Is the stock market giving Bush's policies a thumbs-up?

Conservative commentator Larry Kudlow thinks so:

Any comments on his comments? Seems like a bit of a stretch to me, but it’s finding welcome ears. (And I suspect some of you will have harsher words than that.)

New highs do not necessarily equal the greatest runup in history - that depends on the rate of change of the market.

Nonetheless, it is quite possible those who invest might indeed love the present situation. There is less tax on their earnings, and environment is positive for them.

But the cite is repeating the same old stuff, as if liberals deny the increase in profits. That this story isn’t told is a lie. What gets added, and which is ignored in the cite, is that these great profits have not been improving the lot of most of the American public. The message has been “we on the top are doing great - why aren’t you ingrates happy?”

So, nothing new here at all.

Besides, the smart money goes in before the market really goes up. With George II coming to the end of his reign, perhaps this is part of a great sigh of relief on the part of investors.

Tris

If there were ever an invitation to shout “but what about Clinton!”, this would be it. 1995-2000 saw a similarly exuberant economy, was this also “a big thumbs up vote of confidence”?

And as for “the robust free exchange of information,” are they now claiming that W invented the Internet?

A rising stock market may signal approval of a president’s economic policies, but I think they’re more strongly affected by transitions and trends, some cyclical and some not, that are beyond the scope of even the president. And as for approval of non-economic policies, that’s pretty laughable. “We caught Al Queda’s #2 man again! Quick, buy Starbucks!”

Supply and demand, folks, supply and demand. Shares of stock may represent fractional ownership of businesses, but they’re also something people want to buy, just for a somewhat different set of reasons than you’d want to buy a car or a microwave oven.

One set of big buyers of shares of stock is rich people. Bush’s policies for six and a half years have been geared almost singlemindedly towards making the rich richer, and he has been very successful at it.

So now we have a lot more money chasing a set of shares that hasn’t expanded nearly as fast as the money chasing them. If demand increases faster than supply, prices increase.

I for one was unaware that Bush’s term began in early 2003. Talk about moving the goal posts.

Come back in 2008 or so, and we’ll discuss this. Assuming you can afford an internet connection at that point.

How much of the US stock market is pension funds?

To be fair, something kinda serious happened in 2001 that would probably keep the economy a little blah for a while, President or no.

And hence a recovery happened that would have probably happened to any president, give or take. So it’s not really fair to ascribe the whole recovery to this president’s unique policies.

I find the “demand” element compelling, though.

Thus, the stock market is giving thumbs-up to al-qaeda’s policies.

I can reach absurd conclusions as easily as Kudlow.

I see the recent run up as due to the cheap US dollar. Foreign buyers can buy US stocks for much less 9than equivilent investments in their own countries). the cheap dollar is good and bad-it makes imports more expensive, but it does make US exports more competitive.

Which brings me to my question:

Is there any connection at all between Wall Street and Main Street these days?

Particularly in view of these facts:

  1. A lot of the money flowing into Wall Street is foreign investment; and
  2. A nominally “US company” may have moved all of its manufacturing (and thus most of the jobs it creates) out of the country.

It seems to me that under these circumstances, Wall Street could boom at the same time the US economy in general tanks. But I am no economist, so feel free to disabuse me of my foolish notions.

Spoke, I think you are correct - there is a lot of global investment and liquidity looking for the best returns. There is a robust connection between main street and wall street - bigtime. Japan has, or had, 0 per cent overnight interest rates - free money indeed. S&P500 companies have a very significant overseas exposure, contrary to popular sentiment. The “yen carry trade” simplified is borrowing long term yen at low rates and converting to higher yielding bonds or equities. There is a lot of “easy money” looking for a return - the tech-stock mania of the late 90s and subsequent meltdown, the real-estate markets, etc…,

Institutional investors and pension funds, government entities and millions of “mom and pop” investment clubs, longtime brokerage houses, internet upstarts and a gazillion otherwise ordinary americans. Individual stocks and mutual funds outside retirement accounts have their place as they can be traded for quick cash or pledged as collateral or, security. China has of course the most rapidly growing investment pool of tens of thousands of new investors every day. They too, see the astonishing returns in the market compared with their paltry savings account returns.

Here is an interesting article on how investment bankers are giving more to Obama and Clinton.

Actually, the market started declining sharply in late April 2001, several months before the attacks. The attack caused a dip, but by the end of the year the DJIA had returned to it’s pre-attack level. The general decline continued, however, until early 2003. So the whole economic condition can’t be be waved away as just the effect of the 9/11 attack (and if something like that doesn’t have a long-term effect on the market, what’s the President going to do to affect it?).

http://stockcharts.com/charts/historical/djia2000.html

Kudlow simply assumes a high-volume stock market is a sign of a healthy, productive economy. I don’t see any necessary connection between the two.

From James Howard Kunstler’s online “Clusterfuck Nation” column, 7/16/07:

Main Street and Wall Street are connected much more today than they have been in the past. 401(k) plans, mutual funds, retirement funds all invest in US stocks, and internet access allows people to invest much more directly than pre-1990 or so. Just consider all the low-commission electronic access brokers out there - ETrade, Schwab, etc.

The US economy is still by far the largest in the world - over $13 trillion GDP in 2006, which is more than the next four countries combined (Japan, Germany, China, and the U.K.). It’s still true that if the American economy sneezes, the world economy catches a cold. If the US economy went into a serious recession, that would do a lot of harm to China’s economy, as well as a lot of other countries, given the amount that we import.

Even with multinationals, the U.S. still provides a huge amount of value added to products. The rest of the world is catching up, and it won’t be too long (I think I’ve seen 2025 or so) before China’s outpacing the U.S. in terms of total economic activity. But right now, the U.S. is still the big dog on the block.

Does the stock market run-up mean an approval of Bush’s policies? It’s hard to say. My view is that Wall Street is much more interested in making money than in voting approval of policies. If those policies do provide a healthy business environment that creates profits, then by all means they’re for it. I have no doubt that an anti-regulatory philosophy is heartily cheered by Wall Street, not for any philosophical reason, but because that leads to higher profits. I think that Wall Street would be in favor of increased regulatory policies, anti-war demonstrations, free drugs, gay marriage, elimination of religion, pretty much anything if it resulted in higher profits.

so when the global markets nose dives later this year =, does that mean global investors suddenly disagree with dubya?

I will say that the stock market also gave a thumbs up to the policies of Calving Coolidge and Herbert Hoover.