President Obama, U.S. Dollar and Stocks

Knowing that I risk alienating a fair amount of my readership with this statement I will go ahead and say it anyway. Yes We Can! Yes We Did! GOBAMA!

Also, although I rarely give my opinion on macro economics I will indulge myself here and talk a little bit about what I see as some potential impacts of the new presidency on the U.S. dollar and stock markets.

Right now, we are in a bear market (for stocks and bull for U.S. $ and Yen) as Jesse Livermore would say. The new presidency won't change that. However, what we will likely see in the near term for the dollar is a second test of the highs and either a bounce or continuation. My guess is that at least for the short-term we haven't seen the final high yet for the U.S. (or for the Yen for that matter). Why you ask? There are a number of reasons, but most importantly I think there has been a long-term overvaluation of the Euro that is now being questioned world-wide as we see banks struggle in Europe as well as the U.S. So why is the U.S $ benefiting from this? Although people have not held much esteem in recent years for the $ they do for U.S. treasuries. The recent strength of the Yen has been much discussed and again there are many reasons for this most notably the unwinding of the carry trade.

So what about U.S. and worldwide stocks? As I said earlier, we are in a bear market. Even Mr. Change Obama can't fix that. Although he and Bernake will try their darnest. What I see for stocks right now is that we are bouncing off the lows (looking at the DJIA) in a retracement. Why a retracement and not a recovery? Why son, this is a Bear market like I told you. It ain't over yet. Also, if you look at the two times that we tested the lows of around 8000 it was on relatively light volume. I want to see that there are truly no more sellers in the market before I'm convinced we've come anywhere near the bottom.

We've talked a lot about the short-term implications of our new President on the markets and now its time for some real speculation :) Our new president, despite some concerns, appears to be a rational man willing to listen to both sides of the parties. His economic policies are largely centered around helping the middle class to get back on their feet (something we haven't seen in awhile). At the same time he's shown that he supports protecting big business as well by supporting the bailout. What is more important than his policies is how he makes people feel. The middle class and poor have felt left out of the loop for the last 8 years (at least that's how the polls speak in my mind). This is also the largest and most important group of consumers. Regaining their confidence and ensuring their sense of security is something Obama has shown a great capacity for. Since consumer confidence is the key consumer spending and hence the health of the markets, it is my belief that the new president will help setup the next bull market in stocks. That being said - this is a bear market, son. And its going to take at least 3 to 4 years before we see any sort of real change for the marketplace.

LT