The Stock Market, D’s, and R’s

March 14th, 2012 at 10:51 am

Stock market types have been talking about a “melt-up” lately, i.e., a breakaway bull market.   Um…ok.

I’m agnostic.  I’m glad the volatility of a few months ago is down, but my read is that there’s still more uncertainty than usual in stocks, shaky economics in various parts of the globe, energy price constraints on growth, and despite today’s pop in bond yields, aggressive flights to the safety of Treasuries when equity waters get choppy.

I’ve also got bigger issues with today’s financial markets in general.   Sorry to be old-fashioned, but their raison d’etre is allocating capital to its most productive use.   That still goes on, of course, but there’s more and more money to be made by betting on activities that are numerous steps derived from productive allocation.   (Today’s rally involved a bunch of share buybacks from banks that passed the Fed’s stress test…see what I mean?)

That said, one might be impressed by the market’s recovery from the Great Recession, what with the DJIA, the NAS, and the S&P all doubled since their Great Recession trough in March 2009.

This poses an interesting problem for conservatives.  A couple of times in the recent weeks, I’ve been on market shows where I’m sitting there, waiting for my segment and listening to the market team.   Lately, they’re talking melt-up, the financials in recovery, market’s still undervalued, and all sorts of bullish stuff.

Then they get to me with, “Jared—Obama’s killing the economy!”

Kind of jarring, that.

It also reminds one of that old factoid about how the stock market just seems to do better under D’s than R’s.  Bloomberg has a nice piece on that point:

…over the five decades since John F. Kennedy was inaugurated, $1,000 invested in a hypothetical fund that tracks the Standard & Poor’s 500…only when Democrats are in the White House would have been worth $10,920 at the close of trading yesterday.

That’s more than nine times the dollar return an investor would have realized from following a similar strategy during Republican administrations. A $1,000 stake invested in a fund that followed the S&P 500 under Republican presidents, starting with Richard Nixon, would have grown to $2,087 on the day George W. Bush left office.

[Check out the graphic.]

I won’t try to explain it—some have offered Keynesian explanations, but I don’t think anyone really knows.  As with much market analysis, you can waste a lot of time flapping your gums about relationships that are essentially random.  But jeez, there is a real pattern there.

All’s I’m saying, if you landed here from Mars with some $%*~&’s (that the symbol for Martian currency) to invest in the stock market, you could apparently do worse than just checking to see if there’s a D in the White House.

Update: Wow.  I hadn’t read this before I wrote this post but it definitely resonated.   Never sure exactly what to make out of this sort of public denunciation but the part about the young people especially bummed me out.   That fits much too comfortably into my take on structural inequality’s growth as a vicious cycle.

 

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4 comments in reply to "The Stock Market, D’s, and R’s"

  1. Jean says:

    I don’t remember who said it but “The market is not the economy.” Its just a place you go to buy and sell used stocks. There’s very little correlation between what a stock is selling for and what the company is worth, hence incredibly inflated P/E ratios. Currently what makes people bullish is that corporations are sitting on tons of cash, and WHEN the economy takes off, they will be in a good position to take advantage of it. So when there’s a hint of good news about the economy, people get excited about the earning prospects of all those corporations that are well placed to take off, and of course, everybody is trying to time the market, so … better to “buy on the rumor and sell on the news.” If the rumor is that the economy is getting better, then buy, baby, buy.

    A bullish market is a self-fulfilling prophesy. Makes perfect sense to me.


  2. N. Nyberg says:

    The markets, 80% of which are owned by the top 10% of the nation, are doing well. That’s good news for that top 10%, and I’m sure we are all glad to hear that they are (still) doing well. What about the rest of us out here in the real wage-labor economy, however?


  3. Chris G says:

    >… there’s more and more money to be made by betting on activities that are numerous steps derived from productive allocation.

    My sense is that this is pretty much the only way to make money in the stock market.

    If the stock market were really about allocating capital for most productive use, and it was effective in doing so, then I’d expect dividend payouts would be significant. Aside from maybe cigarette companies, are there any sectors which pay significant dividends? The 1099s I get for my mutual funds suggest that dividends don’t account for much of overall returns.


  4. Th says:

    People might not be happy with Obama’s economic performance but their 401k’s certainly are.


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