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The Macro Strategist: The Obama Factor in The Stock Market
The Macro Strategist: The Obama Factor in The Stock Market
David P. Goldman
Source: Intrade
A bad stock
market and a bad
economy is bad
for the incumbent,
but it's not so
simple
Source: Tradeline
Over the life of the Tradeline.com bet on Obama's re-election since Dec. 6, 2010,
changes in the S&P 500 explain about two-thirds of the variation in Obama's political
standing. That's another way of saying, "It's the economy, stupid."
Of course, the question of causality remains. The Granger Causality Test (actually, a
statistical test for information precedence earned its inventor a Nobel Prize, and is
helpful in this regard.
Exhibit 3: Granger Causality Shows the S&P 500 "Causes" Changes in
Obama's Re-Election Chances, Dec. 6, 2010 through September 21, 2011
Pairwise Granger Causality Tests for Dec. 6, 2010 to Sept. 21, 2011
Lags: 3
Null Hypothesis:
Obs
F-Statistic
Probability
286
2.11339
0.09874
1.50361
0.21383
What the table shows is that the probability that the S&P does not contain information
about future values of Obama's re-election probability is higher than the reverse (the
2 The Obama Factor in the Stock Market
Obs
F-Statistic
Probability
38
1.06337
0.37880
1.63102
0.20229
2.5
80
2.0
60
1.5
40
1.0
20
0.5
0.0
-20
-0.5
-40
-1.0
-60
-1.5
2011M10
-80
2011M11
Changes in Obama's Chances (3 Day Lag)
Changes in S&P 500
No accident that
the deficit is the
hot-button issue
As Obama goes
up, stocks go
down since midOctober
For many
homeowners, the
property tax has
become a
confiscatory
wealth tax
Exhibit 7 above shows that property taxes have risen from about 29% of total state
and local revenues to about 35% today. What that means in practice is that the
average homeowner who can refinance a mortgage at today's low rate with a 20%
down payment will pay about as much in property taxes as in mortgage interest. That
is a striking result; property taxes a decade ago amounted to a quarter to a third of
mortgage payments.
Exhibit 7 above shows that property taxes have risen from about 29% of total state
and local revenues to about 35% today. What that means in practice is that the
average homeowner who can refinance a mortgage at today's low rate with a 20%
down payment will pay about as much in property taxes as in mortgage interest. That
is a striking result; property taxes a decade ago amounted to a quarter to a third of
mortgage payments.
This extraordinary observation is the result of continuous upward creep of property tax
assessments despite the collapse in home prices. As home prices soared during the
mid-1980s, tax assessments lagged; now that they have collapsed, local authorities
continue to press for higher assessments. It is easier to boil the frog by slow
increments of property tax assessments than to go to voters with a new sales or
income tax.
Eleven U.S. states, meanwhile, face budget deficit this year that exceed 16% of total
projected revenues, ranging from Nevada (at 37%) to Illinois (at 16%). If states
cannot raise new revenue from the middle class, they will have to cut spending
severely, which means re-negotiating pension and benefit packages for public sector
unions. The middle class is danger of losing its savings, its retirement and in many
cases its homes as property taxes rise; public sector employees are in danger of losing
benefits they negotiated during the bubble years and believed to be ironclad.
Never before in American history have so many Americans depended on the public
budget, and never before has the property tax threatened to become a confiscatory
wealth tax. This energizes a kind of polarization we never seen before, and a different
kind of politics. It makes all the standard predictions of electoral outcomes less
certain. And as long as the Republican Party's leadership appears uncertain, the
prospect of another four years of Barack Obama will weigh on the equity market.