Practically Speaking

Kyle and her husband moved to Brookfield in 1986. She became active in local politics and started blogging in 2004. Her focus is primarily on local issues but often includes state and national topics, too. Kyle looks at things from the taxpayers' perspective in a creative, yet down to earth way, addressing them from a practical point of view.

The other shoe...s in this economy are dropping


A Barack Market Wall street Journal nov 13

The voters may be full of hope about the looming Obama Presidency, but so far investors aren't. No President-elect in the postwar era has been greeted with a more audible hiss from Wall Street. The Dow has lost 1,342 points, or about 14%, since the election, with the S&P 500 and Nasdaq hitting similar skids. The Dow fell another 4.7% yesterday.

Much of this is due to hedge fund deleveraging, as well as dreadful corporate earnings reports and pessimism that the recession will be deeper than many had hoped. We also don't want to read too much into short-term market moves. But there's little doubt that uncertainty, and some fear, over Barack Obama's economic agenda is also contributing to the downdraft.

The substance of what Mr. Obama has promised for the economy is bearish for stocks. The threat of higher tax rates, especially on capital gains and dividends, now may be getting priced into the market. Add that to investor doubts about Democratic policies on unions, health care and trade -- and no wonder stocks are falling. Lower stock prices in turn reduce household net worth, thus slamming consumer confidence and contributing to what appears to be a consumer spending strike.

If Mr. Obama wants to reassure markets, he could announce that he won't be raising taxes for the foreseeable future. Unlike hundreds of billions in new government spending or more taxpayer cash for Detroit auto companies, this no-tax-hike declaration is a "stimulus" that would cost the U.S. Treasury nothing. In the current market, there won't be many capital gains and few companies will have surplus earnings to pay out in dividends. A higher tax rate on zero gains yields zero revenue, so what's the point of raising rates?

What markets want to see from Mr. Obama is a sense that the seriousness of this downturn is causing him to rethink the worst of his antigrowth policies.




Today the market is in it's 3rd straight day of losses. GM and other American auto makers are asking for bail outs. Starbucks shows record losses (some of those because of store closings).  

It is too soon to tell, but ultimately the market will reflect the amount of confidence Americans and the world place in an Obama run economy and government. That includes national security.

As for the market going up because of election euphoria, that was probably due to people rejoicing that they would no longer need to hear and watch all those incessant campaign ads! :)

 Journalists Credit Obama for Stock Gains, Ignore Losses News media apply double standard to president-elect's influence on market fluctuations. Nov. 11, 2008

   As stocks rose on Election Day 2008, the media were more than happy to credit investors’ excitement over Democratic nominee Sen. Barack Obama’s chance of winning. But when stocks tanked in the days following Obama’s election, concern over Obama’s economic policies was the last possible culprit.


     The Dow fell four trading days out of five following the election and by the close Nov. 11 was still down more than 600 points from its Nov. 3 close. Stocks were also trading lower on Nov. 12 "after Treasury Secretary Henry Paulson announced changes to the government's bailout plan," according to The Dow had shed over 3 percent by 11:35 a.m. according to the article.


     Yet, one global news agency trumpeted the biggest Election Day rally “in history” as an “Obama effect,” while many others declared that investors were simply “relieved” to see the end of the campaign.

  Agence France-Presse (AFP) claimed Nov. 8 the market was reacting to Obama. “The economic downturn rapidly overshadowed the euphoria over the election of Democrat Barack Obama … the ‘Obama effect’ lasted only one day, as voters headed to the polls.” AFP emphasized that the rally was the largest Election-Day rally “in history,” without mentioning that before 1984 the stock market was closed on Election Day.


     The Associated Press wire service toned the sentiment down, but still gave Obama credit on Nov. 5 saying, “Stocks appeared set to hold on to their gains following word that Barack Obama had been elected president.”


     But then the markets went into what CNBC’s Melissa Lee termed a “tailspin.” Nov. 5 and 6 losses became the worst two-day decline since the 1987 crash, but the three networks placed no amount of blame on Obama.


     Out of 23 stories on ABC, NBC and CBS only one asked about the “notion” that the election outcome could influence the stock market negatively.


     But a column by personal finance expert Terry Savage for admitted bitterly that the drop “smacked of Wall Street pique that the next president appears to be no friend of ‘the Street.’”


     Savage admitted to being “more than a little annoyed that the stock market greeted the election results with a two-day nosedive.”


