A Tale of Two Stories (Human and Political)
Tuesday, January 20 2009 is a date that will be remembered as a truly historical date in the United States and by reference the rest of the world. Barack Husain Obama received the oath of office for President of the United States. I personally congratulate President Obama for his accomplishment getting here.
Having said that it is important to separate the Human side of the story from the political and financial realities facing the Obama presidency. I have been traveling through China for the past 2 weeks and I find two camps here in Shenzhen, Guanlan, Kaiping, and the Shanghai area. The Human side camp keep telling me it is about time that the US breaks the race barrier: that a non-white WASP gets elected to the office of the president. Every one is impressed with the human side of it.
The economic side of the election is a different issue all together. I meet with the owners and partners of entrepreneurial companies in China. They all ask me the same two questions. First, what is the market for your company and are you going to give me orders after the Chinese New Year? The second takes various forms, but typically I can boil it down to this; has the US economy and therefore the Global Economy hit bottom yet?
The part of the economy I participate in happens to be slow, but our company has the fortune of good customers and good leadership that put an immediate push to focus on the critical issues of delivery, quality and whatever innovation can be put in place in the last quarter of 2008. The second question is more difficult for me to answer. I preface it always with, “remember, I’m a strong conservative and have conservative business and political views.”
Here’s what I believe:
1) The economy is hovering somewhere above the bottom – where exactly it is not known – and that hovering is bad for the long term health of the global economy. The more the government keeps pushing for bailouts, the longer the economy will teeter on the brink of the final fall so it can be reborn.
2) The US Automotive Industry has to shake itself out, and that includes the return to reality by the United Auto Workers to realize that they are choking the life out of their Goose.
3) Toxic Assets came from improper pressure by the Congress of the United States and its two tools Freddie Mac and Fannie Mae. The push to lend to anyone so they can buy a home they cannot afford was an ill conceived form of Welfare and it inflated home pricing to the point where homes where no long realistically affordable. But to make matters worse the lending industry started to lend over the value of the homes – they bought future values on margin just like the 1920’s stock market, and eventually the margin call came. The home prices are still being artificially held up by the bank bailouts and the TARP and just like Argentina learned – again – you cannot spend enough government money, you cannot print enough money to hold up the value of assets. Eventually, the government runs out of money or financial credibility. Argentina had no financial credibility so it failed quickly. The United States has great credibility so it will sustain for a longer period of time; then it will fail too. The bottom will be hit, so please let us go through the pain once, not die the death of a million cuts.
4) America’s goose that lays the golden eggs is the free market economy driven by entrepreneurial industrialists who invest in ideas and drive the wealth of the Global economy. The economy is driven by the left over profits that get reinvested. But, President Obama has promised that he will increase taxes to this group and he will issue welfare checks to the 40 percent that do not pay taxes. That to me means that it will again choke the life of the goose itself.
Now let’s take a look at the reaction of the Economic Markets on January 20, 2009.
Dow Jones: Down 332 points
NASDAQ: Down 88 points
Opening the morning of the 21st of January
CAC 40: Down
Hang Seng: Down
So, if we take a look at the first day’s response to the Obama Presidency we see that while the Human Story is a great success, the markets reacted as I would have, and did predict; Down.
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