The Financial Markets’ Reaction to ObamaNation

November 5, 2008

Barack Hussein Obama is the 44th President of the United States, the first African American and the second youngest President.

In reaction to his election, the US dollar is marginally higher and the US stock market has opened lower. Regardless of the overwhelming support for Obama domestically and internationally, the equity markets tends to sell off when Republicans lose the election.

The only minor negative is that the Democrats did not secure the 60 seat majority that is needed to push reforms through easier.

Based upon a previous study that we have conducted, over the past 30 years regardless of what party wins the elections, the US dollar tends to appreciate in the 6 months following the election. However the US economy is in the worst shape since the Great Depression, which was nearly 80 years ago.

Like many of his predecessors, we expect Obama to do no more than pay lip service to the strong dollar policy. The dollar has already strengthened significantly and it would be counterproductive to engineer further strength in the greenback. In order to turn the US economy around, a weaker and not stronger currency is needed.

In this economic environment, Obama will have no choice but to boost government spending and adopt more protectionist policies, which could hurt the US dollar. Even though Obama has given the country renewed hope, he won’t be able to deliver any change for the financial markets until he becomes President on January 20th and even then, it will take time for him to implement new policies.

Therefore the recessionary trade is still on and US interest rates are headed lower.

Here are some of Obama’s financial related promises (from Obama’s editorial in USA Today):

1. I’ll give a tax break to 95% of workers and their families, and eliminate income taxes for seniors making under $50,000 a year. If you work, pay taxes and make less than $250,000, you won’t see your taxes increase by a single dime.

2. I’ll end tax breaks for corporations that ship our jobs overseas, and give them to companies that create jobs in America.

3. I’ll eliminate capital gains taxes for start-ups and small businesses, the engines of our job creation.

4. We’ll create 2 million jobs by rebuilding our crumbling infrastructure and laying broadband lines that reach every corner of the country.

5. I’ll invest $15 billion a year over the next decade in renewable energy, creating 5 million new green jobs that pay well, can’t be outsourced, and can help end our dependence on Middle East oil.

Posted in election dollar, forex blog, obama dollar