     The Wall Street Journal said Nov. 6 that “commentators concluded that Wall Street was welcoming Barack Obama with a Bronx cheer.”



When the market is up, it’s Obama


     Investors seemed to have “election euphoria” on Nov. 4 according to the media.


     The Los Angeles Times said the rally “appeared to reflect hopes for better days ahead.” “Hope” was one of Obama’s campaign slogans.


     AP’s Financial Wire indicated Nov. 5 that the market rally was based on expectation of a “Democratic sweep.” That story quoted Jack A. Ablin, chief investment officer at Harris Private Bank, who said, “Everyone was buying the rumor yesterday and selling the news today … The market had not only anticipated an Obama victory, but from what I’m gleaning, pretty much a Democratic sweep.”


     Other outlets gave Obama and the Democrats less credit. The market rally was a sign that investors were relieved to see the end of the campaign, according to CBS “Evening News” anchor Katie Couric Nov. 4.


     USA Today didn’t give Obama any specific credit for the stock market rally on Nov. 5, but ran an article “busting” the “myth” that Republican presidents are better for stocks.


     “Let’s bust one myth: namely, that Republican presidents are better for stocks,” USA Today said. “It is not true. In election cycles since World War II, the Dow Jones industrials have posted bigger average returns under Democratic presidents, the Stock Trader’s Almanac says.”



When the market is down, blame retail sales and jobs data


     Then stocks nosedived – the Dow Industrial Average fell nearly 1,000 points in two days Nov. 5 and 6. But there was a contradiction in news reports about the drop; it seemed Obama could impact the market positively, but not negatively.


     Chris Cuomo was the only network reporter to ask about a potential Obama connection to the drop. On Nov. 7 “Good Morning America” he asked ABC News correspondent Bianna Golodryga “What do you make of the notion that the drop in the stock market is a function of the election?”


     Golodryga dismissed the idea saying, “A lot of people are worried about that. The fact that Obama won was something that was really factored into the market, going back a few months ago. Remember the market is a forward looking indicator. Right now, we’re just dealing with these really, really bleak numbers coming out regarding the economy. And there’s also profit-taking as well.”


     Another ABC reporter, Betsy Stark, oddly suggested that investors had stopped paying attention to the economy on election day, but turned their attention back to the economy” causing the stock market drop.


     Network reports and print stories placed responsibility for the market plummet on recession fears, “very, very bad” job news and poor retail sales figures.


     The jobs news was bad – 240,000 jobs were lost in October and the unemployment rate rose to 6.5 percent – but the numbers were released on Nov. 7 the only day the Dow closed up between Nov. 5-11.


     As for recession fears, the media have hyped that threat for the past few years, long before the U.S. economy actually had negative growth during the fourth quarter of 2007.


     It was simply inconceivable for most journalists that investors might have been assessing the next president.



A different ‘Obama Effect?’ was one of the only media outlets to analyze the situation differently. Steve Schaefer, Markets Reporter for Forbes was “Looking for the ‘Obama Effect’” in his Nov. 5 article.


     According to his analysis, the market’s dive was somewhat related to Obama.


     “Wall Street tanked Wednesday, as investors fixated on weak economic indicators and pulled the prior session’s gains off the table. The market was also beginning to visualize what a Barack Obama presidency will mean for business, after the Illinois senator won Tuesday’s election,” Schaefer wrote.


     But Schaefer cautioned against reading “too much into Wednesday’s trading.” Schaefer’s story admitted that certain types of businesses might be “at risk” under Obama, including tobacco, “Big Oil,” brokers, pharmaceuticals and others.


     Schaefer’s article stood in sharp contrast to Savage’s column on TheStreet, which exuded hope despite Obama’s plans to raise taxes and potentially harm businesses.


      But Savage’s column, “Obama’s Impact on Economy? Priceless,” praised Obama, who “has given ample demonstration of his insight [and] intelligence” while advocating for tax cuts because they spur growth.


     Savage said “the world, and the markets, should be filled with hope” that Obama follows the tax-cutting example of John F. Kennedy.


     But Obama has made it clear that he intends to raise taxes, even in the face of that information. During the primary debates Charles Gibson asked Obama about raising taxes when capital gains tax cuts produce more revenue than tax hikes.


     “I would look at raising the capital gains tax for purposes of fairness,” Obama replied. According to America 2012, a Business & Media Institute special report, Obama’s plan would raise capital gains taxes on about half of American households.


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