Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 3/2) 

Editor’s Note: Liz Peek is a financial columnist and the author of wOw’s SHEconomics. 

Looking for good news? We can all stop worrying about President Barack Obama’s plans to redistribute wealth. At the rate we’re going, there soon won’t be any wealth left. The stock market has been in free fall since Obama’s Inauguration Day, falling now 20% since he took office. It has been one of the swiftest and most terrifying sell-offs I’ve seen, encompassing nearly every sector. How could the nation’s excitement about this new leader have vanished so abruptly? 

Investors are panicked on a number of fronts. First, the president’s budget torpedoed any hopes that he would follow in the centrist footsteps of Bill Clinton. Despite Cabinet appointments that appeared to signal a pragmatic and middle-of-the road approach to governing, the policies unveiled in the giant spending bill clearly celebrated a “government knows best” philosophy that seems quaintly dated – like bobby socks and poodle skirts. Most of us never expected to see them again.

Worse, as more bills and more plans have tumbled out of the administration, it has become clear to stock pickers that the president doesn’t much like business. So far, he has threatened higher taxes or punitive legislation for agribusiness, pharmaceuticals, defense contractors, banks, oil and gas companies, utilities, medical equipment companies, housing and hedge funds (list in formation). 

Moreover, as rattling as the housing and health-care programs (among others) have been, these initiatives are, so far, undefined. Obama has chosen to leave the fine print, which is to say, the actual plans, up to Congress. This has led to wild speculation about what will ultimately emerge from those dark chambers. Uncertainty is the most savage enemy of stock markets and these days we are awash in unknowns.

The unveiling of broad, new initiatives without much hard backup, combined with ongoing hiring problems has led many to view the administration as disorganized or worse. Nowhere is this more an issue than at the Treasury. Ever since Secretary Geithner’s disastrous opening speech, investors have waited to hear the details of how he plans to stabilize the banking system. Waited and waited.

As the markets tumbled, 19 days passed before Geithner reappeared. Dismay over his inability to soothe concerns about imminent bank failures – or, more important – his lack of a solution, is a catastrophe. The Wall Street Journal chronicles today his recruiting problems and quotes Paul Volcker describing the lack of staffing at the department as “shameful.”  With Congress regularly dressing down our most senior corporate executives and administrators, who would want these jobs? Long hours, poor pay and embarrassing bullying from elected officials who are desperately trying to avoid blame for the subprime crisis are hardly attractive perks.

So where do we go from here? The good news is that expectations have become much more pessimistic. According to powerhouse investment research firm ISI, the consensus estimate for S&P earnings among institutional investors is now $44.50; entering the year, some were still expecting earnings of better than $50. Also, unemployment is expected to peak at 11% – a much grimmer and probably more accurate expectation than that held a few months ago. Not until stock watchers can begin to revise up their estimates of earnings can this market bottom. As I described in a SHEconomics piece a few weeks ago, the market historically has traded between 10 and 20 times earnings, and averaged 15 times. If you put that average multiple on the prevailing earning estimate, the market should sell at about 670; today the market is at 685.