09.05.2012
Analysis of Jobs, Economy, Stocks & the 2012 Election
original article written by Net Advisor™
Washington DC. Recently, I came across an article written by journalists Steven C. Johnson and Rodrigo Campos published via Reuters which might lead to some debate.
Quick sidebar. I like Reuters. So this debate has do do with the journalists in the said article, and not the media company.
The article by Johnson & Campos claims it’s an “analysis” of whether the stock market (rebound) since March 2009 will help get President Obama re-elected? I will give the journalists credit that an argument can be made here using historical data. However, there is a lot of other relevant information that was not exactly included – such as jobs, the deficit, and other economic related issues. Arguably, these are factors that impact consumers and financial markets, and such details are represented here.
Part I. Stocks.
The Odds Between Two Variables is 50/50
We’ll, for starters one can make any suggestion about a “two choice” issue such as a presidential election and have a 50% chance of being right. Let’s just examine Johnson and Campos’ 08-10-2012 article: “Analysis: Obama presidency great for stocks. Will it help him?”
Our Analysis and Fact Check:
[1]. President Obama Did NOT Make the Stock Market Go Up
Stocks ultimately move via corporate earnings and fundamentals such as this question: Is the company growing and making money, or not growing and or losing money. the long term trend of this basic function decides whether stocks increase or decrease in value. In the short run, anything can impact stock prices.
Back in 2008, the market was factoring that our domestic and global financial system was on the verge of collapse. Despite Washington DC semantics, the following institutions were either technically insolvent, or officially insolvent:
Bear Sterns, Washington Mutual, Wachovia, Lehman Brothers, AIG, Merrill Lynch, Bank of America, Citigroup, Fannie Mae, Freddie Mac, General Motors, and Chrysler to name a few. If one had to be bailed out, they are insolvent – aka bankrupt right?
In especially 2008, consumers were not buying in mass such as homes, cars, big ticket items, even movie sales were down. As a result, companies were forced to slash and burn costs to stay afloat. This wasn’t a boom economy, it was the biggest recession since the Great Depression. That lead to job losses – a lot of job losses.
The stock market was pricing in death (declining earnings with no apparent end). When earnings expectations are so low, and a company exceeded expectations, their stock can go up. In other words, the expectation hurdle was so low, a company could walk over the hurdle and the market would get excited. This is what happened especially from about March 2009 to roughly December 2010.
The bottom line is that President Obama did not make stocks go up. If a president had that much influence on the market, the DOW would be at 70,000, and maybe NASDAQ would be even up to its March 2000 level again. NASDAQ is still down 40% since March 2000 (Chart). Presidents Clinton, Bush, Obama or even Apple’s stock could get the NASDAQ to just break even over the last 12 years.
Like running a business, Obama has zero experience in the financial markets. Obama’s suggestion in March 2009 to ‘buy stocks’ was a good call, but a call not linked to anything he did in his presidency that drove markets higher. He was not the only one to suggest markets may be bottoming out back in March 2009.
[Read more on what got us to this point, and how government was involved in the housing mess. Also please see related points #’s [4] to [8] in this article.]
[2]. What happened?
The stock market hit what appeared to be a technical bottom anyway back in March 2009, close to mirroring the 2002 market bottom as this basic chart of the S&P 500 Index shows. CNBC called the March 2009 market low, the (Mark) “Haines Bottom.”
Other than being technically oversold, as the market pretty much discounted the entire run-up (2002-2008) for the housing boom back to about where it last started. We have thus far moved up since this low point (March 2009 to Aug 2012) for stocks. Try not to get too excited, depending on what happens in the 2012 election and over the next say 10-15 years or so, there is nothing preventing us from going back to these low levels in the market or lower. This has a lot to do with government deficits and how entitlements are property reformed in the future.
If higher taxes, more regulation, anti-business, no budgets, massive spending and more welfare is how future Administrations plan to govern, Welcome to Greece!
PART II. Jobs.
[3]. Who Might Be Better at Creating Jobs?
That is a no brainier. The poll quoted in Johnson and Campos’ article is a bit different from what reality may suggest otherwise.
Fact: The unemployment rate has gone UP not down since Obama took office. When Obama took office unemployment rate stood at 7.3%. Even if you accept government’s manipulation of the unemployment numbers, unemployment is still at 8.3%
HOWEVER, if you use a more complete count of the unemployed, including “marginally attached workers,” and “underemployed” calculated by the governments “U6” standard, the unemployment rate would be 15.2% as of July 2012 (Source: BLS.gov, PDF, 08-03-2012) (Chart below).
In some states, the Unemployment Rate is Far Worse When Counting Everyone Using Bureau of Labor Statistics (BLS.gov) U-6 Unemployment Calculation.
