Obama share scare: Market drop shows vulnerability
CIGA Eric

Politicians will be watching the market’s reaction closely.

Grover Norquist, the conservative head of Americans for Tax Reform, said the nation’s investor class is increasingly calling the shots in elections. He says Obama is hurting himself with his bank bashing.

"A lot of Americans own 401(k)s — and he’s just made them a lot poorer," he said, creating "a lot of bitterness" among voters.

Now there’s some spin. The recent decline has made Americans a lot poorer? On the surface, it looks like a reasonable argument. By extension, this argument implies that the stimulus under the current Administration has made them a lot richer.

The nominal stock market has rallied 38% in U.S. dollar terms since 2009.01. Many cite this percentage gain as the definition of richer. In a previous post titled, shades of 1932 ^[1], it illustrates that this return is largely an illusion based on devaluation. When stock returns are priced in constant currency, the 38% rally falls to 4%. This is illustrated in the LCSTRIGOLDR ^[2] chart.

Bank bashing? It will fall victim to bureaucratic red tape and a new flavor of the day. The wealth effect derived from the equity rally is nothing more than an illusion. Few within the general public are significantly "richer" in equities since 2009.01.

What matters is jobs. Devaluation and the false illusion of the wealth effect cannot create them. Job creation takes investment, innovation, and rising aggregate demand.

More… ^[3]