Hale “Bonddad” Stewart is a former bond broker with several regional firms. He has been involved with the financial markets since 1995. He is a graduate of the Thomas Jefferson School of Law’s LLM program with a dual concentration in international and domestic taxation. He currently practices tax law in Houston, Texas.


One of the more ridiculous statements going around over the last few weeks is “this is an Obama bear market.” This statement is, well, ill-informed at best and fraudulent at worst. Let’s look at why.

First — who is saying this? Such economic luminaries as John Hawkins at Right Wing News (who actually asked Is Obama Deliberately Tanking the Stock Market?), Powerline, Brit Hume along with a host of other right wing bloggers. What all of these people have in common is their incessant chearleading during the Bush years despite mounting evidence of an upcoming recession. There are the same people who argued that … housing is a small part of the economy … most people are paying their mortgages … the US economy will decouple from the rest of the world …. it’s the greatest story never told ….. you get the idea. Simply put, these are people who have distinguished themselves by being some of the best contrary indicators around.

Secondly, the SPYs — the tracking ETF for the S&P 500 — dropped from (roughly) 155 in the summer of 2007 to (roughly) 85 at the end of last year. Yet I don’t remember any of them saying that was the Bush bear market — even though that’s a drop of roughly 43%. No — it’s the new President that’s causing the problems. In addition, when Bush took office the SPYs dropped from roughly 130 at the begging of 2001 to 85 in the fourth quarter of 2002. Yet somehow I don’t think any of them blamed Bush’s policies for the drop. Then it was the “lasting effects of the Clinton recession” or something similar.

What all of these idiots are forgetting is the simple fact that the economy is the backdrop of the stock market. When the economy does well the stock market does well. When the economy doesn’t do well, the stock market doesn’t do well. And to that end, the economy isn’t doing well right now. Let’s look at some recent news events.

From the BEA:

Real gross domestic product — the output of goods and services produced by labor and propertylocated in the United States — decreased at an annual rate of 6.2 percent in the fourth quarter of 2008,(that is, from the third quarter to the fourth quarter), according to preliminary estimates released by theBureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 percent.

From the BLS:

Nonfarm payroll employment continued to fall sharply in February (-651,000), and the unemployment rate rose from 7.6 to 8.1 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 2.6 million in the past 4 months. In February, job losses were large and widespread across nearly all major industry sectors.

From the Federal Reserve:

Reports from the twelve Federal Reserve Districts suggest that national economic conditions deteriorated further during the reporting period of January through late February. Ten of the twelve reports indicated weaker conditions or declines in economic activity; the exceptions were Philadelphia and Chicago, which reported that their regional economies “remained weak.” The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions. Looking ahead, contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010.Consumer spending remained sluggish on net, although many Districts noted some improvement in January and February compared with a dismal holiday spending season. Travel and tourist activity fell noticeably in key destinations, as did activity for a wide range of nonfinancial services, with substantial job cuts noted in many instances. Reports on manufacturing activity suggested steep declines in activity in some sectors and pronounced declines overall. Conditions weakened somewhat for agricultural producers and substantially for extractors of natural resources, with reduced global demand cited as an underlying determinant in both cases. Markets for residential real estate remained largely stagnant, with only minimal and scattered signs of stabilization emerging in some areas, while demand for commercial real estate weakened significantly. Reports from banks and other financial institutions indicated further drops in business loan demand, a slight deterioration in credit quality for businesses and households, and continued tight credit availability.

From the FDIC:

Expenses associated with rising loan losses and declining asset values overwhelmed revenues in the fourth quarter of 2008, producing a net loss of $26.2 billion at insured commercial banks and savings institutions. This is the first time since the fourth quarter of 1990 that the industry has posted an aggregate net loss for a quarter. The ?0.77 percent quarterly return on assets (ROA) is the worst since the ?1.10 percent in the second quarter of 1987. A year ago, the industry reported $575 million in profits and an ROA of 0.02 percent. High expenses for loan-loss provisions, sizable losses in trading accounts, and large writedowns of goodwill and other assets all contributed to the industry’s net loss. A few very large losses were reported during the quarter-four institutions accounted for half of the total industry loss-but earnings problems were widespread. Almost one out of every three institutions (32 percent) reported a net loss in the fourth quarter. Only 36 percent of institutions reported year-over-year increases in quarterly earnings, and only 34 percent reported higher quarterly ROAs.

