Published November 5, 2010
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In the 2008 election, Independent voters supported Democrats by an 18 percent margin. In the recent midterm elections, they favored Republicans by 15 percent, and with that shift, the Democrat coalition crumbled. Democrats lost ground among women, middle-income workers, whites and seniors. Driving the shift was a broad concern over the economy and doubt about big government.

President Obama was elected in 2008 as the standard bearer for hope and change. He brought change, but not the kind that voters were looking for. He also let congressional Democrats define his agenda and determine what hope and change looked like. Those were big mistakes, and his naturally cerebral approach to problem solving also disconnected him from voters.

Obama failed to notice that the economy remained weak and that getting people back to work was his number one priority. He should have take a page from the playbook of fellow Democrat James Carville, the “Ragin Cajun” who famously said, “It’s the economy, stupid.” Unemployment remained stubbornly high at about 9.6 percent, and will likely remain around 9 percent going into the presidential election cycle, which portends the loss of the White House to the Republicans. The idea that the supremely charismatic president suddenly might be a one term president became not only thinkable, but possible. Even chastened Senate Majority Leader Harry Reid, D-Nev., promised that his number one job was to create jobs. “The only thing that is going to solve our economic problems in this country is jobs,” Reid said. Unfortunately, many Democrats arrived at this conclusion much too late.

In the end, the election became a referendum on the president […]

Fear lingers as worry of a double dip fades. What can the Federal Reserve do?
The past quarter brought numerous gloomy headlines. The specter of a double-dip recession, a
depression or inflation loomed.

Each day seemed to bring more negative news and reason for gloom. Not surprisingly, markets
reacted, and after a strong July, equity markets dipped in August to an overall minus number for the
year. It did not help that investors withdrew about $34 billion from equity mutual funds for the year
and placed $32 billion into international and emerging market funds, or that the “flash crash” of May 6
caused many investors to wonder if they were playing with a stacked deck.

Job losses continued to mount last month with the unemployment rate hitting 9.6 percent. The Obama
administration took solace in the fact that the private sector in August added 67,000 jobs – about one fourth
of the number needed to provide jobs for new entrants into the workforce.

The question the market seems to be wrestling with is: Are we about to experience a “new normal” for
growth in the U.S.?

Historically, on average, the U.S. economy has grown about 3 percent per year – also about the rate
of inflation. Bonds have historically returned the rate of inflation plus 3 percent, for a total of 6
percent. Equities have historically returned about 9 percent.

As every investor knows, the last 10 years have been anything but normal, and the U.S. economy
seems to be growing less than normal. Is this the “new normal”? Should we expect less than 3
percent growth, or even none? Is the structural growth rate of the U.S. economy lower now than
historically? The answer has big implications for investors.

Both […]

Fear lingers as worry of a double dip fades. What can the Federal Reserve do?
The past quarter brought numerous gloomy headlines. The specter of a double-dip recession, a
depression or inflation loomed.

Each day seemed to bring more negative news and reason for gloom. Not surprisingly, markets
reacted, and after a strong July, equity markets dipped in August to an overall minus number for the
year. It did not help that investors withdrew about $34 billion from equity mutual funds for the year
and placed $32 billion into international and emerging market funds, or that the “flash crash” of May 6
caused many investors to wonder if they were playing with a stacked deck.

Job losses continued to mount last month with the unemployment rate hitting 9.6 percent. The Obama
administration took solace in the fact that the private sector in August added 67,000 jobs – about one fourth
of the number needed to provide jobs for new entrants into the workforce.

The question the market seems to be wrestling with is: Are we about to experience a “new normal” for
growth in the U.S.?

Historically, on average, the U.S. economy has grown about 3 percent per year – also about the rate
of inflation. Bonds have historically returned the rate of inflation plus 3 percent, for a total of 6
percent. Equities have historically returned about 9 percent.

As every investor knows, the last 10 years have been anything but normal, and the U.S. economy
seems to be growing less than normal. Is this the “new normal”? Should we expect less than 3
percent growth, or even none? Is the structural growth rate of the U.S. economy lower now than
historically? The answer has big implications for investors.

Both […]

What a difference a month makes.
The market experienced a healthy start this year. The first quarter showed the S&P with a credible, 4.9 percent gain. A global recovery seemed in the offing.
Then problems began to occur. The sovereign debt crisis in Europe threatened to sink the euro and pull the eurozone apart. Iran seemed more likely to be developing nuclear weapons. The U.S. experienced a “flash crash” such as the market had never seen before, shattering investor confidence. The BP oil spill triggered a gulf crisis, and President Obama suffered his very own Katrina moment and unnerved the whole country. Then the jobmarket went into a stall. Consumer confidence waned.

Suddenly the global outlook was not so optimistic. Eighty percent of economists polled said the economy was slowing. Talk of a double dip recession became common. Nobel laureate Paul Krugman warned of a third depression. After the market peaked on April 23, the S&P
500 stock index slumped 16 percent to nearly meet the definition of a bear market. Gloom spread.

Volatility surfaced once again. The flash crash demonstrated the pain that volatility can evoke. For instance, investors who used stop-loss orders to protect their holdings found themselves with enormous losses as their “insurance” failed. The flash crash did demonstrate that volatility can take prices to irrationally low levels.

Many investors fled the markets after the flash crash. Morgan Stanley reported that clients withdrew billions of dollars. We did not lose any clients as a result of market instability. Some saw it as a chance to move back into equities.

Surveys of individual investors pointed to an unusually swift eruption of bearishness among those investors. Fears of […]