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Back from the Brink…the Obama Rally?

Supporters of President Obama’s policies often credit him with saving the Stock Market and bringing us ‘Back from the Brink’ of economic calamity when equity markets were collapsing in late 2008 and early 2009. Personally I have a different view on it. It is my belief that Obama’s impending Presidency and what looked to be the complete overhaul of the nation’s healthcare system were contributing factors that helped cause the meltdown.

Furthermore, by the end of the first quarter of 2009, it became obvious that there was no way that ‘Obamacare’ as originally envisioned would pass. It is also my belief that this was one of the reasons that the panic subsided and the equity markets started to rally.

Maybe things would be worse without the Stimulus or other policies, maybe better if things were done differently. I don’t claim to know the answer. But I can tell you that during the Panic that occurred in late 2008 and early 2009, I was a trader on the front lines when things were going absolutely crazy. I know for a fact that fears regarding the Obama Presidency and the Health Care Sector being socialized were one of the causes of the Panic.

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Most of the Portfolio Managers and Traders that I know were genuinely afraid of an Obama Presidency because of fears of the Health Care Sector being socialized. In the Summer and Fall of 2008 he seemed to most to be a very competent politician, and most assumed that when in office he would be able to implement his vision of Socialized Healthcare.

Please keep in mind that I am not taking a ‘For’ or ‘Against’ position about the President. Whether you support socialized healthcare or not isn’t the issue. The bottom line is that a HUGE part of the economy seemed about to be changed in ways that weren’t fully understood, and investors do not like uncertainty so the selling began in mass as investors headed for the exits. Obviously, it wasn’t the only thing that cause the meltdown. It was one of many factors, but it was indeed an important one.

When Obama came into Office, it didn’t take long for his lack of management experience to become obvious. He came to Washington with seemingly no idea whatsoever of how he would implement his healthcare vision. He seemed to have no clue of how the political arena works and thought that he would get his way just because people liked him.

By the end of the first quarter of 2009, the fears of an Obama Presidency had lifted significantly. Once it was apparent that he wouldn’t come close to getting what he wanted it became one of the reasons that investors started to come back into the equity markets!

As it turns out that the end of the first quarter of 2009 was a great buying opportunity. The healthcare plan is nothing like it was first envisioned. There has been no socialization of healthcare, no ‘public option’, and in an amazingly ironic twist of fate the once considered ‘evil’ insurance companies are actually rewarded by Obamacare.

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Here we see the Dow Jones from January 2008 through June of 2008. The Red Line is the percentage of Registered

Democrats that wanted Obama to be President, and the Blue Line shows the percentage that supported Clinton. In

early May, Obama soared ahead in the polls and it became clear that he would receive the Democratic nomination, and

would therefore most likely be the next President because Bush and the GOP were highly unpopular. The selloff began.

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Now let’s take a look at the Dow Jones from January 2008 through March of 2009. The Green Ellipse covers the same

time period that it did on the previous chart. This chart illustrates how Obama’s impending Presidency was one of the

things that caused the markets to plunge. In May of 2008 when it became probable that Obama would become

President, the Dow was above 12,000. By election day it was trading around 9,000. Fund managers were genuinely

afraid because at the time he seemed to be very effective, and there was extreme fear and concern regarding the

potential socialization of the healthcare system, which by some measures was One Sixth of the economy.

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Here we see the Dow Jones from February of 2009 through August of 2009. The red line is Obama’s approval

percentage according to the Gallup Polls. As his popularity dropped the markets soared. By the end of the first quarter

it became apparent that there was no way that ‘Obamacare’ would pass. His apparent lack of leadership abilities caused

investors to realize that their worst fears regarding the socialization of a significant part of our economy would not come

to pass and the “Obama Relief” Rally began.

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Supporters of the President’s policies credit him with saving the stock market during the panic. I don’t. In fact, it is my opinion that one of the causes of the panic and the selloff were fears of his impending presidency.

When it became apparent the in May of 2008 that Mr. Obama would get the Democratic Nomination instead of Hillary Clinton and thereby most likely become the next President, the equity markets began to head South. The Dow was over 12,000 and plunged to close to 9,000 by election day.

An Obama Presidency stoked fears of socialized healthcare and investors didn’t know what this meant. Markets don’t like uncertainty and this increased selling pressure.

When it became obvious in early 2009 that healthcare as promised would not pass, it helped to lift fears and investors reentered the markets. As Mr. Obama’s approval rate fell below 50%, markets bottomed and began a powerful rally.