Business Week Features Villanova School Of Business Professor Mike Pagano On Bank Mergers, 10/24/08
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http://www.businessweek.com/investor/content/oc...m?chan=top+news_top+news+index+-+temp_top+story (1 of 8) [10/24/2008 3:20:16 PM]
Five Myths About the Election and the Stock Market - BusinessWeek
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Investing October 24, 2008, 12:01AM EST
Five Myths About the Election and the Stock Market With the Obama-McCain contest nearing the finish line, BusinessWeek debunks some Wall Street notions about
bulls, bears, elephants, and donkeys By Ben Steverman For the first time in 76 years, a financial crisis is occurring at the same time as a Presidential election. Based on recent polls, the coincidence seems to have boosted the chances that Illinois Senator Barack Obama, the Democratic nominee, will defeat Republican Arizona Senator John McCain on Nov. 4. The financial crisis has affected the Presidential race, but how is the election affecting the financial markets? Pundits offer endless theories on that question, and their answers are often suspiciously similar to their political views.
Thus, right-leaning market experts insist Obama's tax proposals would be disastrous for investors. More liberal Obama supporters insist the market will celebrate if he is given the job of leading the world out of the financial crisis. Some of these claims are impossible to prove or disprove. But there are some myths about the election and the stock market that need clearing up. Myth No. 1: The stock market is waiting to see who wins. Stock traders are used to looking at the data, weighing probabilities and making investing bets based on them. Among fund managers, analysts, and other market professionals interviewed in the past week, there is little doubt which is the more likely outcome of the 2008 Presidential election. Consider two pieces of evidence the "smart money" on Wall Street would be likely to take seriously: On the Iowa Electronics Market, traders can put up money to make bets on the outcome of the Presidential race. On Oct. 3, Obama was given a 70% chance of winning. On Oct. 23, it was 87%. Then there are the polls. Nate Silver, who first achieved renown in the area of baseball statistics, runs a sophisticated daily analysis of all polling data that incorporates state-by-state demographic factors, historical data and polling firms' past track records. On Oct. 23, Silver's site, www.fivethirtyeight.com, rated Obama's victory a 93.5% likelihood. That's not to say that McCain can't win the election. (Google the name "Thomas
E. Dewey" when you have a spare moment.) He still has a chance, but based on the forecasts the Street is watching, the probability of a win is so small that very few investors are going to bet money on a McCain victory. Myth No. 2: Wall Street is disappointed at Obama's lead in the polls, because it always wants the Republican to win. There is anecdotal evidence that investors in some sectors are worried about an Obama victory. With Democrats in control, Washington could squeeze profits for health-care firms or energy companies, for example. And it's true that it's not hard to find a Republican on Wall Street: Wealthy investors and financial professionals tend to favor low taxes and deregulation, planks of the Republican party platform. However, Obama has plenty of supporters among investors, too. Berkshire Hathaway (BRKA) Chief Executive Warren Buffett is an Obama supporter, and many hedge fund managers and others have contributed to his campaign. In fact, according to the Center for Responsive Politics, donors in the securities and investment industry have given $11.1 million to Obama's campaign, and only $7.7 million so far to McCain. A 2004 academic study (by Scott Beyer, Gerald Jensen, and Robert Johnson) found that, from 1926 to 2000, the broad Standard & Poor's 500-stock index actually performed better under Democrats than Republicans, 15.24% vs. 10.78%. However, that Democratic advantage evaporated when the impact of
the Federal Reserve—which sets interest rates—was taken into account. Copyright 2000-2008 by The McGraw-Hill Companies Inc. All rights reserved.
