Thursday, March 5, 2009

• Obama, The Third Tell

Previous articles on this post observing certain “tells,” have hopefully laid useful stepping-stones in the analysis of Obama’s attitude or inclinations towards the nation he leads. The President has just delivered another significant reveal.

During an attempt to turn positive in contrast to his consistent negative affirmations on the economy since his election, Obama said that "profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it.” Whether or not this was a planned attempt to appear reassuring to Wall Street, the statement’s impact was broadly revealing.

Obviously no-one expects that such a “buy” signal from the President will stimulate unfamiliar investors to leap into the markets. If anything, the observation raises concern on his evident lack of familiarity with the most critical elements of the American capitalist system. At the very least he could have taken the time to become familiar with some of the essential vernacular long practiced by the investment community, Wall Street and management of corporate America.

The Dow is down 30% from its election day levels. Although Obama has rushed to stimulate the economy, amplify government presence and government spending, his policies have thus far not found acceptance from Wall Street and the markets. The state of the economy, and its persistence at the top of the priority list, should have provided him some incentive to become educated on the key components of American industry, and the nature of business.

Profit and earnings are usually considered the same thing, therefore the ratio between the two is one. Price-to-earnings ratios on the other hand, have been effective deciding measures used by investors when assessing relative risks inherent in purchasing individual company stocks or baskets of stocks through index funds. The price divided by the earnings through the most recent trailing twelve-month period, provides the P/E ratio, and can easily be compared to that of other companies.

While Obama’s commentary might have been well-meaning, it suggests a general lack of knowledge about profitability and yield. These are the biggest concerns of all business leaders whether they manage large corporations or smaller employers. The success of these companies, their ability to raise capital, and their profitability, will be a source of the much touted, but little defined economic growth that will supposedly result from the stimulus billions. These companies will in future provide a principal source for the cash that will repay the overwhelming debt. Obama will therefore require more than a vague or passing acquaintance with the engines that will enable a return to prosperity, as he leads the charge to inject trillions into bailouts and the so-called stimulus of the economy.

Is this a foretelling of outcomes similar to what we witnessed in the aftermath of Bush’s disastrous decision to invade Iraq? A President completely unaware of all things foreign, made a historically momentous decision to invade another country for still vague or questionable reasons. Are we to assume that in the equally significant decisions that are required when addressing a depressed economy, a complete lack of awareness will somehow surprise us and serve the day with wisdom? Is Obama aware that he absolutely must provide himself a condensed education on the inner workings of small and large businesses?

As we have previously suggested, the 44th President must rapidly acquaint himself with a few fundamental economic elements if he is to become effective in managing the largest economy in the world, and he must absolutely understand inflation, that destructive monster waiting just around the corner. The markets have never been forgiving, and will not likely find comfort where out-of-control spending and excessive debt are the principal measure of the world’s leading government.

The President should also become very inquisitive as to the nature of his nation’s currency, its bonds and its capital markets. On his way to borrowing the trillions of dollars to fund his agenda, he will better understand what he is asking for from the country’s international creditors, and will better comprehend the relative position into which he will be placing his country. Those behind the lending wicket will have little empathy for America’s concerns over currency, national security or trade balances. It is hoped that a little more knowledge will heighten the wisdom during the chastening process of borrowing, and will stimulate the discovery of less expensive paths to economic health. Such appreciation might also provide the administration with some confidence that business and capitalists are not its enemies.


  1. Didn't we understand this BEFORE the election?

    I'm tired of hearing that BUSH made this mess. He sent us into a costly war, but Obama is heading us into bankruptcy. Why is it not evident?

  2. Good post. No one else in the media seems to have caught this one. Well done. Oh, and I agree. Obama, please get educated on business.

  3. Hey Raider, I like your letters, particularly the one to CEOs. The letter pretending to be from the pen of Madoff reads just as if it came from a narcissist. Perfect.

  4. All you need to know about economics and the peril of Obama is simply proven by "Mathematics of Rule", for those capable of comprehending basic high school algebra.

    Hint: YOU are simultaneously being fleeced and ENSLAVED.

    Bill Ross
    (Electronics Design Engineer)

  5. Great article. I especially like your mention of inflation. My issue with inflation is that it has been described as finally being "under control" since Regan and his policies. But those policies have ultimately led to this as well. So what is the answer for inflation? It seems that 3% inflation is not sustainable for periods longer than a couple decades. I find this topic very interesting.

    Also, the issue of delation is fascinating. It is horrifying, of course, but the inflation monster scares me just as much. Deflation has to occur on some level, since prices for everything went up over the last 30 years, but wages only kept pace (barely) with inflation and went down in many cases. Have you thought about doing a piece on deflation?

  6. Victoria,

    Thank you for the positive note.

    Deflation is nasty, however with the degree of debt currently enjoying some serious mushrooming at the hands of the current Congress and Administration, there is every reason to expect that the pending monster awaiting around the corner is inflation that could return to double digit levels. How else will payments be made on the trillions but with overheated printing presses?

    Stay tuned.

  7. A terrifying concept James. One that we were all aware of, but that no one wanted to say out loud. Holder was correct about race: we are afraid to shout out and accuse Obama of gross incompetence. Yes, we are reluctant to break the unwritten code that protects Obama from harsh criticism; he has protection, because of White Guilt and his status as the epitome of the White Man's Burden.

    James, you are bringing to the forefront why Community organizers and others who have accomplished nothing, unless the rails were greased by Affirmative Action, may be winners on American Idol and guests on Oprah; but make damn poor choices to lead the most powerful and dynamic countries in the world.

    Well done, well done indeed, James! May I make a suggestion? When you are in a fight and you stagger your opponent with a left jab, throw an overhand right and finish him! That was a nice jab, James!

  8. @ Skook,

    Thanks for the note. Can we assume the "overhand right" will come at the mid-term elections?

    Unfortunately, Obama's complete lack of knowledge has allowed Goldman Sachs and its Wall Street friends to take control of the treasury, . . . and still, no one cries "Uncle."

  9. Actually James, the term refers to a devastating punch with the right hand. Of course we want a victory in 2010, but my reference was for you to program your writing so that a follow up punch or combination of punches can be delivered, in the form of hard hitting articles. I believe we are making a mark with our articles: yours are especially effective, you do analysis, I am a cheer leader. Both styles serve a purpose, buI believe you can stun Obama with your writing, that is the jab; once you have rocked your opponent it is necessary to unleash a combination or the mighty overhand right. This is a complement and a suggestion from an old fighter, who loved boxing and MMA. Don't underestimate your effectiveness or your abilities, we are taking the initiative and it is time to intensify our efforts.