We continue to hear a steady drumbeat of partisan political market commentary from all the usual quarters. Their claim — stunningly ignorant in its naïveté — is that the current market selloff has nothing to do with the Housing debacle or the credit collapse, $145 Oil, six consecutive months of negative employment data, nearly $5 per gallon gasoline, a 40% devaluing of the US Dollar, an exhausted US consumer, and massive financial sector write offs.

No, those are irrelevant to the market. Instead, we get an explanation that the market weakness is due to . . .  Obama’s lead in the polls.

I have previously criticized this poor form of analysis as one that confuses Cause & Effect. It is a classic error of misunderstanding causation versus correlation.

Whenever a challenger is winning in a national election, it is most often because the current economy is so weak that it gets reflected in market conditions. That negative backdrop is also why the party that is not in possession of the White House outpolls the incumbent party. The SAME FACTORS — a punk economy, high inflation and weak employment — are causative of both the market selloff and the challenger’s lead.

Those who do not understand the difference between Causation & Correlation blame the market on the challenger, rather than recognize the reality. The same economic forces driving the market down are what also drive the challenger up.

Thus, these market based political comments end up being a Rorschach test, revealing nothing about equities, and everything about the speaker’s partisan leanings.

Remember the following article, circa Summer 2,000? It also wrongly blames the Nasdaq crash on the challenger’s rise in the polls — then Governor Bush.

Pricing in a Bush Presidency?
New York Times, July 9th 2000
(insert link)

"Stocks sold off again today as the markets is pricing in the likely impact of a George W. Bush presidency.

Since Bush has emerged as the polling leader in March, stocks have been hit hard. The NASDAQ has fallen 37%, while the S&P500 and the Dow are both down 20%, placing equities squarely in bear market territory.

Various Wall Street strategists have expressed concern regarding how a new set of Bush monetary and overseas policies could impact equities.

"My biggest concern is that the promised Bush tax cuts will be in extremely expensive. That would create huge deficits and be extremely inflationary" said Peter Leslie, a trader on the CBOT floor." Governor Bush has promised to reduce captial gains and dividend taxes, and lower the marginal rates on the nation’s biggest earners. He has not explained how these tax cuts will be funded. 

Maverick Capital fund manager Henry Carlyle is more concerned with government spending than Tax cuts. The Dallas resident stated "I have followed Governor Bush in Texas, and fiscal discipline is not his strong suit." Cabot expects a big increase in federal spending and budget deficits that will have ramifications for both inflation and an interest rates. 

Vanguard chief John Bogle is more concerned with a lax regulatory environment: "A return to the sort of crony capitalism that we’ve seen in the past would wreak havoc with investor confidence. We need a strong SEC to make sure companies are transparent, and report their accounting fully and fairly. We should not throw the individual investor to a wild and woolly free market that is totally lacking in supervision." The Vanguard chief has long been a proponent of a strong regulatory environment for the protection of individual investors. "I do not see that sort of regime under a President Bush."

Robert Rubin, the Treasury Secretary under Presdient Clinton who retired last year to join the Board of Citigroup, focused on the Federal Reserve. "The next president needs to make sure that the Federal Reserve fulfills its obligations as bank supervisor. I am concerned that Governor Bush, as President, would move away from strict regulation of markets for ideological reasons." Rubin, a Democrat, warned of negative repercussions for the housing and financial sectors. "[Since joining Citigroup], I have been looking into the issue of derivatives. This is another area that requires close scrutiny from both the Treasury Department and the Federal Reserve. I see Bush lacking expertise in this crucial area."

Goldman Sachs chief investment strategist Robert Hormat, was even blunter in his assessment of a Bush Presidency: "I am looking for a market crash as a reaction to the election of George W. Bush. Investors should brace themselves for losses of 50% or more — and even worse in the Tech sector — should he be elected."

Legendary legendary oil trader T. Boone Pickens is more optimistic. "We should expect several military conflicts in the Middle East under President Bush, and while this may not be great for the economy it will be terrific for my energy holdings."  If Bush gets elected, Pickens plans on opening a new oil based hedge fund, and is forecasting 100% increase in the price of oil to $40. "I’m an Oil, George is an Oil man, and his VP DIck Cheney is an Oil man. I expect energy returns to significantly outperform equity markets over the next eight years" he said."

For some strange satirical reason, I cannot seem to
the URL for this specific
article . . .


Confusing Cause & Effect: Elections and Markets (January 2008)

The John McCain Market Selloff (March 2008) 

Stock Market Politics & the McCain Market Rally (March 2008)   


Dow Jones Returns by President Since 1929   

Stocks point to Bush loss?
Mark Gongloff
CNN/Money, June 23, 2004: 4:55 PM EDT

Category: Markets, Politics, Psychology, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

36 Responses to “Pricing in a Bush Presidency”

  1. This is about understanding Causation versus Correlation, recognizing cause and effect.

    This is not about politics.

    Please stay focused on the market aspects of this, and not your favored candidates.

