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Hugh Hewitt Book Club

The President-elect, The Markets, and Ending the Panic

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On Friday night’s Hannity & Colmes, I noted that markets had been “pricing in” the consequences of sending President-elect Obama and strong Democratic majorities, and my e-mail box filled up with outrage at the idea that the president-elect caused the market collapse.

Which goes to show that the president-elect’s partisans aren’t going to be listening very closely when anyone criticizes the new president. Of course the president-elect didn’t cause the market collapse. But the numbers post-11/4 are tough to ignore.

With the polls still open on election day, the Dow closed at 9,625, the NASDAQ at 1,780 and the S&P 500 at 1005.

By comparison, yesterday the markets closed at 8,497, 1,516, and 873 respectively.

That’s the bad news. The good news is that more and more voices are being heard noting the absurdity of the panic the economy is gripped by, and predicting that while there is a recession which will be as difficult as any recession, the underlying fundamentals are very strong indeed and that stock and commodities markets are oversold, real estate fairly priced, and bonds too rich for the real data.

Transcripts of interviews I conducted yesterday with Brian Wesbury and James Smith are here and here and I strongly recommend you read them, a couple of times. Both men are extraordinarily well-credentialed and respected economists and proven forecasters, and both refuse to be misled by the panic-spreading MSM. Here’s one exchange with Wesbury:

HH: And are you advising your clients generally, not specifically with regard to any particular equity issue, that they need to take a deep breath and take their money off the sidelines and put it in?

BW: Absolutely. Right now, cash, just in money market funds, is 44% of total stock market capitalization, which is just a huge number. It’s like fifty feet of snow being in the mountains. And when it melts and starts coming back down, the rivers roar. When it comes into the market, I think this market is undervalued, people have run away from risk. This panic that we saw in September and October, it’s visible in the market. And once people get an appetite for risk again, which by the way, they always do. One of my theories these days, it’s highly technical, so get ready, is dogs bark.

Which brings me back to the president-elect. If he was simply to announce that there would be no tax hikes in 2009, period, the impact on the markets would be immediate and perhaps even enough to reverse the market psychology that continues to see fear trumping greed. My guess is that Democrats would prefer to see the market slides abate of themselves so that they can get to the business of raising taxes asap. but markets are the wisdom of the many, and the many are worried right now that the president-elect could take a bad situation and make it very much worse.

The election of Obama didn’t cause the market collapse. But worries about his policies have certainly taken it lower than it needed to go and will continue to act as an anchor on stocks until some clarity emerges about the direction he intends to head. The sooner the better on that.


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