A short while ago there was an article in the leftist Huffington Post by former White House senior policy analyst Jeff Schweitzer, complaining that the poor beleaguered president was getting all the blame for bad things and no credit for good things. This morning, left-wing Washington Post columnist Eugene Robinson chimed in on the same theme. Of course, as we sit here with our enemies hating us, our friends no longer trusting us, insurance prices doubling and fewer people employed than when Obama took office, it's hard to find those "good things."
Since they're so invisible, let's make them up, shall we? Or, in Schweitzer's case, let's just go all post hoc, ergo propter hoc again -- he was in office when good thing X happened, therefore he gets credit.
Today's example from the article: "The stock market doubled in value during Obama's first 14 months in office; it is now well into the 17,000s." It's actually over 18,000 as I write this, which is a good thing unless you're heavily into short positions.
Now, Schweitzer is a marine biologist by trade, and I'm a biology major by education and a defense contractor by trade. Neither of us is a professional economist (I hear my father nodding from Heaven, turning away from his and Mom's 73rd anniversary dance up there, and saying "Thank God!").
Schweitzer is only mentioning the stock market in the context of "Gee, give him credit for it", but the subtle message is that correlation equals causation, i.e., that he had something to do with it. In my view, there are two major reasons the Dow is as high as it is. One has nothing to do with Barack Obama; the other does -- but not in the good way.
The first is quite simple, and its roots are squarely attributable -- to the Federal Reserve. Stock prices fluctuate with the profitability of companies, and with the underlying stability of the economy based on global forces. They also vary because investment dollars (and rubles, yen and euros) follow where they can get the best bang with the lowest risk. Stocks have innate risk; U.S. Treasury-backed bills, bonds and notes almost none. But if Treasury securities earn almost no interest, you might as well stuff your cash in a mattress -- or buy stocks.
So as long as the Fed keeps interest rates near zero, investment dollars from mutual funds, pension funds, foreigners and all the other entities seeking to maximize returns and capitalized enough to move the needle, will turn to stocks. More buyers, higher prices. Supply and demand. Bingo, 18,000 on the Dow, at least until the Fed starts letting interest rates rise.
The complementary reason does trace back to Obama, and it isn't good. Corporate America simply regards him as socialistically anti-business, an over-regulator, high-tax, high-minimum wage leftist who needs to be waited out (i.e., no action until the next president takes over). As long as they're very fiscally prudent with Obama in office, they're going to resist spending and get very cash-hoardy. While that does nothing for the economy as a whole, it looks better for the profitability and the books of the companies as they don't invest as much internally.
So the essential profitability of the companies in the Dow looks better because they've tightened their wallets (at the expense, it should be noted, of strong growth that needs investment). More Obama regulations, more conservatism from corporate America. More conservatism, less spending, less growth, but higher perceived profit. Higher profit, better perception of the books, which supports higher stock prices.
Obviously it would be better if the stocks were rising because of profit associated with profitable growth, rather than because they're the only place to put money. But for that, we'll have to wait until at least 2017.
I agree with Schweitzer that there's no point blaming Obama for hurricanes (I agree with Robinson on nothing in his article), and I promise not to do so. But I'm not going to stand by and let anyone try to give him credit for stock prices being high now.
I'm glad my retirement fund, such as it is, is getting a bit better. But credit goes where credit is due, and that's the Fed. Thanks, Fed -- please keep those interest rates low. I'll send you a Christmas card.
Copyright 2014 by Robert Sutton
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