Thu, 08 Jan 2009 16:55:28 +0000 – You can thank our incoming president for extinguishing the faint glimmers of optimism that had driven markets higher in recent sessions. Did you happen to notice yesterday's market sell-off?
[caption id="attachment_5092" align="aligncenter" width="300" caption="President-elect Barack Obama speaking on Jan. 7 in Washington (AP)"][/caption]
The media blamed Wednesday's market setback on gloomy job loss projections and downbeat profit warnings from Time Warner, Alcoa and Intel. I disagree.
I think investors were put off by Obama's warnings of "trillion-dollar deficits for years to come" -- an unwelcome reality check from our cheerleader-in-chief
For weeks companies around the globe have had to reduce investor expectations. Any management that has not fessed up to just how ghastly business prospects are has simply been putting off the inevitable -- or else out of touch with field operations. (Beware of those long lines of reporting!) That a Time Warner or Alcoa should be seeing a drop in revenues cannot possibly be construed as a surprise. We're in a recession for heaven's sake!
The market came to grips with this reality a couple of months ago. Indeed, more recently such announcements have not jarred investor sensibilities a whit. In other words, bad economic news is not news at all.
There is an irrational but tangible feeling in the air that Obama can deliver miracles... It is singularly deflating, then, when Obama talks trash about the economy.
It is singularly deflating, then, when Obama talks trash about the economy. His purpose, I imagine, is two-fold: First, he needs to get Americans on board with a gigantic spending program that he feels is necessary to put people to work and breathe some life into the economy. Second, if he prepares people to expect truly dreadful times ahead, anything less horrendous will be added to the plus side of the Obama ledger. Just like corporate managements, Mr. Obama can only win by outperforming expectations.
The problem is that the economy and the markets are fragile beyond imagining right now. We don't need a dose of gloom and doom. We need a Ronald Reagan-type "morning in America" optimism. Consumer sentiment is in the basement-- is that a leading or lagging indicator? We need people who have money to go out and spend it -- they need to feel confident to do so. We need bankers to approve loans, and companies to invest in new plant and equipment.
None of these things will happen if everyone is focused on how dreadful the next few years will be.
My advice, Mr. Obama, is this: stop scaring Americans to death by telling them how bad things will be if your programs are not enacted. Henry Paulson adopted that approach to the point that every time he came on television the market cratered. With a Congress firmly in the hands of your political compatriots, you will get your stimulus package passed. If Americans see enough tough oversight put in place, they will be supportive, especially if the investments appear to generate jobs. Americans are smart -- they know we're in trouble and that the times call for unusual measures.
But, they need you to lead, and to be positive. Do not spend the enthusiasm of the electorate with scare-tactics. We need, after all, that ridiculous message of hope that got you elected.