His view that stocks are cheap on a PE basis notwithstanding, Barack Obama believes it’s not helpful to follow the stock market on a day-to-day basis. It’s all about looking long-term, he says, and to treat every day as a verdict on policy would be harmful to the overall recovery strategy. That’s nice in a Warren Buffett kind of way, but we think it’s wrong for a few reasons.
The stock market is a major factor in building or destroying confidence. We keep hearing that one of the keys to recovery is to restore confidence, but it’s awfully hard to be confident when you see your retirement getting chipped away every single day. Just look at the folks on CNBC today, watching their 401(k) accounts vanish. They’re getting choked up on camera.
The market is forward looking. Yes, we’re adjusting to the reality of a post-leverage world and the stock market is recognising that much of what we built during the boom were just castles made of sand (or on top of sand, if you’re talking about McMansions in Nevada and California). But the market is still forward looking. If investors thought that various economic schemes were going to brighten the future, they’d have good reason to be buying. They’re not. Sure it’s not quite that simplistic, but obviously all the talk about “turning the economy around” or “getting it going again” isn’t soothing anyone’s nervers.
The stock market is Main Street. There seems to be some idea that focusing on the stock market means you’re focused on Wall Street as a proxy for the economy. It’s as though the only people who care about stocks are a bunch of whiney supply-siders, like that guy on TV who’s nametag says GOP, or Larry Kudlow who thinks that a slight increase in the highest marginal tax rate is class warfare. That’s nonsense. Careening stocks represent people’s retirement accounts and the companies they work for. In other words, the middle class that everyone says is the soul of America has a lot riding on what they have in sotcks.
Bottom line: Lots and lots of people are obsessed with the stock market. Sure, you can’t judge policy on what’s going to make the market higher today, but to pretend like it doesn’t matter is absurd.