Dan’s Blog

Election 2012: An Investor's Perspective

Dan Calandro - Sunday, November 04, 2012

This is not a political blog – never has been, never will be. Issues like abortion and gay marriage are of no consequence here. Politicians use these topics to distract Americans from the most important Market related concerns. Like many savvy investors, I fully acknowledge the importance of elections and their according influence over money, markets, spending, and investment. They chart the fiscal and monetary course for the next four years – and that’s what this election should be about.  

As such, We the People should start looking at elections more like an investment in managerial aptitude rather than some blind political action based on issues than cannot destroy the American ideal. The question for investors, then, is simple: Is Barack Obama worth investing in for another four years?  

To determine this we must first assess whether or not his policies and agenda were beneficial to the financial position of the United States, its Market, its currency, and most importantly, We the People. That’s where we’ll begin.  

In his tenure Mr. Obama has spent or invested and unprecedented amount of money.  In the most recent four years government tax receipts have averaged a little more than $2 trillion per year. Add to that the $6 trillion increase in national debt and what you have is a $14 trillion venture called the first term of the Obama Administration (the largest presidential spending campaign in American history.) The question is: Was it a good investment?

Well, in the time it took to spend or invest 14 trillion dollars the national employment picture worsened significantly. See below.

11-4-Unemploy

Data Source: U.S. Department of Labor

Indeed, President Obama walked into a shit-storm when he took office – but that’s what that election was all about: Who had the best plan to rescue the American economy after the "subprime mortgage crisis." Mr. Obama won that debate in ‘08 – but the above results are far from what he promised his agenda would produce. To put it into employment context, the Obama government spent $14 trillion dollars in four years and lost 1 million jobs. 

Any prudent investor would define that as a failure and would expect a much better employment return on such an enormous investment.

As we know, fewer workers equal less vibrant consumers which translates into less economic vitality. In Real terms, market activity has flat-lined under the management of the Obama Administration, which posted a lackluster 5% gain in the four years (just 1.2% per year) while inflationary impact has more than doubled. See below.

11-4-GDP

Data Source: U.S. Bureau of Economic Analysis 

While monetary policy cannot be directly blamed on the Executive branch of government, sloppy fiscal policy can – and that’s exactly what has driven the dollar down and thrown a wrench in fiscal sustainability. Again, a reasonable investor should expect more than a $.7 trillion Real return on a $14 trillion investment. 

Compare the flat green line in the above chart to the explosion in national debt, which skyrocketed 54% over the last four years and rubbed salt in the wound of poor economic performance. Unfortunately, the debt shown in the chart below is in Real terms. 

11-4-Debt

Data Source: U.S. Office of Management and Budget 

I hear lots of people say that it’s impossible to bring the U.S. government into a balanced budget condition – that is, to operate without a fiscal deficit. Even "conservative" Paul Ryan’s budget recommends cutting just $100 billion per year for the next ten years. Why not more, and why not faster? The U.S. government has only just started running trillion dollar deficits – why not stop as abruptly as it started. Here are the numbers.

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Oct-12

U.S. Tax Revenues

$2.6

$2.5

$2.1

$2.2

$2.3

$2.5

Government Spending

$2.7

$3.0

$3.5

$3.5

$3.6

$3.8

-Deficit

-$0.2

-$0.5

-$1.4

-$1.3

-$1.3

-$1.3

Data Source: U.S. Office of Management and Budget 

Remember, the U.S. government had to borrow money to spend and invest according to the President’s platform and agenda. The failure of Mr. Obama’s green energy agenda is well documented and has cost Americans hundreds of billions of dollars – if not a trillion or two (for more information see: Fiscal Deficits and the Role of Money.) The purpose of that policy was to promote a cleaner environment and provide an alternative energy source to fossil fuels. In theory, a vibrant alternative fuel market would reduce demand for fossil fuels and thus lower gasoline prices. But that investment policy has failed on two fronts: demand on fossil fuels has not dropped and gas prices have risen. See below.

11-4-Gas

Data Source: U.S. Department of Labor

Gasoline prices have risen 125% in Mr. Obama’s first term. While the President has explained that the rise in price was due to the economic downturn in 2008, whereby less demand caused lower prices, the facts don’t bear that out. Current oil demand is less now than it was when he took office almost four years ago and his green energy program failed to shift demand in any meaningful way. See below.  

11-4-Oil

Data Source: U.S. Energy Information Administration (2012 figures not yet released) 

As mentioned many times previously, monetary shell games like quantitative easing (QE) and Operation Twist create inflation (a.k.a. higher prices) in commodities and stock prices alike. That’s why gas, gold, and stock prices have risen on such poor economic condition. Growth isn’t their driving force – too much new money is!  

11-4-Dow

As shown above, gold has reacted to the inflationary impact created by a massive increase in the money supply over the past four years; and while the Dow Jones Industrial Average has corrected from the over-reaction in the fall of 2008, it has failed to outperform GDP and continues to indicate a Real recession – which is exactly what we have. (see: Recessionary Proof)

Too much new money, too much new debt, and too much war have produced too little benefit to too many people. And that’s what this election is all about: Are you willing to double down on Obama’s track record as a Chief Executive for another four years or are you looking for a turnaround?   

Vote.


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