Now What Mr. President?

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From Bill Buckler, author of The Privateer

Now What Mr. President?

There are two major differences between the 2012 Presidential election and its predecessor in 2008. The first one is the fact that there was no incumbent in 2008 while in 2012, Mr Obama is gunning for a second term. The other and MAJOR difference is the state of the markets in the run up to these two  elections. 2008 marked the first time in modern US history when the financial establishment literally lost control of the financial markets. So dire did the situation become that there were “bipartisan” meetings between the contending candidates while they were still competing for the Presidential prize. Both Mr Obama and Mr McCain had to approve the extraordinary measures taken by the Fed and the US Congress to deal with the crisis. Without that, the “fixes” could not have been credibly put in place.

In 2008, the Democratic convention took place over the four days of August 25 - 28. At that time, the weakness in global markets in general and in US markets in particular was not yet front page news. The Dow had certainly fallen from its all time highs set less than a year earlier, but the carnage of the global credit freeze was still in the future. In fact, over the four days of the convention, the Dow actually rose by 329 points or 2.9 percent from 11386 to 11715.

By the time Mr Obama was elected on November 4, 2008, the Dow had plummeted to 9625, its lowest level Since October 2003. By the time he was inaugurated on January 20, 2009, it had fallen to 7949, its lowest level since March 2003. A market meltdown of such magnitude during a US Presidential election year had not been seen since 1932 - and that one had bottomed in June - months before the election itself.

Six weeks after Mr Obama’s election in November 2008, the Fed came to the end point of their “conventional” monetary policy. On December 16, 2008, the Federal Open Market Committee (FOMC) lowered the Fed’s controlling Funds Rate to 0.00 - 0.25 percent. This is the only “constant” in the fiscal and monetary policy of the US government which has survived Mr Obama’s term as President. The Fed Funds Rate remains at 0.00 - 0.25 percent and the FOMC assures us that it will not budge until “mid 2015 at the earliest”. Thanks to this policy - and the addition of a number of “unconventional” monetary policies of which QE is merely the most obvious - US and world markets have recovered.

The 2008 elections were contested on the basis of rescuing the banks and financial markets while claiming that this was ESSENTIAL to save the economy. Four years later, the 2012 elections are being contested on the basis that the economy HAS been saved, but more needs to be done to ensure that it  STAYS saved. Wall Street, as one of the first recipients of the new “money” cascading from both the Fed and the Treasury, has been happy to buy this. Main Street does NOT buy it. The result is an election campaign in the context of a comparative calm on financial markets and a seething discontent in the electorate.

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Since the 2012 election has an incumbent Democratic candidate, the “important” convention this year was the one that the Republicans held between August 27 - 30 in Tampa, Florida. Over the four days of this convention, the markets barely moved. The Dow closed at 13124 on August 27 and had slipped marginally to 13000 by August 30. On October 26, with the elections just over a week away, the Dow closed at 13107. On the surface, this seems to indicate that the US financial (and political) establishment has learned their lessons of 2008 very well and have made absolutely sure that there would be no market calamity to cloud the “real” issues of the campaign. The problem with this interpretation is that the Fed set off on its third round of “quantitative easing” six weeks ago and the new “money” has had no market effect.

The American people have waited for the “recovery” they have been promised for four years. They have seen the official government figures “measuring” this recovery and the rebound of the financial markets from their early 2009 lows. Neither of these things has convinced them that any REAL progress  had been made in getting the real economy back on its feet. This is the problem - for BOTH candidates.