The R Word
A poll the other day listed a democrat winning the White House as the number one fear in investors with regards to economic instability at 28% with international conflict a close second at 22%. The source was less than reputable but the story was picked up by The Daily Show and The Huffington Post so I thought it might be worth debunking.
For one thing a recession is at times a self-fulfilling prophecy. Follow the bouncing ball…
Fears of a recession caused by the media cause some investors to sell off some assets to build up their liquid reserves. This causes a slight drop in the markets which the media and pundits use to retroactively justify their comments and say the sky is falling. More people believe it, so more people sell. With reserves depleted and confidence and consumer confidence dropping businesses become hawkish, not risking new ventures and laying off staff. People fear for their jobs and sell off more stock and further restrict spending thus causing a general economic slowdown or recession.
I don’t think that’s the whole story here though. An incompetent president, the subprime mortage crisis, and an intractable immoral failure of a war is what most economists are pointing to as potential causes. In fact my previous theory about political uncertainty was at the time a little fringe. My prediction that having fewer candidates will help stabilize investor confidence remains.
It’s all about the future. If CNN tells you it’s bleak then you’re less likely to invest but if let’s say Obama looks like he’ll win with a solution to the mortage crisis, a stimulus package that makes sense (giving to the poorest knowing they’ll spend it right away generating economic activity), and a way out of Iraq one might be more optimistic about the future and choose to invest.
A big part of it are those pesky skittish day traders and investors. Instead of boring you with the USSR/Brazil story again I’ll share an eerily relevant Stewie quote “you can’t become a fiscal hermit every time the <market> undergoes a self correction“.
You know it’s ironic (I’d say ‘funny’ but it’s not), World War II got us out of The Great Depression leading to conventional wisdom being that a war could get one out of a recession (although if memory serves The Great Depression was actually the much more dreaded stagflation). Now ending a war could be the answer. Improve standing in the world opening up trading options, bolster the dollar, and reinvest the money thrown away in Iraq to more worthy causes like health care and rebuilding Afganistan.
Hold on, aren’t you trading one war for another? You may ask.
In point of fact I’m trading two wars for one. Iraq, largely thanks to Pakistan’s porous border, isn’t current winable. And Pakistan’s too destabilized to do anything about it. Afgahnistan on the other hand, with greater focus, is much more winnable. Once secure the opium trade can be dealt with and rebuilding can get into full swing creating jobs and a trading partner and ally.
Think about it. Obama has.
