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Guest Post: A President's Approval Rating And Stocks: Are They Linked?
Submitted by Yves Lamoureux of Blackmont Capital
Since Obama started to talk about health care reform his approval has sunk real quickly. It is now up to a point that the consensus prefers no reform at all. I am of the opinion that such a grand task is ill-timed. After the financial fiasco of the credit bubble who’s to say that we are on solid footing. The same talking heads that claimed all was fine are out in force with the same rhetoric. Don’t believe it. A balance sheet recession will take a lot of time to unwind. People on Main Street are perhaps not as gullible the second time around.

Only Bill Clinton in recent presidencies had a lower approval than Obama after seven months in office.

We did push the exercise to compare a president’s approval rating and the stock market to see if we did find any correlation. Under Clinton the general trend of his approval is up and equally so is the stock market. We find that there are periods where credit creation and or destruction will dominate over the popularity of the president. The 1990’s is the period of low rates and the dot-com bubble; however, there is a clear link with an often leading position relative to stocks.
Jimmy Carter’s rating gives a good example of the linkage between both his popularity and the stock market. From election the trend is steadily lower from 70% to about 40% in mid 1978.The stock market from that period moved from about 960 to 750 over the same time frame. sentiment will go down for a while without effect on stocks.

Surely it is always a matter of time and Lyndon B. Johnson’s popularity in the period of 1964 to 1966 is a good example of this. By late 1965 the market dropped big from 1000 to 740 rather quickly.

Nixon is also a very interesting case as well. In a period where the general public loose faith in the chief commander the market is sure to suffer even if it lags the consensus.

We can also compare Nixon with Truman, who got caught in the beginnings of the Cold War and got stuck in the Korean War. Yet, he caught the start of the great bull market run from late 1949 to 1966.
George W. Bush saw a constant erosion of his rating since 2002.The market ultimately reflects the ratings and ended up lower than at the start of his term in 2001.

We can also compare to W's dad:

And then compare Poppy Bush to Ronald Reagan:

