Brass Knuckles

The Dow at 7,114 yesterday?  Wow.  This is the worst market I can remember, and according to MSN, is at the lowest point since 1997. Generally, the usual suspects in the media have almost considered it a non-story or talked about it in vague terms as being tied to the “global malaise”.  MSN cuts a little closer to the quick.

The market’s pain today reflected the fear that many investors have about how bad the global recession will be. And it was a visible signal of Wall Street’s frustration at how slowly the details to shore up the U.S. financial system are coming out of the Treasury Department. Some of those details are due this week.

Many investors have been betting that stimulus programs in China and possibly India could help reignite global growth, but reports today suggest economies in both countries show few signs of revival.

The Dow is off 10.5% since President Obama’s inauguration. The S&P 500 is off 7.7% since Jan. 20, and the Nasdaq is down 3.7%.

The key point is that the markets measure investor beliefs about the future values of companies, commodities and bonds.  Investors are looking at President Bush’s actions only in so far as they impact future prices. President Bush loosed a hurricane of red ink.  President Obama has unleashed a mega-tsunami.  MSN explains how the “global recession” claim is only part of the story.

The market’s pain today reflected the fear that many investors have about how bad the global recession will be. And it was a visible signal of Wall Street’s frustration at how slowly the details to shore up the U.S. financial system are coming out of the Treasury Department. Some of those details are due this week.

Many investors have been betting that stimulus programs in China and possibly India could help reignite global growth, but reports today suggest economies in both countries show few signs of revival.

The Dow is off 10.5% since President Obama’s inauguration. The S&P 500 is off 7.7% since Jan. 20, and the Nasdaq is down 3.7%.

George Bittlingmeyer and Thomas W. Hazlett  covered the topic in an article published in Real Clear Markets

The Bush Economy went up in smoke in September-October 2008. The financial meltdown hit Wall Street, devastating bank equities and laying waste to America’s 401-Ks. The Republican ticket, McCain-Palin, was a 50-50 bet on Sept. 15; by Oct. 15 it was a 5-1 long-shot. Voters saw the carnage: the Dow Jones Index lost 17% of its value from Sept. 2 through Nov. 3. In a flash, Americans lost years of toil, and Republicans the election. Decisively.

The election marked a turning point. Investors looked forward to the economic policies crafted by Democrats in Congress and the White House. More pointedly, they wanted decisive, well-crafted action on the banking crisis. Hence the Dow soared 6.5% Nov. 21 on news that Timothy Geithner, the highly-respected head of the New York Federal Reserve Bank, was Obama’s pick for Treasury Secretary.

Yet, from Nov. 4, 2008 through Feb. 12, 2009, the DJI overall fell 18% — a larger drop than during the Sept-Oct plunge. In January, when the Obama plan, promising far greater deficits than the two much smaller “emergency stimulus” plans signed by Pres. George W. Bush in 2008, was unveiled, the market tanked – the worst January performance in 113 years.

More pointedly, key political victories for the Team Obama spending plan have not been viewed as buying opportunities on Wall Street. A string of negative market reactions began with the December 18 announcement of a stimulus bill of $700 billion (Dow down 2.5%), continued with the January 7 announcement that the actual plan would be “on the high side” (-2.7%) and continued with last week’s 61-36 Senate vote supporting the Administration’s fiscal plan. The White House victory and the new bank bail-out plan announced the following day by Treasury Secretary Geithner were met with a 5% wipe-out in the DJI, and a decline in Treasury bond yields, indicating a “flight to quality.”

 It seems pretty clear that the market is taking a dim view of the future earnings potential of American companies, but the question that the media seems to be grappling out is the “why”. 

I think the one issue that you’re not going to see discussed is that we’re facing a crisis of leadership.  President Obama was elected on the basis of hope and the need to change, not on his executive or managerial experience.  There seems to be a belief out there that the boss position is a plum; that no particular skill set is required and that any worker could do the job,  just as any good worker could be a first line supervisor.  I’ve seen this on Wall Street, where top traders and salespeople are made managers, then fail miserably and take hits to their book, to boot.  There are of course, top producers that make great managers, but that’s because they had acquired management skills, either through experience or schools.  This is why the Army has formal leadership schools for both officers and enlisted men.  You can’t just be a sergeant because you’re meaner than your men and eat kittens for breakfast.  You have to go to basic NCO (non-commissioned officer) school; when you’re ready for higher-level leadership, you go to advanced leadership school.  And again as you reach higher levels yet. 

Obama’s sale of the stimulus package though a campaign of sheer fear and terror has had its consequence; it was such an embarrassment and rookie move that President Bill Clinton commented on it publicly.  The reaction in a large swath of the media, of course, was to go after President Clinton with girlie-slaps for criticizing their man.

It’s good advice, though.  People look to the presidency for leadership, not fear-mongering or even the tiniest wisp of panic.  There’s a difference between managing expectations and fomenting fear, and I don’t viscerally believe that Obama understands that people expect the president to be optimistic, so if he sounds live he’s choking back bile and chewing Nicorette by the box, then the American public wil go three clicks beyond him on the worry scale, which just beneath the big red upper case “panic”.

Management is a skill; like golf.  Even somebody who is preternaturally athletically gifted can’t just pick up a club and shoot par; nor can somebody who has never managed an organization just step in and managing without making rookie mistakes and learning on the job.  Just seems to me like this is a horrible time for OJT.