Did President Obama’s Speech Cause The Stock Market Decline?

Two things happened at the same time:  President Obama delivered his inaugural address and the stock market declined.

Two things happened at the same time:  The rooster crowed and the sun rose in the East.

This is an enduring logical fallacy.  It endures because of the insatiable human appetite to impute causality, even when data are lacking.

The Worst of CNBC

Here we have often endorsed the end-of-day CNBC show hosted by Larry Kudlow.  It generally has a diverse group of guests, and Kudlow acts as the point guard on an NBA team, dishing the ball for effectiveness.

We are therefore disappointed at the shallow analysis of today’s trading.  The stock market was weak from the outset because of another around of concerns related to banks, and more pounding by bank analysts.  The decline seemed to be “on hold” during the inauguration, but resumed in late trading.

Larry Kudlow was disappointed that President Obama did not reaffirm his commitment to markets and tax cuts, the Kudlow theme.  His guests agreed that the market had rendered a verdict.  Here is the video, with the key discussion at about 1:15.

Too bad that Kudlow did not make these expectations clear in advance.  Any expert in political science would know that an inaugural address is not going to take on specific policy matters like a State of the Union speech might have.

The point of the speech is to inspire, draw people together, and look ahead.  The Obama speech did all of these things.  We doubt that stock trading had much to do with it.  If it did, it was because of the lack of knowledge of the market pundits.  Sophisticated observers should have known what to expect.

The Obama plan will emerge in good time, and much more rapidly than is the typical case.  If big shots like Kudlow do not understand, that is a better chance for the average investor.

The Best of CNBC

The Maria Bartiromo program’s interviews once again reflected the best of CNBC.  She asked some challenging and deft questions to her guests.  In her interview with Richard DeKaser, the award-winning economic forecaster from National City Corp.  Her expert guest did the two things that we all should emulate:

1. He looked at current data, and noted the grim prospects;
2. He looked ahead to the massive government programs in the pipeline.

Regular readers will note the familiarity of this theme, described at about 40 seconds into the video.  Please watch it all, to see the best CNBC moment out of a long day.  The interview is remarkable both because of the very sensible conclusion - that forecasters are not, and cannot include the impact of policies in the pipeline - but also because he was courageous enough to do take his principled position on a day when the market declined.

Our Take

Once again, the Wall Street pundits and journalists are a bit full of themselves.  This was not a day about the stock market.  Choosing a President involves issues of war and peace, social justice, Supreme Court nominees (and other judges), dealing with crises, allocating resources.  Most importantly it means exercising leadership.

This does not mean following the dictates of any particular interest group.  It means analyzing problems to discover solutions — answers that will work, and will be acceptable to the people.

President Obama was elected because an overwhelming majority of people believe that he can do this.  The punditry makes money - from page views, subscription sales, TV ratings - by selling fear.

Shouldn’t we all give the new guy a chance?  At least for a few weeks?

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