    All political jingoism will be unpublished

  2. grumpyoldvet says:

    Well I agree that the premise of the market going down because of Bush perhaps being elected may be suspect but many of events cited were as predicted

  3. uncool says:

    the difference is easy:Beating a Tom-Tom during an eclipse will ALWAYS bring the sun back out.

  4. VennData says:

    And another archived classic: remember Dick Cheney’s energy tips?


    The attitude satirized here might have a little bit to do with the current financial issues.


    BR: Thank you for recognizing this was Satire . . .

  5. JAN says:

    Did they had a time machine? Scary prescience.

    What are these same guys saying nowadays (beyond “I told you so”)?

  6. bluestatedon says:

    I agree 100% with BR on the causation/correlation concept, but dang if that WSJ article isn’t the most prescient thing I’ve ever read about Bush. In fact, it’s so accurate that I think it’s a scam. There’s no way the WSJ would take this negative a view of their man.

  7. Jim says:

    Well I agree that the premise of the market going down because of Bush perhaps being elected may be suspect but many of events cited were as predicted

    Gee, GOV, I wonder how so many of the predictions in this editorial turned into reality. Those folks are really smart, I guess…

  8. gryumpyoldvet says:

    Ah and there’s old Byron Wien spouting on CNBS that all will be well in the 2nd half. These peolple know absolutely nothing and just go on BSing the sheeple who watch these shows for insight. Would really like to know where their money is invested.

  9. tyoung says:

    Brilliant. Except you should have sourced it to the NYT or the FT. That article would never have made the WSJ.


    BR: NYT ? Good idea,; I’ll fix above . . .

  10. j says:

    Please link the reference for this “article”

  11. Lew Dunbar says:

    That WSJ article from 2000 is bogus. Nice one Barry.

  12. Very clever, Barry. Are you also working on your Great American Novel in your spare time???

    So the Wall Street establishment is Republican and spouts out talking points in the style of Rush Limbaugh and Michelle Malkin, dependably saturated with anti-intelligentism. That’s nothing new.

    Finance and economics cannot be dumbed down to the point where Brian Williams can explain Wall Street’s day to obese 70-year-old Grandma while she eats her steak and potatoes with a cross of Imperial Jesus hanging on the wall.

    Economics is simply too complex and intricate a topic to be reduced to sound bits.

    Same with the details of the Iraq or Afghanistan Wars, global politics, etc… People have a desire to be told superficial summaries that need not have any relation to the truth, and more people will prefer these to a detailed understanding that requires work and effort.

    But the truth is out there for those that want it and who are willing to work for it. There’s your blog and there are many others. Modern communication makes it possible for anyone to escape the force-fed nonsense and get the real truth if they are willing to step up to the plate for it.

    Wasn’t it Confucius who said “To know what we know, and therefore to know that we do not know that which we don’t know, that is true knowledge.”??

  13. gpmgroup says:

    It’s all about known and unknowns a new administration is more of an unknown.

  14. Marcus Aurelius says:

    Causation and correlation.

    Stop regulating business and finance, and soon you’ll be robbed and bankrupted. Happens every time. Laws and regulations are good for society – that’s why we have them. Laws protect the system.

    The current Administration and the immediate past Congress (actually, their “core values” and ideologies) are the cause of our current situation.

  15. For some strange reason, I do not recall this specific article . . .

    That’s because you read the WSJ, BR. If you want timely news, you have to read the the Onion. From Jan. 17, 2000:

    WASHINGTON, DC–Mere days from assuming the presidency and closing the door on eight years of Bill Clinton, president-elect George W. Bush assured the nation in a televised address Tuesday that “our long national nightmare of peace and prosperity is finally over.”


    Bush swore to do “everything in [his] power” to undo the damage wrought by Clinton’s two terms in office, including selling off the national parks to developers, going into massive debt to develop expensive and impractical weapons technologies, and passing sweeping budget cuts that drive the mentally ill out of hospitals and onto the street.

    During the 40-minute speech, Bush also promised to bring an end to the severe war drought that plagued the nation under Clinton, assuring citizens that the U.S. will engage in at least one Gulf War-level armed conflict in the next four years.

  16. I know CNBC, and Dennis Kneale in particular, were trying to spread the smear that the markets were tanking due to Obama getting the nomination. That is funny considering Obama has received plenty of Wall Street money.

  17. DaveP says:

    Someone get on the phone and ask T. Boone Pickens what happens when Obama gets elected

  18. MarvS says:

    Crony capitalism, which has thrived during these thirty years of failed conservative policies, has brought us to our current state of economic decay. What’s more Republicans claimed that sharp capital gains and income tax cuts would entice the American elite into investing in the US. Instead we have seen record outflows of capital seeking higher returns in less mature economies.

  19. VennData says:

    Our market is near the ‘Bear Sterns’ lows, before Obama became the presumptive nominee. Did he cauee that low too? Why have China and India’s stock market’s been halved in the last year? Obama?