President Obama recent tumble in the polls has not been recovered. The drop was precipitous. The more he talks about health care reform the lower the ratings he gets. Can we conclude that lower ratings on the president will ultimately affect your portfolio?
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Yeah, the most unfortunate thing with the new administration is their stubborn belief that the Healthcare issue is more urgent than the real issue at hand (the balance sheet recession).
In this sense, Obama is getting really bad advice from Rahm Emanuel (never let a crisis go to waste; to Geithner/Summers (we need to protect the top tier of the banking system, no matter the cost); to Uncle Ben (printing money to oblivion is the ultimate solution).
As Obama has commented before, he sees the current financial crisis as a short term problem that is dwarfed by a longer term problem. Unfortunately, he's papering over a short term problem that is potentially much larger than anyone in the Administration is willing to admit. And it continues to grow in the tens of $ trillions.
Obama would have been better off shelving comprehensive Healthcare reform in favor of tackling the financial crisis head on-- or better yet, adopting "cost saving" solutions in HC that did not require net government outlays. He's now left with an immediate crisis growing in size, and a large looming crisis losing support-- well, because it costs a lot of money in the near term.
If you think Obama's approval ratings are low now... just wait until we get to 2010. Problem is, the Repubican party will still be in just as terrible shape come 2010 elections.
I think the whole health care issue is the best idea the status quo politicians can come up with to keep the masses focused on an emotional issue, and not on the country's deep economic problems. Its merely about distraction. Of course Obama knows the USA is technically insolvent and is probably willing to take a hit to his numbers to deflect an economic catastrophe.
They are hoping to wait it out. The math, unfortunately. never lies.
"The math, unfortunately. never lies."
This is not unfortunate. It's one of the only things that we can count on in a world full of liars.
Agreed.
I think the Dems feel they can afford the "wait it out" approach and stretch this out through 2010, mainly because the Republicans are so weak and disorganized right now.
Not that this will happen... but what a great time it would be to build a new political party from the ground up. Unfortunately, I see nothing in terms of organization that would be ready for the midterms.
Obama set himself up to fail
The real problem is that we are still talking about democrats versus republicans when these fucking skank whores have bankrupted our country forever.
When Presidents talk about hope, ratings go up. When Presidents talk about a subject that can actually be measured or examined, ratings go down.
I personally believe that the stock market is similarly enthralled with self delusions and fantasy.
less legislation and "work" done in washington is good for the market
94-2000 = gridlock
honestly im looking to liquidate my portfolio regardless of what Obama has to say or what his approval rating is.
I am going to break from my Phil Gramm character for this posting (for the first time):
As we all know, there is a bubble in the casino right now driven buy computers and dummies investing in defunct stocks. It will drop and Obama's approval rating will drop.
Obama is finding out the hard way on how things work in D.C. Appeasing the lobbyists is more important than appeasing the constituents and it's nearly impossible to break the habits of these politicians.
The only way real "change" is going to happen is by imposing term limits in congress. Until that happens, or the gov't collapses, things will stay pretty much the same.
I am for health care reform. I am for it because I think it could help small businesses tremendously.
I am currently part of the corporate ladder and it's not where I want to be. A big reason why I am here is because of my benefits; I can't afford to start my own business without incurring too much personal and financial risk.
Now stop being a bunch of whiners and demand term limits!
-- Phil
Can we really corelate between stock market (emotion/sentiment) and plot it against approval raiting if 70% of the trades are done by robots?
Ratings are showing the more Oblame-all talks healthcare the further he falls. Vacation plan change: Oblame-all cuts vac one week to return to healthcare push. keep pushin
The health care issue is diversionary and completely ridiculous. Yes, we have issues with helath care, but the collapsed financial system and the spectre of Great Depression II (in whatever form it comes- likely mini Zimbabwe II) is orders of magnitude more ciritcal to address than health care. Frankkly the US governemnt is no position to be making any major policy changes right now, other than perhaps dismantling foreign military bases (out of financial necessity) and missions.
How do you respond to a point that health care spending and financial health of the country are now inextricably linked? Even employer provided health insurance costs too much - both to the employer and the employee out of pocket. On my paychecks, there is a total of about $1000 per month that goes for health insurance premiums (excl. dental). That's a substantial amount of dough that my wife could otherwise be spending in Bloomingdales.
If you want to be fiscally conservative about it (and I mean really fiscally conservative, not just 'make-believe' fiscally conservative who only cares about budget deficits so long as certain ideological areas are not breached), we should really move to VA type system for all, where the government owns hospitals, employs doctors, and provides free healthcare to all. That'd put the lid on costs (just by eliminating the principal-agent problem). And as far as I am concerned, they could tax me another $550 or so per month to accomplish that: provided I get the $1000 back in my pocket as compensation, I'd be in the same boat financially on an after-tax basis.
This is stupid. If you want to tell me there is a correlation or even a causation effect between two phenomena, please run a proper regression, without picking and choosing your time horizons. A first-grader can post a bunch of graphs.
