June 4th, 2008

Obama Bear Market

I think I figured out why, as I wrote earlier, the market is waffling and, after watching the candidate speeches yesterday, which in direction it will decide to go. Some of you aren’t going to like what I’m about to say, it is only my humble opinion, but I feel the market’s going to come out of this range moving down and moving down big.

Politics have little place in a blog intended to enlighten, educate and prognosticate about the stock market … unless, of course, politics becomes one of the driving forces behind the collective decisions of investors, current and prospective, domestic and foreign. Listening to Obama’s stirring “victory” speech last night was the sort of politics that, I believe, will weigh on the market.

First, let me put on the record, that I admire Obama as an unbelievable orator, especially after the seven years of Presidential incoherence we’ve been subjected to. I was almost brought to tears during Obama’s “Race Speech“; it was a combination of Franklin Roosevelt’s Fireside Chats and Martin Luther King’s call for racial justice. Last night’s speech was nearly equally moving and this time sounded somewhere between a preacher’s sermon (perhaps learned through 20 years of listening to Rev. Wright’s sermons) and John F. Kennedy. Perhaps Obama’s rhetoric is always first rate but these two are the only one’s heard in their entirety; I expect there’ll be others in the future. The one I’ll stay tuned to will be his August 28th acceptance speech at the Democratic convention since it will be delivered on the 55th anniversary of Martin Luther King’s immortal “I Have A Dream” speech at the Lincoln Memorial.

When I listen with my heart, Obama’s words that move me but when I listen with my head, I don’t think they’re what the market wants to hear. [If you want to really hear his words, you have to read them; just click on the links above.]

Last night, I heard words that I think many stock market investors feel uncomfortable with, sufficiently so that they will conclude that if elected, Obama’s leadership will be inhospitable to economic and stock market stability and profitability. Here are some of the words in his speech leading to that conclusion:

  • “Change is building an economy that rewards not just wealth, but the work and the workers who created it. It’s understanding that the struggles facing working families can’t be solved by spending billions of dollars on more tax breaks for big corporations and wealthy CEOs, but by giving a middle-class tax break to those who need it, and investing in our crumbling infrastructure, and transforming how we use energy, and improving our schools, and renewing our commitment to science and innovation.
  • [Change is] understanding that fiscal responsibility and shared prosperity can go hand-in-hand, as they did when Bill Clinton was president.
  • if he [McCain] spent some time taking trips to the cities and towns that have been hardest hit by this economy — cities in Michigan, and Ohio, and right here in Minnesota — he’d understand the kind of change that people are looking for.
  • if he [McCain] went to Iowa and met the student who works the night shift after a full day of class and still can’t pay the medical bills for a sister who’s ill, he’d understand she can’t afford four more years of a health care plan that only takes care of the healthy and the wealthy.
  • to pass health care right now, a plan that guarantees insurance to every American who wants it and brings down premiums for every family who needs it. That’s the change we need
  • needs us to pass an energy policy that works with automakers to raise fuel standards, and makes corporations pay for their pollution, and oil companies invest their record profits in a clean energy future, an energy policy that will create millions of new jobs that pay well and can’t be outsourced.
  • we can’t afford to leave the money behind for No Child Left Behind; that we owe it to our children to invest in early-childhood education; and recruit an army of new teachers and give them better pay and more support; and finally decide that, in this global economy, the chance to get a college education should not be a privilege for the few, but a birthright of every American.”

Last night, Obama declared “war”; his rallying call is “Change” and you frequently heard the word in his speech last night. His call to wage war, however, is not the war against terrorism but a domestic war to change the status quo. As he said, “every so often, there are moments which call on that fundamental goodness to make this country great again….America, this is our moment. This is our time, our time to turn the page on the policies of the past, our time to bring new energy and new ideas to the challenges we face, our time to offer a new direction for this country that we love.”

No mention of the number role of the Federal government — defence and security. What happened, did we win our fight against fundamentalist terrorism? If it’s over, I missed the celebration. Is 9/11 so far behind us that it’s no longer our present but now part of our history? Does the fact that there hasn’t been a terrorist attack (either domestically or overseas) in a couple of years mean there never was a risk or that this administrations efforts and the efforts of other governments born fruit and made us safer?

Now that makes for wonderful oratory but it isn’t, I don’t believe, what investors will want to hear. To them, “change” means “uncertainty” and the fallout of the “change” envisioned is a more hostile environment for the stock market. Until investors hear otherwise from Obama, the market will translate everything he says into higher taxes and lower profits, restrictions and mandates. It will only hear a less competitive position in global trade.

No one can predict the market but, until I see evidence to the contrary, I think this struggle between market supply and demand will be won by the sellers. The more investors see from and learn about Obama, the less they will want to put their money at risk. Actions speak louder than words and the word right now, “Change”, isn’t one that will instill confidence, at least not in stock market investors. The market momentum will swing to the downside resulting in a slide of significant proportions.

It may gain solid footing as we get closer to the election but that rests on 1) how Obama puts meat on the bare bones of his vision of change and 2) McCain’s ability to muster energy and clarity sufficient for presenting a more favorable outlook to market participants.

For the time being, therefore, the safe course of action would be to move to the sideline as the battle begins being waged.

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