Saturday, August 22, 2009

Jim Cramer and the Obama Disapproval Indicator

Early last October I wrote a post about the mind of Jim Cramer. Link here.

While Cramer was defending the candidacy of Barack Obama on the grounds that he would be better for the stock market, I noted the strange correlation between Obama's poll numbers and the market averages.

At the time I noted-- and I think I was among the first to remark this-- that the market began its most precipitous decline on the day that Obama took the lead in the polls. The more the polls, the political futures market, and the election predicted and then confirmed an Obama victory, the market entered into free fall.

However much Cramer's Wall Street friends believed that Obama would be better for the markets, the markets seemed to be thinking otherwise.

When I suggested this, a number of people wrote me to explain that I had mistaken correlation for causation, that it was the oldest mistake in the book, and that I should have known better. Some expressed the same thought in far less civil terms.

But, considering that there are serious market players who believe that market direction is influenced by astrological conjunctions, I do not think it is outrageous to suggest that a new president's fiscal policies might influence the minds of investors and traders.

Why do I bring up this unpleasant incident again. Well, it turns out that Jim Cramer has just discovered the Obama Disapproval Index.

Juxtaposing Obama's disapproval ratings and the S & P 500 average, Cramer noted that they correlated precisely. The greater the public disapproval of Obama, the higher the market averages go. For a clip of Cramer's performance and some commentary by Ed Morrissey, link here.

So I am happy to note that Jim Cramer has come over to the dark side.

Of course, as Morrissey notes, disapproval ratings have a limited downside. He suggests that this means that the indicator will have a limited value.

In my view the indicator will work until people begin to take it seriously. As long as people dismiss it, it has better chance of being useful.

I would conclude that if the public continues to disapprove of Obama, then the market will continue to advance. But if Obama's approval ratings begin to rise, that will be a time to sell stocks and even to short the market.

1 comment:

nocved said...

Hi Mr.Schneiderman

I think your spot on with your Obama/stock market observations. I would take it one step further and suggest the market started to get weak when Obama went ahead of Clinton in the polls and never looked back.

Appreciate your blog, it has been very helpful to me.