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Obama and the Economy – It’s the Psychology, Stupid

Judging by the commentary in the run-up to Election Day, the stakes of this presidential election could not have been higher. But now that Barack Obama has pretty definitively won a second term, the reality behind all those stump speeches and political ads is about to hit the American people like a bucket of cold water.

In short, economic policies don’t matter. It’s all about public perception, certainty and confidence – and beyond that, the Obama administration is not going to have much influence on the stock market, the job market or any other economic indicators in the next year or so.

So let’s can the hyperbole and admit a few hard realities on the economic headwinds any U.S. president faces in 2013:

  1. Financial crisis hangover: Say whatever you want about Obama’s first four years in office and the efficacy of TARP and the stimulus. The bottom line is what’s done is done — and even if you want to quibble over the speed of the recovery, almost all experts agree that the nature of this particular downturn doomed us to a deep decline and a long, slow recovery. Just look at this painful chart from Bill McBride at Calculated Risk: You really think it makes a difference either way at this point? Let’s not be naïve and think we’re going to pop back to square anytime in 2013 … or even 2014.
  2. Global issues: At best any U.S. president is a cheerleader who can distract us from the political and financial crisis gripping Europe, and a referee for the geopolitical drama in the Mideast from Libya to Iran to Syria. And China? Forget about it. Americans like to believe we call the shots, but the bottom line is that our influence is limited in many of the world’s issues right now.
  3. Hostile Congress: Congress remains divided as election results roll in: The GOP controls the House while Democrats maintain a slim lead in the Senate. Projections are for Republicans to handily maintain their edge in the house, while Democrats keep a thin majority (according to forecasts late Tuesday) in the Senate. A split legislative branch is not good for anyone — least of all the president. A mere 11% of Americans approved of Congress’ do-nothing ways last year, and this year Congress has signed a measly 107 bills into law despite the largest number of votes in the history of the governing body (according to a Congressman’s own math, no less!). Our current legislative branch is dysfunctional, and that blunts any president’s influence.

So much for all those grand policy proposals, eh?

But the thing is, it’s not about policy. Even though there are a lot of very big things he cannot really change, there is one big area worth talking about.

Namely, our emotions as consumers and investors and business leaders.

The re-election of Barack Obama means that the uncertainty of the past four years over many policies — from healthcare reform to talk about higher taxes on the wealthy — will melt away.

“Obamacare,” a term conservatives used as pejorative but that has since been embraced by the president, is here to stay. The Supreme Court upheld the law and even if a bill could sneak through Congress, Obama would veto it without a second thought. So corporations will now treat the rules as permanent and act accordingly.

Conservatives in Congress have resisted any long-term decisions on budgets and deficits, in part due to Obama’s tough stance on raising taxes on the rich. With the votes now tallied, it’s hard to believe legislators will drag their feet and sow chaos for another two or even four years. Obama’s re-election — and lack of anything to lose as a second-term president — will force Republicans in Congress to yield. Though these policies may not be ideal to some, they will at least be something, and something is better than a nothing that leads us over the “fiscal cliff.”

There’s also the fact that Mitt Romney has talked about appointing someone other than Ben Bernanke, and that the Fed chairman himself has mused about ditching his role at the Fed. An Obama administration would provide much more continuity on central bank policy through Bernanke or at least one of his deputies — and whether you like it or not, the Fed has helped boost stock prices over the last few years.

In short, the biggest thing that Obama brings back to the Oval Office is the fact that he is a known quantity.  You may disagree with his vision, but at least businesses will know the score … and eliminating uncertainty is the name of the game.

Those who didn’t vote for Obama will cynically state that his wrong-headed vision is punishing businesses. Maybe so — but frankly, empty threats from stupid Florida  businessmen about closing up shop after an Obama victory are just theatrics. Big corporations and small businesses alike will continue to focus on their business, not politics, and grow however they can. Some may have delayed investment because they were unsure of the policy environment, but that uncertainty is now gone.

Whether Obama’s policies are ultimately “right” is up to history to judge. But like it or not, an Obama agenda is what investors and businesses have — so stop worrying about the election and start worrying about how to do their best in 2013 based on the policies at hand.

For some businesses, it may seem cold comfort to have  the devil that you know rather than the devil you haven’t met.

But that’s what America got. And investors these days should take whatever certainty they can get.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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