    Vietnam? Japan down twelve straight days? Obama? Why has the dollar stabilized? Is oil down this week because of Obama?

    Are retail sales holding strong because of Obama? Are folks driving less, eating better, watching less TV and spending more time with their friends because of Obama then too?

  20. Bob A says:

    Too bad we can’t just unpublish the last seven and a half years.

  21. JWC says:

    I have heard a pundit type say that a big chunck of the current upsurge in the price of oil is the administrations “war talk” re Iran. He even noted the period recently with the $10 upsurge following the recent talk from Isreal.

    And the price of oil is certainly related to the problems in the market. But of course, it is easier to blame it on Obama.

  22. ben says:

    T. Boone is the man. Maybe I should buy Yahoo like he did?

    I still think I’ll sit that one out.

  23. Awake! says:

    Shoot, T. Boone is just another Texas welsher: Did y’all see how fast he moved the goal posts on his $MM bet when evidence was provided that his Swiftboaters had indeed lied about Kerry’s record?

    That aside it wouldn’t surprise me if all of those comments in BR’s satire reflected what Leslie, Carlyle, Rubin et al were thinking even if it isn’t what they were saying publicly.

  24. JL says:

    Interesting to read old articles like that and then compare to what really happened. Vanguard’s John Bogle couldn’t have been more accurate.

  25. Richard says:

    Who believes whats in the NY Times anyway? I mean how much of what was written really came to pass…besides the runaway deficits, war in the middle east, real estate bubble, commodity prices skyrocketing and lack of financial sector oversight.

    We haven’t seen the 50 percent drop in the DJ, he’s only got six months to go; we might get to 30 percent, but not 50. See it wasn’t that bad after all…

  26. DL says:

    Arthur Laffer recently said that the U.S. dollar was falling because the market was anticipating an Obama victory (and greater influence from Pilosi and Reid).

    However, this doesn’t explain why the dollar has been falling for the last five years.

  27. Lord says:

    We may well see a election time relief rally when Obama looks like winning or wins though on the hope our current national nightmare is over.

  28. Daniel K says:

    Sad…sad sad sad. Reading this with the Citigroup story above this one re finding loopholes around Glass Stengal–just sad.

    What’s happened to this country?

  29. ScottB says:

    Loved it, especially the Rubin quote.

  30. liam says:

    Well, the markets might have missed the CDO and credit crunch debacle, but the guys quoted in the article were prescient about the bush presidency. Not being jingoistic at all, but…
    the 1st guy feared deficits from tax cuts,(check)
    the 2nd big spending, (check)
    the 3rd fallout from deregulation, (check)
    the 4th housing, (check)
    the 5th a market crash (check)
    the 6th glowed about the likelyhood of war in the middle east. (check)(check)
    From now on I’m getting my political advice from wall street guys.

  31. jen says:

    It’s not a satirical reason you can’t find the link, it’s the memory hole. Some things have a way of disappearing.

  32. Jay says:

    Oh my word…the number of people taking this article seriously is ridiculous…not to mention frightening, as I’ve been operating under the assumption that there’s a fairly astute bunch of readers over here at Big Picture.

  33. If Barrack Obama wins the presidency, the price of oil could fall by $40 per barrel. The financial markets will discount the possibility before hand, at least partially. There are three ways in which this could happen:

    1) As was the case during the Clinton administration, Obama might be more inclined to intervene in the foreign exchange market to support the value of the dollar. The U.S. has not intervened in the FX market since Treasury Secretary Robert Rubin did so in September 2000 when the Treasury sought to support the Euro, then costing about 80 cents per dollar (yes, the cost has almost doubled since then). Intervention or the threat of intervention could shave $20 off the price, based on the divergence in price between oil quoted in dollars versus that of other currencies.

    2) Obama will speak in a more concilatory tone toward nations in the Middle East. If he does, some of the risk premium would likely be extracted from the oil price.

    3) Energy conservation and investment in energy infrastructure are likely to increase if Obama wins, as it will be part of his mandate. Announcements of a nationwide effort to both decrease consumption and increase the supply of energy would have an announcement effect on the energy markets, lowering energy prices and burning speculators.

    Points 2 and 3 are probably the most bankable ideas, but the mere threat of point 1 is still enough to impact the markets.

  34. Robert says:

    Good points, Toni – Thanks for the insight.

  35. wunsacon says:

    >> Oh my word…the number of people taking this article seriously is ridiculous…
    >> Posted by: Jay | Jul 8, 2008 4:06:08 PM

    Someone even cited it as “support” in a later thread!

    But, hey, we’re a crowd. We should expect some “noise”.


  36. Flashback to July 9, 2000: What if Bush gets elected?

    Who sees the future? Link: The Big Picture | Pricing in a Bush Presidency. Pricing in a Bush Presidency? Wall Street Journal, July 9th 2000 Various Wall Street strategists have expressed concern regarding how a new set of Bush monetary