Example states:
- Nevada‘s U-6 rate is 22.1%
- California‘s U-6 rate is 20.3%
- Rhode Island‘s U-6 rate is 18.3%
- Florida‘s U-6 rate is 17%
- Pennsylvania and Ohio‘s U-6 rate (below national average) at 14% respectively.
— Source: CNBC (PDF), 08-02-2012
[4]. Why Doesn’t True Unemployment Numbers Get Reported?
There are some in government who apparently feel that as Americans we just can’t handle reality. So government comes up with six different calculations for the unemployment numbers. The one that is used is the one that they seem to be getting away with.
The Obama Administration believes business created “4.4 million new jobs over the past 28 months, including 500,000 new manufacturing jobs.”
Well if you factor out the negative numbers from when Obama took office and only count the last 28 months, part of this might be true. But that’s like not paying a mortgage for 12 months then make 3 payments in a row, and say, – What do you mean “foreclosure?” We have been paying our mortgage on time for the last 3 months!
Further, most of the new jobs right now are low paying (hospitality – food and alcohol related), and the number of people in the labor force is at lowest point since 1981.
[5]. Labor Participation Rate Lowest Since 1981
Next, CNN discussed the lack of labor participation rate into numbers where “86 Million invisible unemployed.”
“Only 63.6% of Americans over the age of 16 fell into that category, according to the Labor Department. That’s the lowest labor force participation rate since 1981.”
— Source: CNN, 05-04-2012
[6]. Jobs & Wealth Created – Not Transferred
On the other hand, Bain Capital has 400 mostly professional employees on the corporate level, and went from $0 to $66 Billion in assets all without government aid. I’ll take that over any government program anyway, wouldn’t you?
According to Wikipedia, Bain invested or owns companies such as “AMC Entertainment, Aspen Education Group, Brookstone, Burger King, Burlington Coat Factory, Clear Channel Communications, Domino’s Pizza, DoubleClick, Dunkin’ Donuts, D&M Holdings, Guitar Center, Hospital Corporation of America (HCA), Sealy, The Sports Authority, Staples, Toys “R” Us, Warner Music Group and The Weather Channel.”
Bain Capital had little media controversy over its 28 years until the Obama Re-election Campaign labeled Bain a controversy only when Mitt Romney would challenge Obama for the 2012 election.
Speaking of government involvement in the private sector, how are those GM, Chrysler, and Solyndra stock investors dong since 2009? All three had their stocks wiped out, GM and Chrysler was seized by the Obama Administration. Obama and Company eventually handed control of Chrysler to Italy’s Fiat.
PART II. Economy.
[7]. Is the Country on the Right or Wrong Track?
As for is the country on the right track? The poll Johnson and Campos quoted seems to be in direct conflict with Rasmussen weekly ongoing poll.
As of July 30-Aug 5, 66% says the country is on the wrong track, 27% say on the right track.
— Source: Rasmussen Poll, (July 30-Aug 6, 2012)
[8]. Bush Bash: Part 784,253
It seems that no matter what the facts are there are some who just “Blame Bush” for just about everything – OH, except for some guy’s wife who died of cancer. That was of course Mitt Romney’s fault right?
Now, Reuters Journalists Steven C. Johnson and Rodrigo Campos seem to make the attempt and tie the Bush Bash to “H.W.” from 20+ years ago. Here it is:
“A weak economy was credited with foiling George H.W. Bush’s re-election attempt in 1992, … “
— Steven C. Johnson and Rodrigo Campos for Reuters, article
True, the recession of 1990-91 did play a role of losing the election. HOWEVER, in 1990-1991, the economy was already going into recession. The 1989- S&L Crisis was a major contributor to the U.S. early 1990’s recession. Recession was also happening in the UK, Japan (post 1989 Housing Bust & 1989 stock market crash – sound vaguely familiar?). Germany’s recession followed post reunification. Obviously all of this was Bush’s fault too?
George H.W. Bush lost the 1992 election for one main reason: “Read my lips…” What does this have to do with the struggling economy, poor jobs numbers, record deficits, and record welfare recipients, (shall I continue?) as of today have to do with what happen 20+ years ago? <Scratching my head…>
[9]. Obama Credited to Avoiding a Depression?
With respect to John Manley, chief equity strategist at Wells Fargo Funds Management statement, “Obama also wins points for acting swiftly in the early days of his presidency to prevent a deep recession from becoming a full-fledged depression.”
You’re kidding right?
Again, what did the President do specifically that avoided a “deep recession?” I would argue (and have here, here, here and here for example), that we have not left the recession.
