Will president's verbal prop-up do wonders for markets?

By Ming Jinwei

BEIJING, March 4 (Chinese media) -- U.S. President Barack Obama said on Tuesday that falling share prices, looked at from a "long-term perspective," could result in good bargains for investors.

Obama's remarks seem rather like a presidential prop-up for the U.S. stock markets, which have been hit by the escalating financial and economic crisis, than a professional analysis or prediction.

Given the ongoing financial turmoil and economic woes, could a presidential verbal prop-up really boost the sluggish markets? The answer seems to be "unlikely."

Obama's remarks reflect the high anxiety of the U.S. political leadership about the protracted slump in the stock markets.

Just a day earlier, the Dow Jones Industrial Average plummeted below 7,000 for the first time since 1997. The Standard Poor's 500 Index dropped to its lowest level since October 1996.

The U.S. stock markets have been hit hard ever since the subprime mortgage crisis broke out in the summer of 2007. The Down Jones Industrial Average has dropped more than 50 percent after it hit a record high of 14,164.53 in October 2007.

The slumping markets are the inevitable outcome of the escalating financial and economic crisis. Under the circumstances, they are unlikely to be turned around in the short term.

Investors, though, should pay attention to what Obama said. The U.S. president was not blankly urging investors to invest in stocks. Instead, he was pointing out that U.S. stocks were rather cheap if earning rations were taken into account.

The argument makes perfect sense if you are a long-term investor. According to calculations made by Yale University professor Bill Stone, share prices of component companies of the SP 500 Index have been driven to a 23-year low relative to earnings.

Sometimes, investors who panic, tend to forget about basic things like earnings ratio when it comes to buying or selling stocks.

But, a presidential verbal prop up will not do wonders in the current bear markets.

For U.S. markets to register sustainable gains, the Obama administration must launch more precise and urgent anti-recession measures, including stabilizing the country's beleaguered banks, freeing the frozen credit markets, and rolling out new economic stimulus packages.

Meanwhile, investors on their part, do need to come back to their senses and not get too deeply involved in daily gyrations of the markets.

"If you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong," Obama said.