Monday Morning Quarterback: Hope Springs Eternal
If one thing became clear last week, it’s that America demanded change.
Citizens cast votes with a vengeance and when ballots tallied, our political direction set sail on a new and historically significant course.
Andy Dufresne once said that "Hope is a good thing, maybe the best of things, and no good thing ever dies." Hope has always been part of the human condition but alas, it has never been a viable investment strategy.
The mere specter of change was enough to spark a 20% rally in the six sessions prior to the election. As reality set in and exhaled, the following two days saw the sloppiest supply since 1987. Add an edgeless Friday following “horrible but not as bad as some whispered” employment numbers and here we are, ready anew for a fresh five session set.
As our president-elect was quick to remind us, the slippery state of the union wasn’t his fault and it’ll take hard work and collective sacrifice to move the needle in the right direction. That process of discovery will take time and price as we digest an economic contagion that rapidly spread throughout the societal spectrum.
It’ll be interesting to witness the order of prioritization set forth by the new administration. The government has massive deficits with prickly partners, corporate America is choking on toxic paper in a finance-based economy, university endowments are exposed to deteriorating alternative asset class exposure and the consumer is running scared as credit stretches, foreclosures mount and unemployment ticks higher.
And there’s healthcare, the climate, energy independence, two unpopular wars and an increasing number of states and municipalities on the brink of bankruptcy. It’s a pretty pickle and it won’t be solved with a wave of a wand, no matter how much we hope, hold hands and sing Kumbaya.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.
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McCain 57,410,574 46%
I just don't see this number as a massive mandate for change...
How will increased government spending and infrastructure spends WITHOUT increase consumer consumption playout in this wishbone world?
How will the dollar react to this?
Americans sometimes vote for change the way they buy a new car or get a new lover or switch cocktails to feel better in the moment. Not that elected leaders can't do good or great damage to the status quo, however, it is individuals that determine direction - and sometimes the cart is before the horse. Pitching and Yawing from port to starbord can mean you're not in the doldrums and are moving forward - or that you're going to get seasick and your mast will break. Hopefully we'll move forward towards better seas.
I can see inflation starting this way: Fed churns out cash and credit but it isn't being spent but hoarded. Prices for commodities and retail items are pushed up to compensate for lack of spending. As prices go up the Fed will fear inflation and if the market has bottomed and started up, they will feel it is safe to raise rates to curb inflation. As rates go up, borrowing will slow along with spending as inflation begins to increase prices. Rates are raised higher and the Fed prints more cash and extends more credit which pushes inflation higher again. Yikes. At some point they need to take their hands off the tiller before the rudder breaks.
Todd, thanks for keeping a positive perspective. "We have to go through this to get through this" and "This too shall pass" are great ones to remember. I am really afraid about how many factors beyond the economic seem to be following the market. I'm just a cog on a gear in the machine so at times like this sometimes the best thing to do is think positive, stay lubricated, and say "I think I can...I think I can...".
Cheers,
Eric
Obama is now a rock star in the eyes of the world and a force to be respected. Or at least acknowledged.
So whatever he says is the truth, regardless of the truth of what he says.
Raising the top tax bracket (or lowering it) a couple percent isn't really change. It's a slight modification of the status quo, and people who are affected by it will continue to try everything they can to get around it.
Leaving (or staying) in Iraq a couple months earlier (or later) to me isn't really change, it's just a management of the situation we already find ourselves in.
In fact, I would argue that the two party system is in place solely for the fact that it maintains the status quo. Democrats and Republicans are not all that different from each other. You might be fooled with all the rhetoric on social issues and the pandering to voters that happens regarding those issues. If the American people were serious about change, they would take seriously people like Ron Paul or Ralph Nader or any third party candidate. But of course those people are "un-electable."
My guess is that the more things change, the more they stay the same. Most people think Obama is either a rock star or the antichrist. I would expect that he really won't be much different at all.
Unfortunately Obama seems to have the wind at his back and the desire to make great social change over the next year. Anytime the leaders of any government tell me I need to sacrifice, I run for the hills.
I only hope we survive. I have real doubts we will.
Bill Clinton successfully followed up the first Bush presidency - and is also the most recent Democrat president, from which Obama is already drawing some of his most important operatives...like emanuel and podesta.
Perhaps sommers is next for Treasury, then toss in a holdover or two from bush II in gates (defense) and powell and you get a semblance that the administrative change coming won't be a whole lot different than that which followed the first Bush presidency...
Of course, the problems facing the incoming President, such as a national financial meltdown, economic collapse, managing unpopular wars, energy and climate change, increasing global and international tension, etc., now those are completely different from what Free Willy had to face and imo, unprecedented.
These most certainly will bring about their own form of change, tho i don't think what most people had in mind when they cast their ballot. How Obama responds to the challenges this confluence of problems presents should provide a good early read on his abilities. He'll have his mettle tested more than any President since FDR, whether he's ready for these challenges or not, and hopefully, he'll be able to at least inspire enough confidence at home & abroad so that people can focus on realistic, albeit difficult solutions and move forward more than languish in assigning blame and attempting to extract every last ounce of punishment as the sole means of drawing comfort from this mess.
