The Dow dropped 3 percent last week. Today it is also sinking on reports from the World Bank and others that a supposed recovery later this year may be delayed for quite awhile longer.
Could this be the end of the bull run that began in March and has featured the biggest percentage market jump in more than 70 years? One sure sign that this may be the case is a story on today’s Bloomberg website that tells of “insiders” (CEOs of large publicly traded companies) bailing out of their own stock holdings and cashing in on the stock surge of the last four months. One suspects these people may know something.
If in coming weeks it turns out that all the talk of green shoots and glimmers and stabilization from market heavies and government officials was wishing thinking at best or just plain hokum, what might be the consequences of this short burst of market euphoria? I think it may prove a mixed blessing, but with a greater overall downside.
This run up has had some good effects beyond enriching people already quite rich. Sales of newly issued bank stocks has improved these institutions’ books, supplementing government infusions of cash. The same is true for Wall Street firms, and better financial conditions have allowed these companies to retain some staff that would otherwise have been laid off. Mutual funds and pension funds that took such huge hits when the market plummeted last year have come back a bit. Consumer confidence has improved because of the market upturn, always a good thing for the economy.
So then, what’s the likely downsides of this four month run up? The obvious one, of course, is that people suckered in by all the happy talk from government officials and economists and Wall Street analysts will realize losses on top of the losses they incurred from the huge 2008 slide. But worse, far worse, is what it could mean for the Obama Administration’s credibility.
In his first couple of months in office President Obama was very clear about the mess he had inherited and the likelihood that it would take a long time to bring things back to anything even approximating pre-2008 economic conditions. Then the best and brightest in his own administration and The Street pushed him to appear more optimistic. Their rap, in essence, was jolly people up with happy talk and the problems would solve themselves.
Already, according to some surveys, about a third of Americans believe their economic troubles are Obama’s fault. If the market tanks again from here, a great many more people will blame the green shoot and glimmers president for deceiving them, and his credibility will tank as well.
And the last ting we need just now is a president with vastly diminished credibility on the economy.