Determining The Best Economic Outcome From The Presidential Race

Includes: AIG, F, GE, GM, SIRI
by: Brian Nichols

As 2012 passes by ever so quickly and the political race picks up steam, we are able to reflect on the last four years, and then are able to determine whether or not "we need change" or if the current administration has done a good enough job to earn an additional term. With this particular presidential race there is no doubt that emotions will be high and opinions are strong. Yet as someone who is trying to remain unbiased and view this political race with eyes wide open, it is more evident than ever, the number of people who have already made a decision. There will be many factors to determine which candidate is best for the job, but as an investor, I believe it is best to reflect on the last four years and the success and failures of President Obama before passing judgment on his tenure as the Commander-in-Chief.

It seems that on a weekly basis I am defending our current president to both family and friends. I am not necessarily an "Obama lover" but I feel as though all avenues must be explored to determine the effectiveness of his term. Just last night, I listened as my family relentlessly attempted to convince me that President Obama's goal is to create a dictatorship, with him at the helm. By now this theory has been slammed into the minds of all who oppose President Obama by any and all Republican speakers who continue to suggest, and echo, that the president aims to create a socialist country, a protest that is welcomed by all conservatives.

It seems that with every president there is a belief of conspiracy among the American people, and with Obama his desire to control, whether it be true or not, has taken center stage. His predecessor George W. Bush was criticized by just about any and all surrounding both his hand in the price of gasoline, his public speaking, and his part in the demise of this country's financial system. As a result it paved the way for Barack Obama and his charismatic "we want change" speeches as he so easily could criticize the Bush administration and the Republican party. However, with Obama making so many mistakes and failing to live up to his many promises it is giving Republican hopefuls just as much fuel for the fire to create a very tight (and emotional) presidential race.

I have long since supported President Obama, and although I realize his many shortcomings, I still believe he has done a good job at rebuilding a very broken and complex economy. Yet even those who are supportive of the president can not deny that Obamacare has been a disaster, and that U.S. debt was downgraded for the first time under his watch. We also can't deny that the country's deficit has grown larger and faster than at any point in U.S. history. And his recent bashing of the Supreme Court validates those who argue of his desire for complete control and his inability to admit when he is wrong.

Despite President Obama's shortcomings the most important question that we as Americans must answer is whether or not our life is better now than it was three years ago. This question will ultimately decide the outcome of the presidency. And since this question may be difficult for some, this presidential race is going to be brutal and very personal on the parts on both nominees with strengths and weaknesses for each candidate. As an American citizen I do not plan to make a decision without first hearing all of the debates, and both sides of the story, however I would like to reflect on the last three years, from an investor's point of view.

Since January of 2009 the Dow Jones is up more than 50% due to it recovering from the worst financial crisis since the Great Depression. The financial crisis of 2008 not only consisted of a collapse in the housing market, filled with bankruptcy's and defaults, but also a drastic rise in unemployment, and a collapse in nearly all industries of the market. One of the hardest hit was the automotive industry with General Motors (GM) hitting rock bottom and Ford Motor Company (F) not being far behind. The weakness of the auto industry negatively affected companies that rely on its strength such as Sirius XM (SIRI). In addition the insurance giant American International Group (AIG) nearly collapsed the entire financial system, and super company General Electric (GE) felt the full effects as well. The number of large companies that suffered during this time is mind boggling, and many small businesses were not so lucky.

I think that we as Americans sometimes forget the situation that President Obama walked into. Over time these recessions become more complex with several moving parts, making it very difficult to rebuild a healthy economy. The U.S. economy has not rebuilt at the speed that we desired, yet considering the severity of the recession, I think we should be pleased with the economic progress over the last three years.

One of the most significant challenges to rebuilding our economy is regaining the trust of the American people. I remember being in the fifth grade and being told that it takes years to gain someone's trust but only five minutes to lose it. During the recession investors lost their money, Americans lost their home, business owners filed for bankruptcy and or barely survived, and when events such as this occurs it impacts our lives and scars us as people. As a result, it takes time to convince business owners to rehire employees and for consumers to take vacations or purchase new homes. But over the last few years we have seen a change in the mindset of Americans and the housing market is now finally starting to show life and unemployment is now showing improvements.

We can criticize President Obama for a multitude of economic issues, but he does not get credit for his greatest accomplishment and that is rebuilding the confidence of Americans. He had a great task when he came into office that I don't believe we can appropriately understand, to rebuild a mentally damaged economy, along with financially damaged. In the process he's made some good decisions and some bad decisions, but I do believe the situation of his presidency was unlike any president before him. Over the last four years President Obama was probably the best man for the job of Commander-in-Chief because of his charismatic personality and his ability to create optimism. But the question of whether or not he is the best candidate for the next four years remains unknown.

There is no question that Mitt Romney is the better businessman, and understands the economy, with great success in various financial markets. I have no doubt that Romney would make a great president, and may be the best candidate for the future needs of our economy. However, there is a belief that electing a new president could spark fear in a market that is just now starting to invest with confidence. An abundance of fear could occur if aggressive cost cutting measures were to be instantaneously implemented by a new Republican president. Because despite the arguments, a large amount of the spending was necessary to rebuild confidence in our economy, and quantitative easing is necessary to the balanced performance of our financial markets. Therefore, as an investor I worry that Romney's initiatives could spark fear into the market, despite his history as a businessman being far superior to that of President Obama.

Regardless of which candidate wins the election there is still a substantial amount of work to be done in rebuilding the economy. We are just now starting to see progress after a period of stalled growth in this fragile economy. The stock market is a collection of companies with valuations that are based on fundamental growth. However, I believe that most would argue psychology plays as large a role in determining the performance of the market as fundamentals. It's the emotions such as fear that must be managed as confidence remains vital to the success of our economy, and Obama has been efficient at maintaining a level of confidence. In the end, if Romney were to win he must have the support of consumers so that we will continue to buy, travel, hire, and work. As of now, we are acting with more confidence and assurance, but I think the next President will not be determined by his initiatives but rather the number of American people who believe their life is better today than it was before President Obama came into office. And if enough lives are better, then President Obama will most likely get a shot at the next chapter of growing this economy following its rebuilding phase, deservingly so or not.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.