Thursday, June 24, 2010

Presidential Analysis and the Economy

Joined At The Hip
Economics and politics are intertwined. This analysis is in no way a political statement. To ignore the past/current/future success or failure of the economic policies of Washington would be to ignore reality. As pictured above, neither party can claim that they are better than the other at implementing political decisions that have/may result in better economic outcomes for Americans.

Current Situation

At this point in time, President Obama is likely headed towards an outcome reminiscent of the Carter presidency. Carter was a very likable guy, just like Obama. Being likable does not, however, equal success. Obama has made many of the big decisions he wanted to make and at least thus far, they do not seem to be working. Our economic analysis has the U.S. economy on the brink of either:

a) A double dip back into recession
b) Possibly worse

What To Watch For

Between now and 2012, the Obama administration and the House and Senate will need a miraculous turnaround for the U.S. economy to get reelected. Barring a much better second half of the football game, Americans will once again seek change, hoping that change may foster a better economic result. I am on record as stating that of the two choices that were given, Hillary Clinton would have made a much better choice for a host of reasons. These include: More experience, more bipartisan, more pro business, more realistic about what the priorities should be and how much of the apple you can bite off at a time. I have no idea who the Republicans will choose in 2012, but I will not at all be surprised if Hillary breaks rank and runs against Obama.

The Men Above

Of the men pictured above, I could vote for Kennedy, Reagan and Bill Clinton. Nixon could have made the list, if not for Watergate. Bill Clinton, even with some stumbles along the way, gets a pass because he ran the economy very well.
Elections matter. Economic policy matters. Some get lucky; others do not. We can look back years later at our leaders and realize some had skill, while others did not. Only the history books can tell.

Regardless of what party occupies the White House, as an investment manager, I am left to navigate the markets, which I cannot overemphasize are impacted by many other factors than just current politics.

Only by standing against the prevailing winds–selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising, based upon the momentum of the herd vs. fundamental valuations. Our portfolios at WFG lagged a bit in the past six months as I was too early to reduce our equity exposure, not expecting the market to run up as far as it did. I believe that today, we now sit near the top, looking down the other side of the hill. With that in mind, our reduced equity exposure in our balanced accounts can allow for "shock absorption", if, and when, the footing takes the markets further down.

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