obama-makes-history-now-for-the-hard-part

Obama makes history, now for the hard part

Barack Obama's victory is a boost in the arm for Americans, but his promise of change will take time to deliver.
There are several reasons that Barack Obama won the US presidential election. He won because the economy is shockingly bad. He won for his campaign promise of ôchangeö. He won because û unlike John McCain û he was in no way tied to the Bush administration, which has been roundly blamed for the economic disaster in which the USA is currently mired.

Think about it: under Republican rule, wages û for those who have work (and often more than one job) û have flat-lined. The national debt has doubled from what it was when Bush took office and is fast approaching $10 trillion. Meanwhile, prices at the gas pump have skyrocketed, alongside the price of milk and eggs. Unemployment recently surpassed 6% û the highest level since the early 1990s û and approximately 47 million Americans have no health insurance. Do not even think about dwelling on mortgage defaults; unless your heart can take it, or you have sufficient health insurance, that is. No wonder 64% of AmericaÆs eligible voters went to the polls.

And no wonder Obama capitalised on former Republican President Ronald ReaganÆs famous question to voters in 1980: ôAre you better off than you were four years ago?ö For most Americans in 2008, the answer is an absolute ôNoö. But now the president-elect faces a tougher question: Can Obama fix what ails the nation?

If youÆre looking for an immediate panacea, forget it. Even though November 4 marked the biggest election day rally ever for the Dow (rising 3.28%, to 9,625 points); the rollercoaster ride through stockmarket troughs isnÆt over yet. Equity markets usually gain after the elections. And analysts at Fortis pointed out in a research note yesterday that markets tend to react even more positive to a Democratic president.

Now that the distraction of 24-7 CNN coverage of the US elections is (hopefully) behind us, the camera will refocus on corporate earnings, layoffs and the stockmarket. ThereÆs more pain to come, and there are many dominos that are still set to fall. It is time for companies to book all their losses (every last penny scrounged from conference-room sofa cushions) in their fourth-quarter earnings; itÆs time for companies to streamline as best they can û and theyÆd best do it now.

There is a chance that we can start the New Year with a clean slate. Ideally, by the time Obama is sworn in on January 20, we will begin a slow climb out of the red and on to the right side of the ledger. If this is even a faint possibility, now is the time to act, and act dynamically û either with prudence or verve.

Traditional bears, like Andrew Smithers (who spent 27 years at British investment bank SG Warburg, now part of UBS), have turned bullish. Today, Smithers says that stocks have a few more months to fall, and that there are likely to be more disappointing corporate earnings on the horizon. As a result, heÆs investing in index funds. Meanwhile, Warren Buffett clearly sees todayÆs markets as offering opportunities.

You may point out that these calls were made before Obama was selected president, so whatÆs it got to do with him? Nothing, but there are influential investors betting that the end of the bear run is nigh, and Obama has the opportunity to capitalise on that positive sentiment.

More importantly, Obama will affect economic policy. His reception on the international stage (ideally eradicating any panic-induced rationale for Opec to increase oil prices), how quickly he can move the US out of Iraq (removing a daily accruing off-balance sheet debt), and how effective he may be at wrestling the challenge of healthcare costs, are all enormous issues that have the potential to improve the standard of living for the vast majority of Americans. In turn, a healthier, safer and wealthier America will only improve the standard of living for the average Chinese, Vietnamese or Indian worker who makes widgets that are sold on to American consumers.

But Opec agendas, departure from Iraq and healthcare are huge challenges that will take time, and the trickle-down effects of these issues will be slow in coming. So the message is this: Things will get better, maybe even sooner than later now that Obama has been elected. The domino effect works with positive sentiment too û but time is still needed.

Now, to address the naysayers who will say Obama is going to increase taxes: He likely will. But here is a news flash: McCain would have raised taxes as well. That off-balance sheet war is sucking money out of the cookie jar. Tax increases are a given.

But you know what? So is change. If a year ago you asked most Americans over the age of 40 if they believed they would see a black man elected president, the likely answer would have been, ôNoö or ôOnly in my childhood dreamsö. For many Americans the election of Barack Obama as president has been an unbelievable, fairy-tale story.

Except itÆs not a fairy tale. And thankfully Obama gets this. In his acceptance speech which was a celebration of what he calls Americans' ôunyielding hopeö he concluded: ôThis victory tonight is not the change we seek. It is only the chance for us to make that change.ö

Call me sentimental (or just an American with unyielding hope), but a chance for change is a good start.
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