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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.

Related Reading:

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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  • MelP

    You’re playing down a much more serious change in US direction that this re-election brings – the Constitution won’t count anymore, unemployment will be up and not down going forward, the US will move further and faster toward becoming a 2nd rate world power, the takers will grow, the makers will be crushed….. our kids will pay…and pay….and pay…Ugh!



  • TMM

    It is a shame that we don’t have 435 NEW representatives after this election. It will be the same old stuff from the same old representatives…..just a bunch of crap. And what will Obama do in his LAST term ? Most likely the same as the first term……nothing but give it away. Think the Indians want it back?

    • http://twitter.com/JeffReevesIP Jeff Reeves

      Yes, I have often thought for running for office with a simple platform: introduce campaign finance limits and introduce legislation limiting Senators to 2 terms and House reps to 5. Then I would promise not to run again next election. Think it’s crazy enough to work?

    • http://www.facebook.com/rgeorge.ross R George Ross

      What makes you think that this Obama’s last term? The only thing that is stopping him from running again is the 22nd amendment, and that can be repealed.

      • http://twitter.com/JeffReevesIP Jeff Reeves

        Right. And the aliens who are masquerading as American citizens will surely make that a ballot issue in 2014. It’s all part of their master plan to turn America into an amusement park for Martians.

        Get real.

  • Susan

    Some things will have to change drastically. I work in a hospital, most of the jobs for nurses, techs, etc., are all part time. Lots of industries are going that way…..Starbucks, retailers, banks, restaurants, grocery stores….all part time. The won’t have to pay for Obamacare or any benefits. I just don’t know how you can have so many people working part time and keep an economy like the US in motion. I think after the holidays you’re going to see the bottom drop out of retail, and never fully recover. More dollar stores and wal marts than ever.

  • http://www.facebook.com/ricky.diesel.1 Ricky Diesel

    you’re missing the point , the most powerful man on earth with the most powerful organization, in the richest country in the world did not correct the economic problems, in fact they are worse! that’s a fact, Hope is not a candidate, and 4 years of nothing brought nothing and 4more years of nothing will bring 4 more years of the same! buckle up it’s going to be a rough ride!

  • http://twitter.com/advocacybz Karl Schilling

    The fact that the next 4 yrs are locked in is a positive for those who are contrarian and take a counter-intutive approach. We will go back into recession and we will continue to print money and spend, so investors can look into overseas investments, alternatives and commodities, think Oil & Gas, metals etc… lastly do not invest in any companies that are not recession proof, or highly sensitive to inflation. By 2015 gas prices will be $7 or higher as we cater to the European market (become one of the crowd), food prices will double and utility bills will soar. potentially leading to planned energy brown outs much like what happened in UK during the 70′s. You are right we do know what will happen, now the smart investor will make a killing by being contrarian. Lastly, the Congress and Obama will not make any inroads as the concept of him and Repubs agreeing as he will not be running again is shear folly and rhetoric from the left. The House still feels they have a mandate to stop any tax hikes and will stand their ground. We will have another credit downgrade during Obama’s second term and quite possibly lose the reserve currency status during this term.

  • HoofHearted

    Why start a business in the USA, when you can take it and start it in now more stable countries elsewhere – Canada, Australia, and Brazil to name a few. Also, with the Affordable Care Act coming into full affect and the current and likely increases in the tax and corporate tax structure to businesses, why would anyone take on additional risk with more limiting returns in the USA. Canada now particularly has a much better and stable tax structure.

    • http://twitter.com/JeffReevesIP Jeff Reeves

      Come on HoofHearted. Entrepreneurs are NOT going to pack up and move to Brazil or Australia now or ever. If low tax rates alone correlated to economic growth, Ireland would be the envy of the world. In reality it’s just as crippled as its socialist brethren Spain, Italy and Greece. Face the facts on Ireland’s world-leading corporate tax rate of 12.5% here: http://online.wsj.com/article/SB10000872396390444032404578007951061647888.html

    • http://twitter.com/electionsnow Kyalo

      you are not thinking straight….

  • http://www.facebook.com/shirley.webler Shirley Webler

    @Susan, you are right. Of the few places that are hiring are only hiring PT, starting at min wage..Hiring at PT, means that they do not have to give you Ins. So your hung out to dry, which means, Obama’s Tax (fine-fee or whatever you want to call it) will be hitting ALOT of people…He will get his $$ 1 way or the other.

  • Donald Smith

    Jeff, If the picture above of you is current, you look like a 30 something kid with an opinion. A very immature, unrealistic and inexperienced person with no life experiences or seance of financial history. Plus your Nov 6th article begins with a Headline referring to your readers as “Stupid”. You read like a person with a new MBA trying attempting to educate your readers, regarding future financial US and World events. Your Narcissistic attitude leaves you with a very large credibility gap.

    • http://twitter.com/JeffReevesIP Jeff Reeves

      Yes I’m in my 30s… but it’s ironic you accuse me of having no sense of history yet take umbrage with my use of the word “stupid.” It’s a play on words. “It’s the economy, stupid” was a phrase used in 1992 that has (I had thought) become fairly well known. It has its own wikipedia page … so hopefully that proves despite my age and relative inexperience, the past is not a complete mystery to me. http://en.wikipedia.org/wiki/It's_the_economy,_stupid

  • http://www.facebook.com/victoria.s.lites Victoria Shepston Lites

    lol sick n tired .. If we “all” go on relief then there will be no one working to pay for it and the rich like Obama will still be above the troubles the rest of us have to live with! Most of us at this point are feeling like quiting work and giving up because all they do is take take take from us the working class but through faith and prayer great things can be accomplished and with great strength from the Lord!

  • PositiveReality101

    Individuals like you make me sick. You all are so NEGATIVE. No wonder our nation is having a Hard-Time Recovering. It’s people like you that Fuck-up the Hope that this nation has. Why won’t you write about something more positive? Why won’t you write about all the accomplishments that our president and the congress has made?
    One Word Of Advice. Do you know why your life sucks? Because your attitude sucks about life!

  • John

    Hay, Reves== Look who is calling the Florida businessmen stupid.! Compared to Obama who called the Cambridge police stupid, failure. Listen to you! Some have delayed investment because they were unsure of the policy environment, but that is now gone. Wrong Again. Waiting for the election to be over. and Reeves, Wrong again. Business can’t wait for history to judge.
    As history is not the judge, neither is Jeff Reeves, Businessmen are smarter that you think, they have had 4years to learn,( Dummy.) Obama’s Policies.

  • John

    Campaign finance limits to keep the inexperienced in the Congress. Because You can’t see that the peoples greed will win out. and the dems agenda seem to still be “Give the people what they want”. When you have more takers than givers you are done for.

  • john445

    The country needs to run away from party politics and support middle of the road harmony: That will go a long way toward improving the general mood of the consumer. I agree optimism is the main ingredient to a surging economy. Some of the comments people are making here clearly indicate that there are folks who need to stop defending their party like it is a sports team. You are the problem.