In 2008, BEFORE Obama took office, and AFTER Congress finally got their act together to put what was really a controversial “confidence builder” (TARP) for the market. This included a massive commitment of up to $11 Trillion with unlimited guarantees from money markets, upping FDIC guarantee by 250% (from $100K to $250K temporarily). Much of this was done under the Bush Administration, the (Democrat) controlled Congress and by the FED.
According to CNN, $3 Trillion was actually invested by government an the FED during this time. I would dispute some of CNN’s data including the “repayment” claims from the auto industry (Articles: 2009 TARP, GM, and Chrysler).
After the 2008 election, President Obama launched his $798 Billion stimulus (all on borrowed money). This Obama stimulus will cost over $3 Trillion with interest and didn’t stimulate anything. Of those said funds, $280 Billion went to government and to help keep state budgets in-line. That money didn’t keep states budgets in-line nor did it solve the state’s own economic issues such as in California, Illinois, and New York.
It is hard to find support Obama avoided what again?
[10]. I would argue that the Obama Administration’s policies are at risk of causing a depression.
Reality Check:
(1) Obama Health Care: New Taxes for the Middle-Class (2009) (our 2012 report)(2) Education: Dumbing Down of America: Change You Can’t Believe In (2010)
(3) One in Six Americans Officially Poor. Poverty Rate at 27-YEAR High (2011)
(4) About 1 in 7 in U.S. Receive Food Stamps (2011)
(5) Obama’s Ideological Energy Polices Costly & Have Not Worked (2011)
(6) The Truth About the Budget Cuts (2011)
(7) S&P Downgrades U.S. Debt Rating (2011)
(8) Obama Running Record Annual Deficits Since Took Office (2012)
(9) U.S. Deficit Hits All Time Record in February: $229 Billion (2012)
(10) U.S. Budget Deficit Totals $974 Billion (Jan) Through July (2012)
(11) (D) Controlled Senate Hasn’t Passed a Budget in 1,000 Days (2012)
(12) Oil Prices Up 178% Under Obama – U.S. Handing Russia Our Land & Oil (2012)
I already covered the (lack of decent paying) jobs for middle-Americans and the government manipulation of the jobs numbers above. I could go on with some controversial executive orders, food police, ignoring various laws (too many to list – start with 2009 GM bankruptcy proceeding). I have to end the article before the election.
[11]. ‘But the Stock Market is Up‘
Trading volume has been at low levels since the real estate crash, suggesting individual investors are our of the market compared to where there were in say pre-2006. As for JP Morgan’s comment about the S&P being up 70% since 2009.
It does not matter that the S&P is up 70% or 10,000% from its 2009 low if you are not invested in the S&P 500. How many mutual funds are up 70% since March 9, 2009? Not very many. In fact you would have been better off NOT investing in the U.S. and instead investing in the Dodge & Cox International Stock fund which was the #1 performer during this period (Mar 9, 2009 to Feb 18, 2011), according to Kiplinger.
I think if one did another poll, and said, “Would you vote for a president based solely on whether the stock market is up or down,” that just might give one a different answer.
[12]. The Real Issue
I would argue that most semi to educated people understand the real issue, just like it was in 1992, “it’s the economy stupid.”
Just take note that President Obama isn’t out touting how “hope and change” achievements have boomed the economy, and we are all living in a social utopia (Reaching for the N.Y. government approved 15.9 oz beverage).
Risks (“Headwinds”):
I would argue the economic headwinds have a major potential to impact the economy and markets.1. Unsustainable Deficits and with No Balanced Budget Amendment.
2. Slowed economic growth.
3. Europe in economic shambles (The Poster Child for why socialism doesn’t work).
4. Iran & Nukes.
5. Any rogue government with nukes, or chemical weapons.
6. Massive $2 Trillion tax increases in 2013 and tax increases after 2014 affecting middle class.
7. Domestic polices, executive orders, laws limiting freedoms, free speech, allowing gov seizure over the Internet, spying on private networks, and or controlling content.
8. Domestic polices, executive orders, laws to control all economic resources over the private sector.
9. Domestic polices, executive orders, laws that attack any Constitutional authority.
10. An Administration that divides the country such as using class warfare, creating social anxiety, extreme racial tension, all in effort to create social unrest, “forcing” government’s hand to have further control of civil activities.
All of these things are potential risks. They are not all immediate risks. Some are more likely to hit sooner than later. The foundation of some of these risks are already laid out. Any one or more impact of the above issues could make election drama looking like a kiddie ride at Disneyland. What can increase or decrease such risks is the people’s action in the next election.
The relevance of stock performance and elect-ability in this presidential cycle may or may not play a role, however the argument that significantly greater issues seem to be more pressing.
NetAdvisor™ is a financial risk manager & media analyst with extensive background in financial matters, with a research background in social & behavioral psychology and communications. Read more about Net Advisor™
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