The stock market is mysterious. Myriad data points and projections go into investors' decisions to bet on the future earnings potential of the 30 companies that make up the Dow Jones Indust... oh no, wait. I'm sorry. That's all wrong. Predicting the stock market is very easy. Did liberals just do something? OK then, the market is going down.
The Wall Street Journal op-ed section has a lot of bad habits, but one of the worst is blaming the White House for every stock market crash. I'm serious. Every. Single. One. And adjusting for typical WSJ nonsense, this is the worst paragraphs I've read in a long time:
From the beginning of this historic rally--up 73% over the 316 days since last March's market bottom--politics has been an important theme. That horrific bottom was reached after Democrats in Congress rammed through a $787 billion stimulus bill so quickly that no senator or representative could have possibly read all 1,073 pages of it. That hastily concocted porkfest should not be credited with turning stocks around. Rather, it should be blamed for the more than 18% loss that stocks suffered in the 24 days from the date of its enactment to the day of the March bottom.
In other words, the stock market crashed because Democrats succeeded in passing the stimulus. But wait. After the Congress rejected the first government bailout in September 2008, the Dow dropped 778 points. That was the single worst market value loss in American history, and it happened after a stimulus plan failed. Guess who the WSJ blamed? Democrats for failing to pass the stimulus!
In reality, I don't know what makes markets move. Here's what I know. In the 300 days after the Recovery Act passed, the market soared a "historic" 73%. Economists from the CBO and Goldman Sachs credited the stimulus with adding up to four percentage points to our third and fourth quarter GDP growth. In the meantime the Federal Reserve spent trillions of dollars buying bad assets as the government set a floor to big bank losses and assured the financial system that it would not allow another major failure, and the administration administered a stress test of banks that clearly helped them to recapitalize. Don Luskin's conclusion? Forget last 12 months, let's focus on blaming the administration for some stock fluctuation last March!
Of course, this sets up a couple doozies: (1) if the market grows only when Democrats fail, why did it rally last spring and summer when the Democrats' agenda looked more certain? And (2) how do you explain the recent stock market fall-off that occurred after the Massachusetts upset threw a wrench into the Democrats' plans? Luskin:
It's because the immediate reaction to the Brown election--in both parties--has been a dangerous lurch toward antibusiness populism.
Of course, this is utter silliness. Financial regulation was nearly declared nearly dead last week. Going by the Luskin Theory of Dow Fluctuations, that should have sent stocks soaring. Instead the market hit a three month low yesterday. Explain that one, Luskin.
Truly, the WSJ has outdone itself today.