http://www.businessweek.com/investor/content/oc...m?chan=top+news_top+news+index+-+temp_top+story (8 of 8) [10/24/2008 3:20:16 PM]
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http://www.businessweek.com/investor/content/oc...m?chan=top+news_top+news+index+-+temp_top+story (1 of 8) [10/24/2008 3:20:16 PM]
Five Myths About the Election and the Stock Market - BusinessWeek
Companies ❍ Economy ❍ Energy ❍ Innovation ❍ Investing ❍ Europe Insight Blog Lifestyle ❍ Lifestyle Home ❍ Real Estate ❍ Autos ❍ Travel ❍ Executive Health ❍ Living Well ❍ Auto Beat Blog ❍ Business of Luxury Blog ❍ Hot Property Blog ❍ Traveler's Check Blog Magazine ❍ Current Issue ❍ Past Issues ❍ Cover Story Podcasts ❍ Figures of the Week ❍ Small Biz Magazine ❍ BW TV ❍ Subscribe ❍ FAQs ❍
●
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Investing October 24, 2008, 12:01AM EST
Five Myths About the Election and the Stock Market With the Obama-McCain contest nearing the finish line, BusinessWeek debunks some Wall Street notions about
bulls, bears, elephants, and donkeys By Ben Steverman For the first time in 76 years, a financial crisis is occurring at the same time as a Presidential election. Based on recent polls, the coincidence seems to have boosted the chances that Illinois Senator Barack Obama, the Democratic nominee, will defeat Republican Arizona Senator John McCain on Nov. 4. The financial crisis has affected the Presidential race, but how is the election affecting the financial markets? Pundits offer endless theories on that question, and their answers are often suspiciously similar to their political views.
Thus, right-leaning market experts insist Obama's tax proposals would be disastrous for investors. More liberal Obama supporters insist the market will celebrate if he is given the job of leading the world out of the financial crisis. Some of these claims are impossible to prove or disprove. But there are some myths about the election and the stock market that need clearing up. Myth No. 1: The stock market is waiting to see who wins. Stock traders are used to looking at the data, weighing probabilities and making investing bets based on them. Among fund managers, analysts, and other market professionals interviewed in the past week, there is little doubt which is the more likely outcome of the 2008 Presidential election. Consider two pieces of evidence the "smart money" on Wall Street would be likely to take seriously: On the Iowa Electronics Market, traders can put up money to make bets on the outcome of the Presidential race. On Oct. 3, Obama was given a 70% chance of winning. On Oct. 23, it was 87%. Then there are the polls. Nate Silver, who first achieved renown in the area of baseball statistics, runs a sophisticated daily analysis of all polling data that incorporates state-by-state demographic factors, historical data and polling firms' past track records. On Oct. 23, Silver's site, www.fivethirtyeight.com, rated Obama's victory a 93.5% likelihood. That's not to say that McCain can't win the election. (Google the name "Thomas
E. Dewey" when you have a spare moment.) He still has a chance, but based on the forecasts the Street is watching, the probability of a win is so small that very few investors are going to bet money on a McCain victory. Myth No. 2: Wall Street is disappointed at Obama's lead in the polls, because it always wants the Republican to win. There is anecdotal evidence that investors in some sectors are worried about an Obama victory. With Democrats in control, Washington could squeeze profits for health-care firms or energy companies, for example. And it's true that it's not hard to find a Republican on Wall Street: Wealthy investors and financial professionals tend to favor low taxes and deregulation, planks of the Republican party platform. However, Obama has plenty of supporters among investors, too. Berkshire Hathaway (BRKA) Chief Executive Warren Buffett is an Obama supporter, and many hedge fund managers and others have contributed to his campaign. In fact, according to the Center for Responsive Politics, donors in the securities and investment industry have given $11.1 million to Obama's campaign, and only $7.7 million so far to McCain. A 2004 academic study (by Scott Beyer, Gerald Jensen, and Robert Johnson) found that, from 1926 to 2000, the broad Standard & Poor's 500-stock index actually performed better under Democrats than Republicans, 15.24% vs. 10.78%. However, that Democratic advantage evaporated when the impact of
the Federal Reserve—which sets interest rates—was taken into account. Copyright 2000-2008 by The McGraw-Hill Companies Inc. All rights reserved.
http://www.businessweek.com/investor/content/oc...m?chan=top+news_top+news+index+-+temp_top+story (8 of 8) [10/24/2008 3:20:16 PM]
