Obamanomics

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The world stands aside for a man with a plan. On Tuesday, Americans delivered a sweeping victory to Barack Obama. That a democratic candidate grabbed more than 50 per cent of the popular vote for the first time since President Carter represents a big mandate for change. With near control of Congress, too, the new President Obama can roll his sleeves up straight away. Is an economic “new era” dawning?

Certainly the markets appear cautıous. Equıtıes fell by about 2 per cent ın Europe, but fared worse ın the US. The dollar was slightly weaker. Bonds traded sideways. Surely if investors really did believe an Obama administration would reverse nearly three decades of policy based on laisser faire economics, markets – notwithstanding whether the shift is positive or negative – would have been far more volatile.

One explanation is that “change” was discounted (negatively) by markets months ago. Another is that it is too early to tell. Either way, investors over the coming months need to pay close attention both to Mr Obama’s actions and rhetoric. Who is he appointing to key posts, particularly at the Treasury? Are other positions genuinely cultivating bipartisanship and a mixture of views, or is the president surrounding himself with yes-men? On rhetoric, listen for the tone towards Wall Street, redistribution, unions, and particularly fiscal spending – a lack of restraint here could spell higher interest rates and a weaker dollar.

Of course, unbridled power is never desirable, whoever wields it. But Mr Obama will face opposition. Do not forget that almost half of the country did not vote for him. Those views will reach Washington. From an investment perspective, however, the reality is that across the world so many powerful forces are pulling on markets that the “change” incarnated by any politician, however impressive, may be hard to detect for some time.

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