Obama Sure Has His Work Cut Out for Him

Stocks have rallied in three of the last four sessions. The buying has been due to a combination of a technically oversold market and heightened optimism that the upcoming Obama-led government will be better than the current administration when it comes to getting the U.S. economy out of the dumps. Obama appears to be extremely dedicated to helping America get back to the good times, but it will be a difficult path given the economic climate.

 After losing 550,000 jobs in November and experiencing continued layoffs at major companies, there is now an urgency to halt the job losses before they further impact consumer spending and economic growth. Even in Canada where the jobs market had been faring better, November saw the loss of 70,000 jobs, which, when considering the difference in size between the two countries, equates to about 700,000 jobs lost.

 Obama’s plan for massive infrastructure spending is exactly what is required during these times of economic contraction. It is simply Keynesian Economics, in which the government tries to get the economy going through fiscal and monetary policies. Obama aims to create over 2.5 million jobs by 2011 under his infrastructure plan.

 The impact on industrial, energy and materials companies was positive along with commodity stocks in copper, nickel, wood, oil, and other metals.

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 Yet, whether the U.S. economy can reverse course in 2009 or 2010 will depend largely on the condition of global economies. We are continuing to see downward revisions in economic growth in major world economies and, unless it changes, the demand for U.S. goods will continue to be stagnant from import markets. China is planning to increase its $586-billion economic stimulus program, and recently devalued the Yuan for the second time in hopes of helping its hurting export market. The risk is that if China falls into an economic and/or credit crisis, the impact on the world could be devastating.

 The reality is that the hurt is all around us. I have been hearing stories of economic restraint everywhere from friends and associates. People are definitely tightening their budgets in fear of worsening times ahead. I expect retail sales this holiday season to be dampened by the lack of spending. The problem is that when everyone begins to cut back on spending, the economy will only get worse.

 I’m also seeing more houses up for sale in my area. In the past, when it was a sellers market, there would me multiple bidding on houses with no financing or house inspection conditions. But that was then. Houses for sale are now just sitting there with no buyers. I was talking to a person down the street who rents their house. The house is up for sale because the owner lost tons on the stock market and needs to sell property to clear up some margin calls. I believe this scenario is playing out across America, especially for those that acquired property for investment purposes. And, unless the housing market improves, I believe there will be more pain down the road. Obama clearly has lots of work ahead of him.