Don’t bet on Obama
This is our chance,” said Barack Obama to a live audience of 250,000 on Wednesday, “to restore prosperity.” Obama is, as everyone notes, an astonishingly good speaker. So when you hear him say things like that it is almost possible to believe that he can somehow drag America out of recession and end the bear market decimating his citizens’ dreams. But unfortunately he can do nothing of the sort.
He can’t stop house prices (down 16% in the last year) falling. He can’t make banks – deeply scarred by the consequences of their own stupidity over the last decade – start lending again. So he can’t stop the rising scale of potential corporate bankruptcies in the US. Obama can’t make consumers, who can’t get credit and don’t have any real money left, go out and spend. They’ll probably have a few drinks for him this weekend, but after that I can’t see the Obama bounce doing much for America’s mall takings. He can’t force the Fed to cut interest rates much further – there’s not really anywhere to go from 1% anyway. And of course, even if he wants to, he can’t do much in the way of stimulative spending or tax cutting. Finally, as he can’t do much about the US economy, he’s pretty helpless when it comes to doing much about the global economy. Chinese growth will keep slowing and Europe will continue to sink into its own long recession, whatever Obama does or says.
And that means that the bear market will soon be back with us.
• Read the full editor’s letter here: Don’t bet on Obama