Here We Go Again

Posted November 06, 2008

US investors are now expressing nervousness about the kind of effect Barack Obama will have on business. The DJIA plunged again and the dollar weakened once again against the euro and the pound.


On election day in the US, which was Tuesday 4/November/2008, the Dow Jones Industrial Average increased by 305.45 points.  The next day, Wednesday the 5/November/2008, the market plunged by 486.01 points.  On Tuesday you saw the biggest gain on election day in over 24 years since the market was opened for trading on the day people voted.  On Wednesday you saw one of the biggest post-election day drops.

The volatility in the markets right now is dizzying.  The election of Barack Obama was celebrated by millions of voters, but business sectors are apprehensive.  Obama is a Democrat and made it clear during his campaign he believed in raising taxes on businesses and increasing government regulation.   His election has created a lot of investor anxiety, because no one really can say with absolute certainty what he plans on doing to deal with the economy.

One of the first questions is who President-elect Obama will choose for Secretary of the Treasury.  Some analysts believe current Treasury Secretary Paulson has been responsive rather than proactive with solutions for the global meltdown.  Now that he will be leaving the Treasury position, a big question now looms as to what policies will be instituted concerning the economy and global investments.  Democrats historically have let the dollar weaken as a protectionist policy for the US economy.

Currencies have been showing a lot of volatility like the stock markets.  At the close of the market on 5/November/2008, the dollar had weakened again against the euro ($1.2992) and the British pound ($1.5958) and the Japanese yen ($.0101).  The US dollar strengthened against the Canadian dollar ($.8613).  

The big question is how Barack Obama will deal with the continued implementation of the bailout plan.  The only way the markets will begin to develop stability once again is for investors to develop some confidence the economic situation around the world has been stabilized.  Until then you can expect large shifts in markets as they react to economic news.  People are trying to find a way to protect further losses.

The US economic news is not good.  The Labor Department is going to report on the employment numbers on Friday, and they are expected to show an increase in the number of job losses.  The Institute for Supply Management index fell from 50.2 in September to 44.4 in October.  The ADP Survey indicated that 157,000 jobs had been cut in the private sector in October.

All of this bad economic news has led financial analysts to finally agree the US has entered a recession.  But the US is not alone.  For example, Great Britain is in a recession also and still trying to stimulate the credit markets which were so severely damaged by the financial meltdown.  The Bank of England is expected to approve an interest rate cut on Thursday, 6/November/2008 in yet another attempt to get banks lending to each other and the consumer.

One of the problems with the bailout packages so far is there has not been much for what is called “Mainstreet” in the US.  The average consumer is still wondering if they are going to get some of their lost retirement savings back.  The number of housing foreclosures is still rising.  People are getting laid off from their jobs by the thousands.  It’s generally agreed the financial bailout was necessary, but eventually its results must come home to the people struggling to survive this economic disaster.

It is the same for consumers around the world including those in developed and emerging markets.  There are still a lot of investor worries about the economic situation, and those worries are going to produce continued volatility in the markets.

One thing everyone agrees on is that Barack Obama has a difficult job facing him when it comes to dealing with the economy.