So let me do the preachers of Armageddon one better. Today's stock market isn't just the “worst since the Great Depression,” like they're so fond of saying. No, it's even worse than the Great Depression.

Take a look at the chart, below. It shows the daily progress of the S&P 500 in terms of percentage change from the very top. The brown line is the change from the recent all-time highs on October 9, 2007. The blue line is the change from the all-time highs just before the Great Depression, September 6, 1929.

As of yesterday's close (Thursday, March 5), the S&P 500 has lost 56.4% from its all-time highs 513 days ago. At the same point in the bear market associated with the Great Depression, that is at the 513 day mark, the S&P 500 had only lost -- only! -- 49%.

In other words, to be no worse than the catastrophe that happened to stocks in the Great Depression, the S&P 500 today would have to rally 17%.

Looking forward, if stocks are going to continue along the same bleak path they followed during the Great Depression, then I have good news and bad news. The good news is that we're halfway through it. In the Great Depression, the bear market lasted 997 days. We passed that halfway mark two weeks ago. Maybe that's what Barack Obama meant when he said, as he signed the so-called “stimulus” bill, that this was “the beginning of the end.”

He signed that bill on Friday the 13th, by the way. Which brings me to the bad news. By the time the bear market was over in the Great Depression, on that 997th day, the S&P 500 had lost 86.2% from the top. To match that, we'd have to fall another 68.3% from here. Hmmm…maybe that's what the president meant when he said this was “the beginning of the end.”

We can't blame President Obama for the mess he inherited. But we can definitely blame him for making it worse. Stocks are off 28.4% since his election, 15.2% since his inauguration, and 17.2% since his so-called “stimulus” bill was enacted. To say the very least, whatever he's doing, it ain't working.

I have to say I'm a little surprised. I didn't support Obama in the campaign, but I had expected that the wave of good feelings from the election of such a charismatic man would help lift the economy and the markets out of their doldrums. And while I don't agree at all with his liberal orientation in economic policy, at least I thought he was generally a centrist who wouldn't muck things up too much or too quickly. I even hoped his so-called “stimulus” bill would at least have a placebo effect.

But Obama has done nothing for confidence in the markets. I'm not sure he even cares. When asked by a reporter whether it was the president's job to do so, White House spokesman Robert Gibbs stammered, “Oh, absolutely. I don't think that -- I mean, I think the president would agree with that wholeheartedly. But again, I think…Well, again, I think the -- I think -- obviously I'm not on Wall Street, but I think it is not…”

But I didn't count on the extent to which he'd use the present economic mess as an excuse to push his agenda of more government regulation, greater involvement of government in the economy, and higher taxes. Why am I surprised? White House chief of staff Rahm Emanuel laid out the strategy a week after the election when he said, “Rule one: Never allow a crisis to go to waste.” This is really no different than what power-seeking politicians have done since time immemorial. Please forgive what may seem like an outrageous comparison, but this is exactly how Adolph Hitler came to power in 1933 -- by exploiting public panic in the aftermath to the Reichstag fire.

And I also didn't count on how downright incompetent Timothy Geithner would be as Treasury secretary. We still don’t have a coherent plan for stabilizing the U.S. banking system. Okay, you can say that he's only been in office for about a month at this point. But that doesn’t let him off the hook. In his prior role as president of the New York Federal Reserve Bank, he was right in the thick of things with Fed chair Ben Bernanke and former Treasury secretary Henry Paulson in the interventions in Bear Stearns, Fannie Mae, Freddie Mac, Lehman, Washington Mutual, and others. He ought to have had a pretty good idea what he wanted to do before he even sat down at his new desk.

My guess is he did have an idea. But once he got the job of Treasury secretary, he quickly found out that his idea didn't count for much. He'd have to listen to President Obama, chief economic advisor Lawrence Summers, Obama political operatives like David Axelrod, and last but certainly not least, congressional leaders like Nancy Pelosi, Harry Reid, Barney Frank and Christopher Dodd. No wonder Geithner can't come up with a plan -- that’ll never happen if he has to get that crowd to all agree on it.

The reason stocks can't stabilize here is that the new administration is promoting an agenda of inherent instability. We can argue about whether its aspirations are right or wrong separately -- but, as promised, they all involve a great deal of change, to use Obama's own favorite word.

What will our world look like when President Obama “reforms” health care by nationalizing it given that it represents about one sixth of U.S. economic activity (and the part that's still working)? What will happen to the cost and availability of electricity when he puts in place a “cap-and-trade” tax on carbon emissions? What will happen to Wall Street when taxes are raised on hedge fund and private-equity managers? What will happen to all of us when all our taxes go up and our deductions go down?

I have a pretty decent idea that none of that will lead to anything good at least not economically. You may disagree. But can't we at least agree that President Obama is stirring the pot by ramming all these things through now, at a time when he ought to be calming things down so we can all catch our breath and the economy can get back on its feet?

I've been writing this column for almost eight years now. If you've been reading it all that time, you know that if there's an optimistic way to look at the world, I'll find it. But I have to say, I'm getting pretty discouraged.

My only comfort is that with stocks down so much, they're really cheap. Obama said this week, “...profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it.” I've said similar things myself all the way down. I have to say, I'm beginning to worry that stocks are cheap for a reason. That reason may be President Obama.

Posted by Donald L. Luskin at 1:26 PM | link  

Wednesday, March 04, 2009