I don't want to diminish the global credit crisis that we are in. It will certainly take effort and patience to get everything back to where we can feel confident in our markets again.
With that said, as I think about what is going on, I keep coming back to one theme: The next President is going to look like a superhero.
The Fed, the Treasury, the IMF, and worldwide regulators have already taken signficant action to mitigate this crisis. Over the coming months, more than a trillion dollars will pour into our banking and financial systems, and that number is likely to grow. Bankers and lenders are beginning to adjust to a new (or returning to the old) reality of lending with a higher degree of scrutiny. Investors have adjusted to a 5-year low in the stock market, one that is hopefully exploring a bottom.
Additionally, the average bear market lasts about 16 months, and we are between 5 and 12 months into this one, depending on how you look at it. More importantly to the average American, the average recession lasts 11 months, and we will probably find that we entered one around October 1 when the official numbers come out. Because the stock market moves in advance of the economy, the market may very well recover before the recession officially ends.
The next President will be elected as we are ab0ut month into a recession and people are feeling bad about things. The market and regulatory forces have already been put in place to begin the process of pulling out of it, but we probably will not see the recession end until late 2009 or early 2010. That President, regardless of if it is McCain or Obama, will very likely enjoy a strengthening economy during the 2nd, 3rd, and 4th years of his term. When running for re-election in 2012, he will be able to say that he inherited a financial crisis, bear market, and recession, and that he heroically pulled the country out of it.
What initially looks like a difficult situation to inherit is actually a can't-lose scenario for a President Obama or a President McCain.
Monday, October 13, 2008
The Next President Has It Made
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I couldn't disagree more. While the President is relatively powerless over the markets, their policies can retard an otherwise strengthening economy. FDR alone prolonged the market correction Great Depression.
ReplyDeleteWe could well be watching a replay of the Carter administration. Obama's tax and spend plan will worsen the economy further. Obama will create the Department of Health when he socializes health care.
Clinton's stroke of genius (or more likely luck) with the stock market was not doing anything. Part of his genius can be credited to a Republican Congress where Clinton was a lame duck for most of his two terms. Yet the dot-bomb market managed to wipe out most of those artificial gains. People quickly forget how the market corrected itself (and their 401k) during the "good times."
That said, I hope that I'm dead wrong and the economy thrives regardless of whomever is President.