ready for prime time—the market doesn't like that.

The new Administration should not underestimate the powerful message the market is delivering every day. Its measured and sober analysis is far more significant—and reliable—than talking-head political pundits, know-it-all economics professors—and even opinion piece writers. Thus far the market sees bald politics instead of leadership, dithering instead of moving forward with genuine proposals that will over time contribute to an economic recovery—starting with meaningful tax cuts that will eventually create real private sector jobs instead of the chimera of monumentally expensive government programs promising the moon. The market is looking for the "change" so often invoked by candidate Obama. Instead, it sees for the most part the reconstitution of an administration from the 1990s hastily recycling policies and programs last seen in the 1930s. The new President and those advising him would do well to pay attention to their most important critic.

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