Barack Obama is defending his economic policies while reminding Americans that he inherited a $1.3 Trillion dollar deficit. Unemployment is slowing, yet high. Projected deficits are astronomical. The stock market is rallying. So - who is to blame?
Let's start by dividing economic performance into three time periods - the 2003-2007 boom period (as the stock market hit historic highs and official unemployment hit historic lows), the 2007-2009 bust period, and the 2009 onward recovery period. Now, remember this- the market is a leading indicator, pricing in projections of future economic performance. So, what did the market price in in these periods?
2003-2007: Lower interest rates, lower taxes, productivity improvements through technology, loose regulation, and globalization of all these leading to a larger, lower cost, labor pool.
2007-2009: Higher interest rates (as the Fed inverted the yield curve to combat "top-heavy, unsustainable" growth), higher taxes, more regulation, higher labor and energy costs, and specter of protectionism and more welfare. These are fundamental tenets of Obamanomics, their likelihood increasing from the Democratic Congress of 2007 through Obama's inauguration in January of 2009.
2009 onward: Lower interest rates as the Fed not only slashes short term rates but buys down longer term rates, uncertain taxes, uncertain labor and energy costs, and uncertain protectionism and welfare.
In other words, the market just may be improving because public support for Obamanomics (and the idea that slower economic growth has some advantages) wanes. Global cooling and increasing skepticism for viability of alternative energy in the short term have put cap and trade on deathwatch. With widespread understanding of the role of Smoot-Hawley in the Great Depression, Obama reversed course on NAFTA to get elected. And a new healthcare entitlement increasingly looks like a long shot.
So, what does this mean for individual stocks? For one, a return to the story of American leadership in globalization, with big deals, big technology, and global expansion of a middle class. This would be good for companies such as Procter and Gamble (PG), Boeing (BA), McDonald's (MCD), Coke (KO), HP (HPQ), Citi (C), and GE, along with companies such as Emcore (EMKR) that have leading technology (while handling solar is a problem short term, there's no doubt that it will be key long term) and fertilizer stocks that should do well fueling the vast increase in food production required.
And second, a return to dollar devaluation as the Fed maintains strong growth environment. Inflation will be key- thus, offsetting this with lower labor costs and technology substitution for commodities. Companies that specialize in getting greater efficiencies using technology should do well.
In short, I'm hopeful that the economic US and global outlooks are bright. Three billion people are living in near poverty, and there is ample idle productivity to make a significant dent in this. The US economy can resume strong GDP growth as it resumes global economic leadership. And, for this, Obama will not be to blame.
Disclosure: No positions