Wednesday, January 21, 2009 0 comments ++[ CLICK TO COMMENT ]++

Barack Obama: A historic presidency

(Photo by Andrew Councill for The New York Times)


The Barack Obama presidency will be quite historic and will be talked about for centuries. Fourty-five years after Martin Luther King spoke of seeing equality in America, we finally have the very first black president (technically he's mixed and it just goes to show how little these labels mean.) I think future generations will remember this precedent-setting election.

Barack Obama will also remain famous for taking over an imploding economy--one that some claim may enter a depression similar to the Great Depression or the Long Depression. For the first time in a long time, the Treasury will end up being more important than foreign relations or the military branch (I suspect that USA won't be initiating any major wars in a long time.) For instance, the Treasury Secretary will be more important than the Secretary of State.

Actions of the Obama administration will have long-lasting impact. We are probably looking at a impact similar to that of Ronald Regan, whose impact lasted for decades. Some say this will be more similar to the Abraham Lincoln administration or the first FDR administration but I don't buy that. Even though things look bad now, the current situation is nothing like those periods. Clearly, a lot of people are hoping that the Obama administration will save the economy and reverse the decline of America.

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When it comes to the investing landscape, a lot of optimism is being priced in. A lot of investors seem to be anticipating a strong recovery later in the year. One of the popular macro bets seem to be the re-inflation trade, which essentially involves betting heavily on commodities, cyclicals, financials, and other economically sensitive areas. Some are also betting heavily on the infrastructure theme.

I think a lot of investors are going to be dissapointed. I don't think the Obama administration is going to save anyone, let alone trying to prevent a long slump. I personally am bearish on the re-inflation macro bet; and I never believed in the infrastructure theme even when the times were good and governments could actually afford them. I am of the opinion that governments are only participants in the economy and they really can't prevent a recession or a depression. All they can do is to cushion the damage.

There are some dark clouds in the distance so the investing scenario is not going to be sunny for a while. In particular, there is high risk of trade disputes, especially if China de-values its currency. Since I'm left-leaning I would support the following but, I don't think investors will take kindly to higher taxes and stronger regulation in the future. The government won't touch these issues for the next year or two but will likely pursue them once the economy stabilizes. The US government may also socialize the medical system further, which won't sit well with investors in medical companies (it will benefit insurers and corporations in general.)

Overall, I expect the Obama administration to be more helpful to the economy but will hurt the so-called capitalist class. Along with the wealthy, investors will suffer more under the Obama administration than under the Bush administration (if you ignore the credit and real estate bust.) High corporate profits, along with high compensation schemes for senior employees, will likely be a thing of the past.

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