I could go on, but you you get the idea. The news of the underlying economy has been terrible (at best). And that’s what’s causing the problems.

Category: BP Cafe, Economy, Markets

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.

11 Responses to “Its The Economy (Stupid!) That’s Tanking the Market”

  1. Mannwich says:

    I can’t believe these people don’t know any better. I really think they do but it’s their job, no, their mission in life, to mislead the sheeple with their ideological claptrap so that they and their masters may continue to reap massive financial rewards and power. It’s treasonous behavior at its most subtle and lethal because today’s rapid fire MSM can do a lot of damage to our country where most people don’t do any extra research on their own to parse myth and outright lie from fact. I fear for the future of this country.

  2. WaveCatcher says:

    Many folks believe that Obama’s policies are killing the golden goose by:
    1) Raising taxes on the most productive members of society during a deep recession
    2) Permanently growing the share of our GDP controlled by government

    That is why Obama is getting some blame for the stock market’s decline. You can also lay some blame at the foot of his Treasury secretary who has already proven himself utterly incompetent and unable to articulate a cogent plan.

    Finally, the more Obama blames the poor economy on a crisis of confidence, the deeper the hole he digs for the economy. Confidence will flow only once the economy shows signs of improvement.

    Here’s to Obama, hoping he succeeds in leading our country back to prosperity, hoping he fails at ushering in a new era of socialism.

  3. Mark Wolfinger says:

    You must know that these right-wingers are the cheerleaders you say they are.
    Arguing with them is a complete wast of time.

  4. Mannwich says:

    @WaveCatcher: Not sure where you’ve been over the past 6 months+ but we’re already well past the “socialism” canard you mention. In fact, it’s a perverse sort of “socialism” (some would argue it’s really fascism) that only benefits the elite. So please give your socialism meme a rest. We’re already there.

  5. yep, I was just gonna say: “Hey, be careful, don’t make it so easy to understand..”

    anyway, nice art., succinct, and to the point..

  6. Moss says:

    The facts, nothing but the facts. Lucid and insightful.

  7. bonghiteric says:

    Critical thinking–either you have it or you don’t

  8. DL says:

    Most people who post here regularly think that all Obama has to do is to raise marginal tax rates on “the rich”, and IRS revenues will surge. As it happens, however, the higher the marginal rates go, the greater will be the use of existing tax loopholes, and the more pressure will be put on key members of the House and Senate to introduce even more loopholes.

    Someone like Hale Stewart could shed some light on this subject (without giving away too many “tricks of the trade).

  9. DL says:

    Continuing with the subject of marginal tax rates/ tax avoidance… Hale Stewart has a blog:


    See, for example the 3/6/09 post on offshoring, particularly with regard to “Extraction” (placing higher cost activities in the low-tax jurisdiction and deducting the expense from the higher-tax jurisdictions corporate income statement) and “Utilization of Foreign Tax Credit”.

    Those who favor raising the marginal rates on individuals, and raising taxes on corporations should attempt to understand the complexities involved.

  10. usphoenix says:

    @DL: Agree totally. Except given the current marginal rates and the tax code our tax policy is ridiculously regressive.

    Simply getting the wealthy to pay at the same tax rate on the same terms as everyone else would be a huge social advance.

    But based on how controlled our congressmen are, it’s not going to happen. I wish our Congressmen could “level the playing field” , but the Titans are blackmailing Congressmen with jobs, even as they increase off shoring and threaten to move their businesses elsewhere. Pitiful. Someone has to blink.

    Our Congress is beyond corrupt. BUSINESS FOR SALE.

    May as well let D. C. fiddle while Rome burns.

    At some point there won’t be any consumers left at all, or …

  11. gloppie says:

    flat tax everything (sale, death, rent, transactions etc…) and everyone all the time, no exception.
    easy to calculate, easy to adjust and so forth.

    but wait, hard to cheat…so that ain’t gonna fly….