Friday morning I was watching the news and heard a market reporter say that the stock market favors Senator Barack Obama for President.
Since the biggest McCain talking point about Obama is that he’s going to raise taxes, I wondered why the reporter would say such a thing. He claimed that when markets are down in the few months leading up to an election, a “change” (in party) comes to the White House.
I googled “stock market Obama” and most of what I saw linked him to the market’s crash and blamed him for crashes to come. Is Obama Depressing the Market?…Is Obama Dragging Down Stock Prices?…President Obama and the Coming Stock Market Crash.
I saw a campaign ad that fell just shy of blaming Senator Obama for the subprime market meltdown. Funny, I must have glazed over his experience as a shady loan officer or investment banker while examining his vita. My bad, I was probably too preoccupied with the Harvard Law degree.
In all seriousness, this is ridiculous. Anyone trying to blame the market’s downfall on one person, particularly a politician, is only drawing more attention to their own ignorance. The meltdown and subsequent rescue plan have too many guilty parties to identify (the government being one of them), but much of the current crisis can be traced to Wall Street’s insatiable appetite for derivatives and mortgage backed securities.
Derivatives in and of themselves have no value, as their value is determined from the value of an underlying asset. They are traded on many assets such as currencies, stocks and commodities. Common derivatives include futures, options and swaps. Originally designed to reduce risk, derivatives have been increasingly used to take on risk.
Mortgage backed securities are bonds which are linked to home loans. Mortgage lenders bundle a set of home loans which are then securitized and sold off to outside investors as bonds. The mortgage payments are then passed through to the investors.
It was all good until counterparties started defaulting and the mortgages stopped being paid. A ripple of losses sparked a worldwide panic which paralyzed credit markets and sent stock markets south. Several central banks have responded by lowering interest rates and pumping cash into banks, all in hopes that banks will start trusting (and lending to) each other again.
So you see, this is much deeper than any one candidate could have predicted, caused or remedied.
As for which candidate would be better for the stock market, I couldn’t care less. There are far more important things on my mind when I consider who should be the next President of the United States.
If you want to know where they stand, find out for yourself: http://online.wsj.com/article/SB122497140074869661.html?mod=googlenews_wsj