Tuesday, 25 September 2018

The prospects of a four-year lame duck president

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Before the lights had been switched off after the overnight election programmes and the “America Decides” placards had been taken off the walls, the battle over the fiscal cliff had already begun.

Anthony Peters, SwissInvest Strategist

As a second-term President, O’Bama can either shelve party politics and aim to progress in consensus which is what the liberal press predicts or he can follow his liberal instincts and push the country to the left at any cost in the way more conservative writers fear.

All this is a fatuous way of saying, with Capitol Hill split down the middle, anything might happen …or nothing.

One dyed in the wool Republican friend of mine here in London remarked in his disappointment yesterday morning “What’s really depressing is the reality that fifty million Americans voted to become more like Europe and less like the USA”. He and I have sparred a lot over the past year while I have tried to maintain a reasonably balanced approach to the election despite my well known antipathy towards Barry O’Bama but I must say that in a single comment he has summed up what is happening in America.

At a time when the European model of a social market economy is washing up on the beach, it seems hard to support America going down the same path.

Unless the mid-sessionals in 2014 change the balance of power in the legislature, this could become a four-year lame duck Presidency which is the last thing the United States needs.

The fiscal cliff might look daunting, especially in light of the predictions that it will knock 4% off GDP. We know that “tax and spend” doesn’t work and we can be fairly sure that “spend and tax” works even less. Now it’s possibly the time of “tax and save” and everyone is getting the heebie-jeebies. It is and remains about recalibration, about cutting one’s suit to match one’s cloth but O’Bama has promised that “…the best is yet to come”.

As I have one very, very Republican friend here in London, so I have an equally dedicated Democrat friend who once graced Wall Street but who is now pursuing an academic career in a small college town not far from Washington. Immediately after the French Presidentials, she commented that Hollande would most probably be spending the initial week in office wondering which election promises to break first. O’Bama doesn’t have that worry for he can blame absolutely everything on a recalcitrant House.

Unless the mid-sessionals in 2014 change the balance of power in the legislature, this could become a four-year lame duck Presidency which is the last thing the United States needs. That is unless the pork barrel is put aside and Dems and Reps agree that a middle path needs to be identified … and bestrode.

Pigs’ll fly. They really should be watching Greece – and I don’t mean the all-American bobby socks and blue jeans movie.

Three is the magic number

Yesterday, the Greek parliament passed the austerity package by three votes – haven’t we had three vote passages of eurozone-saving motions before?  Without the 16 members of the Democratic Left abstaining and without six Pasok MPs going missing in action, it would have gone down the tubes. Greek 10-years are now trading in the 17% area which is a lot “better” than the near 30% rate we saw in May but in reality it means absolutely nothing. It is the rate at which traders and distressed debt funds pass the parcel and no more than that.

Of more interest will be the Spanish auction today which will probably vindicate the Madrid government’s decision to eschew the bail-out package. For the first time this year, it will be offering debt beyond 10-years as it reopens the 5-3/4 July 32 bond alongside a new benchmark five-year and the on-the-run three-year. The country is now funded through year end and pre-funding for 2013 can begin. Chapeau!

Alas, on Monday I forecast a benign week in markets. I could not have been more wrong. We got the O’Bama victory which had been forecast and supposedly priced in. We knew from the polls that neither the House nor the Senate would see a change in overall control. Therefore we knew all we needed to know and then – out of the blue – the Dow and the S&P both tanked nearly 2.4%.

All the brain power and all that computer power which went into preparing for the election and how the markets are going to react when – bang! – everything goes wrong. The problem with forecasting markets is not that my 30 years experience isn’t enough, it’s that the blighters who pull the triggers don’t have the same.

Sometimes I’d love to simply give up and write fiction. Oh – check and query – could it be, perish the thought, that I already do?

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