If your not familiar with Nate Silver and 538.com then you're missing out. Nate is a statistics expert and decided to marry his love of statistics with his love of politics and the result is the most accurate statistical analysis of everything from polling (He called every state in the 2008 Presidential Election except Indiana, nobody's perfect) to demographics.
In today's article Nate analyzes the effect Obama has had on the stock market when taken in context of the current economic mess. The last few days theirs been much talk about how the market doesn't like Obama, and his policies are to blame for the recent market down-turn. Mr. Silver decided to look in to the matter and posted the results in his latest blog post "What the Stock Market Really Thinks About the Economy."
More below.
I am a frequent viewer of cable - yes I know it's terrible - but I kept a few bad habits from the campaign. The last week or so I've heard the same mantra spoken repeatedly, "President Obama is to blame for the stock market collapse." Whether it be a right wing pundit or one of CNBC's "Market Analysts" the new administration has been taking a lot of heat. I always thought this was a ridiculous argument but it seemed to be taking hold and I didn't think it could be proven either way, until now.
Nate Silver put his statistical wizardry to use to try and solve the problem. Taking into consideration everything from future investment tax treatment to irrational crowd psychology behavior, Nate had some interesting findings. The purpose of the analysis, as Nate put it:
To make myself clear, this is not some abstract, ideological critique of equity markets, nor of the institution of the corporation. I am a pro-growth Democrat, and I am an investor myself. It is, rather, an attempt to elucidate the ways in which the interests of equity holders as reflected in (say) the S&P 500 may differ from those of the economy as a whole.
Nate compared groups of stocks, consumer-staples (Eg. Wal-Mart, Coca-Cola,Campbell's Soup) to consumer discretionary products(Eg. Ford, Home Depot). Using these subgroups he created his own indicator called the "Cyclical Expectations Index" and compared it to the S&P500 going back many years and found Nate's CEI was very good at anticipating recessions and showing the overall state of the economy.
Long story short - or read the article here - market participants are in a crappy mood or a "Pity party" as Nate would put it and no result of Obama's policies. I'll let Nate say it:
the CEI responded favorably to the stimulus package. On November 24, 2008, the CEI jumped by 6.5 percent, its largest single-day increase since April, 18, 2001, when Alan Greenspan cut interest rates by a larger-than-expected margin. What happened that day? Obama made it clear that he wanted an "aggressive" stimulus package. (This was also the day that Obama officially rolled out his economic advisory team. However, the markets had known about the composition of Obama's advisory team as of the previous week -- and had already rallied in response to it -- whereas the characterization of the stimulus package was actual news).
All of this gives us a rather different perspective on what the stock market is really telling us about the broader economy. The CEI is down about 10 percent since Election Day, is up about 10 percent since the last day of trading before Obama announced his "aggressive" stimulus, and is essentially unchanged since Obama's inauguration. The market is not becoming particularly more pessimistic about macroeconomic conditions (although it has certainly retained its previous pessimism) -- if this were true, we'd see cyclical stocks losing further value relative to more economically robust ones. But that largely isn't what we've been seen. Instead, the stock market is engaged in something of a pity party -- the prevailing emotions being fear and loathing. It is concerned about policies which might be burdensome to equityholders in large corporations while perhaps nevertheless being boons to economic recovery.
So, next time you hear some crap exposed about Obama's policies causing the market melt-down, keep in mind it's just the rich getting angry that the party is over.