Wednesday, March 4, 2009
How closely, and in what relationship, does the stock market reflect the overall health of the economy? And, going further, does the economic and social policy of the administration in power have a direct, linear, impact on prices? I am not an economist; I do not know the technical answer to either question, but I am willing to venture into conjecture. My guess is that the current price of stock has little to do with the Obama administration's financial policy. The WSJ today tried to tie the current drop in stock prices to Obama's alleged anti-capitalist tendencies. This seems totally ludicrous to me. I do not believe that if the value of stocks were inviting that the current class of brokers and analysts would keep out of the market because they don't like Obama's attitude towards capitalism. Conservatives are going to look anywhere to attack Obama, and the fall in stock prices in his six weeks in office is easy pickings. My guess is that low stock prices are based on the clear understanding by the investing class that there are real questions as to the reliability of the balance sheet of any company, and that there are real questions as to the prospect for quick recovery, due, not to the policies of the new administration, but to structural flaws in the current world economy. Obama is very generous to banks, and committed to the survival and health of capitalism, albeit with a human face. My guess is that the stock market would be exactly where it is if McCain had won, if not lower, and that the WSJ would have a very different explanation for the low prices.