do ratings matter?
not really till you get to re-election time. who gives a fuck?
Im still trying to figure out theClinton-Neo liberals, Summers & Co in the WH. Obama is way over his head and making himself look more and more like amateur POTUS!
Fact that these same ppl were responsible for repealing laws that allowed this financial Catastrophe!
cramer brought this up a couple of weeks ago...
Sorry DOD, but Cramer is a shrill and snake for the SIA...He should be in jail for insider trading!
Obama has absolutely no clue what he's doing. He's in way over his head and I imagine he had absolutely no idea he would ever win when he started his campaign. His problem is that for two years he projected himself to be anything to anybody. With absolutely no record to run on, his rhetoric matched perfectly with his speaking skills. He was elected by so many different factions that (as we are seeing now) its impossible to keep all of them happy. Its really interesting to see the healthcare debate affecting his poll numbers. What's going to happen when the government money runs out and the double dip sets in? The economist ran an article a few weeks back saying that Obama could end up being the least popular president in the post-war era. I think that not only is it possible, its also possible that he could be responsible for the destruction of the Democratic party for a generation.
The Health Care issue is a red herring here. If anything, it's probably a wash since at least half the people know the current system is fucked up and needs to be changed somehow.
Mr. Ritholtz did a much better job on the "approval" issue by pointing out that the closest correlation is simply with the price of gasoline. And what has that been doing recently?
Then throw in the fact that Mr. Obama is losing support from many who voted for him and have become disgusted with him for selling out to Wall Street.
Health Care my ass.
could be right
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
best thing you Yanks can do is get rid of the twat before it's too late.
no more dicking-around OK?
As the market trends up, Obama trends down.. fraud-o-meter at work, no one believes this "rally" is anything but a bunch of psycho-bankers and cohorts in gov't manipulating the thing.
Let these "institutions" take it in the pants like everyone else, throw some of the crooks in jail and watch approval ratings go up, even if the market tanks.
obamawanker & the acornholers? i'm not even trying, delicately put as they say
Don't count our Celebrity in Chief out just yet. He is an intellectual force to be reckoned with: http://www.youtube.com/watch?v=Osg3u_UFgIo
I think Yves is comparing the wrong metric.
Try EMPLOYMENT & STANDARD OF LIVING vs. popularity..! XD
There is little correlation IMHO
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
I looked for a chart depicting this fact in the attachment to Zero Hedge’s A Detailed Look At The Stratified U.S. Consumer by the McKinsey Global Insitute on Consumer Debt but it apparently has since been removed.
Anyway, if my memory serves me correctly, nothing has changed. G. William Domhoff in September 2005 points this out in Wealth, Income, and Power (updated May 2009) :“In terms of types of financial wealth, the top one percent of households have 36.7% of all privately held stock, 63.8% of financial securities, and 61.9% of business equity. The top 10% have 85% to 90% of stock, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.”
Domhoff also distinguishes wealth from income. “Income is what people earn from wages, dividends, interest, and any rents or royalties that are paid to them on properties they own. In theory, those who own a great deal of wealth may or may not have high incomes, depending on the returns they receive from their wealth, but in reality those at the very top of the wealth distribution usually have the most income.”
Therefore, the wealth effect of rapidly appreciating home values had much more affect on American consumers than the stock market.
A 2001 release by the Consumer Federation of America showed that the greatest source of wealth for all affluent households (net assets of $100,000 or more at the time) was the value of their homes; 34 percent of the wealth of these families was represented in the equity of their primary residence. By comparison, only 17 percent was in retirement accounts and only 11 percent in stocks, bonds, and mutual funds (not part of retirement accounts).
“For households with net assets of $100,000 to $250,000, home equity was is an especially important source of wealth. The value of their homes represents 43 percent of their wealth (compared to 17 percent in retirement accounts and 6 percent in stocks, bonds, and mutual funds).
That share of home equity would have increased disproportionately to an even greater percentage of wealth during the Greenspan/Bernanke home bubble years just imploded. And fallen accordingly.
In fact, according to CNN.Money:
NEW YORK (CNNMoney.com) -- Americans saw $1.3 trillion of wealth vaporize in the first quarter of 2009, as the stock market and home values continued to decline, according to a government report released Thursday.
Household net worth fell to $50.4 trillion, according to the flow of funds report by the Federal Reserve. Americans' stock holdings plunged 5.8% to $5.2 trillion and mutual funds holdings slid 4.1% to $3.3 trillion, while their home value dropped 2.4% to $17.9 trillion.
The nation's households have now seen their net worth shrink for seven straight quarters. Family net worth had hit an all-time high of $64.4 trillion in the second quarter of 2007, thanks to the housing bubble and a strong stock market. (end)
And don’t forget that the top 10% own approximately 90% of those stock and mutual fund holdings.
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
http://www.zerohedge.com/article/detailed-look-stratified-us-consumer
http://money.cnn.com/2009/06/11/news/economy/Americans_wealth_drops/
"There is little correlation IMHO."
Just eyeballing these charts, it looks like we could go years before any correlation presents itself...if ever.
What this chart comparison would benefit from, would be some analytical rigor to tweeze out any correlations (or lack thereof) from such a comparison.
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