Investors bid up stocks prior to the presidential election on Tuesday, when President Barack Obama won his second term. Investor confidence was due to some uncertainty eliminated with the election, but the nervousness quickly resurfaced on Wednesday morning, impacting investor confidence; stocks plummeted on the realization that Obama still has many hurdles to overcome and the fact that the global economy, namely in Europe and China, may be prone to more weakness that will negatively impact investor confidence.
I’m sure President Obama is relieved that the election is over; but I can tell you, it’s only the beginning of some difficult times ahead that will challenge his patience and fortitude, while also impacting investor confidence.
While the uncertainty of the election is over, there is a lot of work ahead for Obama, as he now needs to immediately deal with the pending fiscal cliff. This will not be an easy feat, but it must be done to instill some investor confidence in the equities market.
The major problem is that President Obama must be careful, as he will need to cut and control the deficit and national debt of over $16.0 trillion, while at the same time not allowing the full extent of the $607.0 billion in broad budget cuts to take place on January 1; if he doesn’t balance the two, he will likely kill the economic recovery, 2013 and 2014 gross domestic product (GDP) growth, and investor confidence.
Moreover, any agreements or decisions made by President Obama will need to be agreed upon by the House. This will be problematic, given the continued political gridlock, as the Republicans control the House and the Democrats control the Senate. So, unless there is compromising and teamwork between the two parties, we could be in for more battles and the stalling of any key policies. At the end of the day, this will only hurt investor confidence and the country.
And while the parties debate this and debate that, there is also a significant development that will surface today halfway around the world. In China, the 18th National Congress of the Communist Party of China convenes and the once-in-a-decade transition of power will occur.
What America and China do will help to dictate the direction of the world’s economic and political power over the next decade and beyond, and will generate some investor confidence.
China was favoring Obama, so we will hopefully see a good working relationship develop with the new Chinese leaders and instill some investor confidence.
While there is never disclosure as to who the new Chinese leaders will be, the speculation is that the new leaders that will be Xi Jinping, the present vice-president of China, who will become the country’s next president, replacing Hu Jintao. Li Keqiang, the vice-premier, will become the country’s next premier, replacing Wen Jiabao.
For China, the change at the helm comes at a critical juncture, as the country’s economic recovery is currently stalling, following years of explosive GDP growth that propelled the country to overtake Japan and become the world’s second-largest economy.
So while President Obama grapples with the House and the fiscal cliff, he must also be in tune with the new Chinese leaders and build a trusting relationship.
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