Markman: Obama’s 7.5% Solution

by Jon Markman | May 5, 2011 10:48 am

An election year is staring us in the face and the most remarkable things occur when elected officials suddenly face their career mortality. I learned a long time ago that the No. 1 job of politicians is to get re-elected, and the higher they are in the hierarchy the more levers they can pull.

In this context, consider the fact that no post-war president has been re-elected with the unemployment rate of more than 7.5%. Jimmy Carter and Bush pere both lost with 7.7% unemployment rates. (Clinton, you may remember, won in 1992 with the mantra, “It’s the economy, stupid.”)

So you can bet that President Obama and Federal Reserve chief Ben Bernanke realize that the current unemployment rate over 8.75% is not going to cut it, and have Fed analysts and the administration economic team of Goolsbee, Sperling, Geithner, Daley, Locke and Immelt on the hunt for a surprise proposal to put people back to work in a hurry. 

Almost 60% of Americans are expressing disapproval for the administration’ s handling of the economy, which puts the administration on the wrong side of history. And I don’t think the country really understands how weak GDP growth really is now, as forecasts by credible economists are coming down by the week, to as low as 1% to 2% annualized.

Many of the headwinds facing the president are not really within his power to change, try as he might. They include gasoline futures on the march toward $4, the renewed violence in the Mideast with hundreds of protestors killed in Syria and NATO bogged down in Libya, backing quite possibly the most ragtag bunch of rebel fighters ever to take up arms. Moreover U.S. home prices through March have declined at a 15.5% annualized rate over the past four months — the fastest downward pace since the financial crisis ended.

Desperate times require desperate measures, and with no money to be spent on more stimulus, there is little doubt that at the very least some sort of monetary stimulus will continue to be applied, either via an overt new round of quantitative easing or some sort of stealth-mode QE, such as the purchase of bonds using interest paid on the Fed’s current holdings.

But there could be more, and the sky’s the limit. How about a new equivalent of the 1930s-era Smoot-Hawley act, which surrounded the U.S. with high tariffs to block foreign trade and force American companies to manufacture at home? Sounds outrageous, but it could happen. 

Falling home prices + falling job prospects = trouble for Obama and the Bernanke. They need to fix this, and fast. And it’s important for you to know they will try, and that continues to be a big magnet for higher equity and bond prices.

For more guidance like this, check out Markman’s daily trading service, Trader’s Advantage,[1] or his long-term investment service, Strategic Advantage[2]


  1. Trader’s Advantage,:
  2. Strategic Advantage:

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