Saturday, March 01, 2008

Bush triggers huge market sell-off

When President Bush chose to assure us Thursday that we are not in a recession and that he does not expect one, it was one of those "oh brother" moments. It was a clear sell signal.

To put it politely, President Bush is viewed as a macro thinker. One may agree or disagree with his many actions or efforts(Afghanistan, Iraq, immigration reform, Medicare part D, no child left behind etc) but he is generally viewed as a cheerleader of ideas, some that he strongly believes in, and not an originator of ideas and certainly not one deep into the details. His standing as an authority on anything as multi-faceted and unpredictable as the economy is really about zero, which is still slightly above some of CNBC's anchors. The credit markets are on edge, experienced traders are shaking in their boots, and President Bush reassures.

There was once an equity securities analyst at a top five Wall Street investment bank, let's call him Hank, who had a senior position for at least ten years despite having a terrible track record of buy or sell opinions. He was an affable guy, well spoken when it came to grammatically correct sentences including any current cliches, but his analysis was light or just silly. At a dinner of major investors who would receive his work and meet with him, the question was raised as to how Hank continued to be employed. A portfolio manager at one of the largest mutual fund houses was quick to answer. "It's simple. He is almost the perfect contrarian indicator. He says sell, we do the analysis on the perfect point to buy. He says buy, we look at sell. On that basis his track record is phenomenal. We love Hank and will pay to be the first ones to have him in to discuss his recommendations."

That may have been the market's reaction to President Bush. Of course it was AIG's report, the reported continued decline in home prices, the ongoing decline in the dollar, the new oil price record, that's all the real stuff that led to Friday's sell-off. It all makes Bush's wide eyed pursed lip comments seem that much lighter, or silly.

That being said, let's hope he's right.

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