Markos N. Kaminis
Obama’s rise in popularity curiously contrasts against the recent drop in securities markets. As stocks fell off a cliff over the past month, the blame for it all has been adequately spread around, and most of it deservedly so. Between investment banks, mortgage brokers, easy lending, blind securities rating and nonexistent regulation, there are enough legitimate reasons for it all. However, through the mayhem, one factor with significant correlation to the market’s decline, in fact seemingly near perfect negative correlation to it, has been completely ignored. The steady rise of Barack Obama in the polls has ominously coincided with the decline of stocks.
In the week of August 18-24, Gallup’s polling of registered voters showed Barack Obama and John McCain tied with 45% of the electorate each. Just ahead of the election, October 31st data showed Obama led the race with an astounding 52% of voter support to McCain’s 41%. Likewise, on Friday August 24th, the Dow Jones Industrial Average stood at 11,628.06. By October 31st, the Dow had shed 19.8% of its value, closing at 9,325.01. Clearly, there was plenty good reason for stock market decline beyond our implication, but the sudden change that occurred in both instances is uncanny just the same.
Through October, the Dow dropped 14.1%, while the Gallup Poll showed Obama’s lead of 4 points (48% to 44%) expanded to 11 points among registered voters polled. In the last week of October, as the Dow improved, Obama’s lead narrowed among the “traditionally” polled, which is a different grouping than the registered voters mentioned above. Is this just seasonal mischief, or is the market telling us something about the type of change Obama might bring to financial markets.
The Chicken or the Egg
Any devil’s advocate worth his horns, or liberal worth his, would be sure to note the very logical reasoning for Obama’s rise, and the related flaw in the initial argument of this article. After all, it’s just as possible, if not much more likely, that Obama’s rise in popularity is the direct result of sudden financial market demise, rather than the cause of it. Obama’s campaign has been quite actively relating McCain to the phrase “more of the same.” Thus, investors and wannabe retirees in this environment are not too tough to persuade into change when the status quo is bleeding red all over their monthly portfolio statements. So, which is it then, the chicken or the egg?
Rule of Statistical Law
We have not been very scientific in our discussion to this point, and we’ve not even considered running a regression analysis, nor studied the time series more closely. Surely that kind of deep recollection and disturbance of old knowledge within this weathered brain would risk a mild stroke. Besides, there’s a clear enough thumbnail sketch here to raise the question.
Statistics plays the party pooper anyway. The science points out to us that correlation does not in any way imply causation. Indeed, the amount of summer rainfall in Athens may have little to do with my love life in New York, and yet, both may be equally dry. What we have in this instance may very well be a case of coincidental correlation… a lucky lick for a writer’s palate just the same.
Why it Might Not Be
Red states might argue that spend-heavy/tax-many Democratic ways are scaring the bejeebers out of the financial markets. Even your favorite Greek, an Independent by design, has concerns about the feasibility of trickle-up economics in our primeval society. After all, what separates the lowest class of Americans from those in the third world, if not employment in the retail service trade. I would argue that this, along with once believed to be evolved financial markets, put the lowest class of Americans in homes and cars, versus those in the Congo who are instead fighting for today’s meal.
Despite the high profile Democratic loyalty of America’s greatest investor, Warren Buffet, the financial community has always been thought to be pro-Republican. Corporate supportive policies are the basis of Republican trickle-down economics, and low capital gains taxes are simply and directly pro-market. So, as unlikely as statistics would have us believe, perhaps savvy investors have in fact provided a reflection of the polls, and already voted with their dollars. In any event, the trend that matters most is that which tracks the new president’s performance from inauguration, and compares to economic and market activity thereafter.