Obama may be the last stock promoter left standing
President Obama is not an expert on the economy, nor does he claim to be; his cabinet choices demonstrate that he knows his limitations. Rather than surround himself with yes-men and rubberstampers, he has filled his cabinet with experts, particularly in areas where his own knowledge is a little thin. With this in mind, it seems likely that his statement yesterday was exactly what it sounded like: the kind of vague, off-the-cuff remark that a politician would use to generally inspire discussion.
Looking at Obama's actual words, it's clear that he was relating the market to his area of expertise: "You know, the stock market is sort of like a tracking poll in politics. It bobs up and down day to day, and if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong." With the market shedding half its value, that advice seems a little risky, but it is clear that Obama is building from his core compentency. As a politician, he is absolutely right: if one bases policy on domination of the news cycle, then it is impossible to build a coherent policy.
Similarly, the President's remarks about profit and earning, while vague, are fairly conventionally wise: "What you're seeing is profit and earning ratios starting to get to the point where buying stocks is a potentially good deal, if you've got a long-term perspective on it." As Bloomberg notes, this remark was sound: companies in the S&P 500 are currently at their lowest prices, relative to earnings, since 1986.
In a broader context, however, the only truly noteworthy and remotely specific part of the President's remarks on the market came when he discussed credit: "I'm absolutely confident that credit is going to be flowing again, that businesses are going to start seeing opportunities for investment. They're going to start hiring again. People are going to be back to work." While he obviously can't promise an increase in hiring, the President has an inside track on credit flow. If there is anything solid that can be taken away from his recent economic remarks, this is it.
Of course, one can't discount the political impact of the President's statement; after all, anything said from the bully pulpit carries considerable weight. However, given Obama's previous dire statements regarding the market, his remark yesterday could easily be seen as the beginnings of a rhetorical turnaround, if not a real one.
It is also worth noting, as Forbes once pointed out, that Democratic Presidents are generally better for the market than Republican ones. In a nutshell, the S&P's average return under Dems since 1927 has been 2.8 percent higher than under their GOP counterparts. While the magazine couldn't find a reason for this, they noted that there tends to be a serious disconnect between the economy and the market, with Wall Street drawing its cues from projected corporate earnings and interest rates.
With earnings currently looking miserable, the ultimate question is whether the next four years hold the promise of increased returns or if a combination of consumer thrift and poverty are going to keep them low. If the stimulus package can inspire greater spending, then the President's cheery prediction may well come to pass.