The Obama 2008 campaign platform featured an intriguing mix of
spending and investment programs (energy, education) coupled with
tax initiatives on Social Security and the upscale earner designed to
maintain a semblance of fiscal balance and to thwart an egregious
mal-distribution of income. There was also an expectation of a peace
dividend from the winding down of military action abroad (Iraq).
Between the wind-up of the campaign in the summer and his first
day in office, there was a tectonic shift in the environment. A huge
financial crisis emerged and the economy went into free fall. TARP
and related programs took up more than $700 bil. Then, there was
an emergency stimulus program of nearly $800 bil. designed to
offset the disappearance of at least $1 tril. in US sales. At their
leisure, historians will debate the merits of these programs, but
prudence suggested taking major action to keep an economic
free fall from becoming uncontrolled.
So, Obama, no economic seer, was "future shocked." He knew in
early 2009 that the recession was cutting so deep that even with
correctice actions, he stood to lose the super majority in the senate
come the 2010 mid-term election when the incumbent party
would normally lose seats anyway.
He elected a slow roll out of the stimulus program to buttress
chances in 2010, and went forward with a big ticket health reform
program to use his first year goodwill and the super majority in the
senate. But he miscalculated on the tremendous negative response
of voters to the bailout of the financial system and the additional
large run-up in the budget deficit from the stimulus program. To
make matters worse, he let his own party dawdle along with the
plan and wasted time trying to snag GOP votes.
The financial underpinnings of his campaign are shot to hell. The
voters are tossing out incumbents across the board and with relish
in the off-year and special elections. so he has gone from bright
young fellow who could do some good to prospective fall guy.
A sensible plan B is easy in outline -- when you have nothing in
front of you but crates of lemons, make lemonade. Measure up and
confront the voters in a straightforward manner and cut yourself
plenty of slack as you try to do your bit to guide the country out of
the morass of steep hits to the economy, the budget and the
wellsprings of voter anger, low confidence and mistrust. Do not
use the SOTU tonight to tell folks you have it wired. Tell them
you are going to make the best lemonade you can.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!