The Obamerica Macro Catalyst

We see a catalyst on the horizon in the way of President Elect Obama’s Inauguration. For those who doubt the ability of an incoming President to have immediate economic impact, especially in a crisis period, we would recommend studying President Roosevelt’s (FDR) first week.

More so than any immediate policy or legislative proposal, FDR’s charisma and the optimism that he conveyed were critical in ending the run on banks that he inherited from President Hoover. In fact, after his first fire side chat, only five days after becoming President, in which he discussed the need for the average citizen to support the banking system, he then reopened the banks that next Monday and citizens lined up to deposit money into banks, which immediately ended the banking crisis.

While we cannot quantify the impact of President Elect Obama becoming President will have on optimism in the U.S., he has a popularity and approval rating that is almost 2x that of President Bush. On January 21st, the United States will wake up with a President that has broad support and approval. And not unlike FDR’s first week, once again, the President words will have an ability to impact the psyche of the country. Additionally, this weekend revealed a couple of more clues in regards to Obama’s initial fiscal plan and, in a nut shell, this plan seems to involve lower than expected taxes and massive stimulus.

In terms of taxes, the following exchange between David Axelrod, Obama’s Campaign Manager and Senior White Advisor, and David Gregory, the Host of Meet the Press was telling:

“MR. GREGORY: All right, but you're not--because the commitment was to, to lower those taxes to definitely--excuse me, I mean to raise those taxes on people by letting those tax cuts expire. You're saying you'll hold on and see. You won't make a decision yet.
MR. AXELROD: Yes, I'm saying that. But I'm also--I also want to stress that what the president-elect and the change--the expiration or the repeal of, of the tax cut for the wealthy, it'll amount to a net tax cut for the American people. It'll just restore some balance, David, which we badly need.”

The message is pretty clear, the idea of raising taxes for the wealthiest Americans is likely off the table in the short term.

In conjunction with Axelrod’s appearance on Meet the Press this weekend, Larry Summers, the incoming director of the National Economic Council, and the “grey hair” on Obama’s economic team wrote:

"In this crisis, doing too little poses a greater threat than doing too much. Any sound economic strategy in the current context must be directed at both creating the jobs that Americans need and doing the work that our economy requires. Any plan geared toward only one of these objectives would be dangerously deficient. Failure to create enough jobs in the short term would put the prospect of recovery at risk. Failure to start undertaking necessary long-term investments would endanger the foundation of our recovery and, ultimately, our children's prosperity."

Summers, who is rarely one to mince words, was very direct in the above statement. The incoming administration is going to err on the side of too much stimulus. And they will have the political capital to do so.

Consumer confidence continues to mount in the face of lower taxes and a massive stimulus . . . Market Bears ignore the potential catalyst of an Obama presidency at their own risk.

Daryl Jones
Managing Director