Economically, is Obama America’s Greatest Modern President?

With the stock market hitting new highs, some people have

already forgotten about the Great Recession.  If you recall 2009, things looked pretty bleak

economically.  But the outlook has changed dramatically in just 4 years.  And it has been a boon for investors, as even the safest indices have yielded a 250% return (>25% annualized compound return:)

Growth of $1,000 ChartSource: Bulls, Bears and the Ballot Box at Facebook.com

Meanwhile, trends have reversed direction with unemployment falling, and consumer confidence rising:

Confidence-Unemployment Chart

Source: Bulls, Bears and the Ballot Box at Facebook.com

Since this coincides with President Obama’s first term, I asked the authors of “Bulls, Bears and the Ballot Box,” (available on Amazon.com) which I reviewed in my October 11, 2012 column, to capture their opinions on how much Americans should attribute the equity

upturn, and improved economic prospects, to the President as we enter his second term.

Interview with Bob

Deitrick, co-Author "Bulls, Bears and the Ballot Box" (BBBB):

Q– Bob, how much credit should Americans give President

Obama for today’s improved equity values?

BBBB – Our research reviewed American economic performance

since President Roosevelt installed the first Federal Reserve Board

Chairman – Republican Marriner Eccles.  We observed that even

though there are multiple impacts on the economy, it was clear that policy

decisions within each administration, from FDR forward, made a clear difference on performance. And

relatively quickly.

Presidents universally take credit when the economy does

well (such as Reagan,) and choose to blame other factors when the economy does

poorly (such as Carter.)  But there

was a clear pattern, and link, between policy and financial market performance.

Although we hear almost no one in the Obama administration

taking credit for record index highs, they should.   Because the President deserves

significant credit for how well this economy has done during his leadership.

The auto rescue plan has worked.  American car manufacturers are still dominant and employing millions directly and in supplier companies.  Wall Street reform

has been painful but it has re-instated faith amongst investors.

The markets are far more predictable than they were four years ago, as VIX numbers demonstrate greater faith and less risk.

Even for small investors, such as thoughs limited to their 401(k) or IRA investments, the average annual compound

return on stocks under President Obama has been more than

24% since the lows of March, 2009.

This is a better result than either Clinton, Reagan or FDR who were the

prior winners in our book.

Q– Bob, what policies do you think were most important

toward achieving today’s new highs?

BBBB – Firstly, let’s review just how bad things were in

2009.  In 2000 America was completing the longest

bull market in history. But by

the end of President Bush's tenure the country had witnessed 2 stock market crashes, and the DJIA had fallen 58%.  This was the second worst market decline in history (exceeded

only by the Great Depression,) and hence the term “Great Recession” was born.

In 2000, at the end of Clinton’s administration, the

Consumer Confidence Index was at a record high 140.

By January, 2009 this index had fallen to an historic low of 25.3.  Comparatively, when Reagan took office

at the end of the economically weak Carter years the Confidence Index

was still at 74.4!  Today this

measure of how people feel about the country is still nowhere near 2000 levels,

but it is almost 3 times better than 4 years ago.

Significantly, in 2000 America had a budget surplus.  By 2009 surpluses were long gone and the

country was racking up historic deficits as taxes were cut while simultaneously

outlays for defense skyrocketed to cover costs of wars in Iraq and

Afghanistan.  Additionally, banks

were on the edge of failing due to unregulated real estate speculation and massive derivative losses.

Today the Congressional Budget Office is reporting a $200B decrease in the deficit almost entirely due to increased revenue from a growing economy and higher taxes on the wealthiest Americans.  The deficit is now only 4% of the GDP, down from over 10% at the end of Bush's administration – and projections are for it to be only 2% by 2015 (before Obama leaves office.)  America's "debt problem" seems largely solved, and almost all due to growth rather than austerity.

We can largely thank a fairer tax code, improved regulation and consistent SEC enforcement.  Also, major strides in health care reform – something no other President has accomplished – has given American's more faith in their future, and an increased willingness to invest.  

Q– To which President would you compare Obama’s economic

performance?

BBBB– By all measures, President Obama has outperformed

every modern President.

The easiest comparison would be to President Reagan, who’s

economic performance was superb.  Even though Obama's performance is better.

Reagan had the enormous benefit of two major factors:

a significantly better economy than Obama inherited, even if afflicted by inflation

and his two terms coincided with the highest performing

demographic years of the Baby Boomer generation.

Today's demographics have shifted dramatically.  The country is much older, with fewer

young people supporting a much larger near-retirement age group.  This inherent demographic fact makes

creating economic growth monumentally harder than it was 30 years ago.

Few people think of Reagan as a stimulus addict.  Yet, his administration’s military

build-up added $1trillion of stimulus to the national debt ($2.3trillion adjusted for

inflation) – the opposite of what is happening during the Obama years.  Many like to think

that it was tax cutting which grew the economy, but undoubtedly we now know

that this dramatic defense and infrastructure (highways, etc.) stimulus had more to do with igniting economic growth.  Reagan's spending looked far more like FDR than Herbert Hoover!

Ronald  Reagan tripled the national debt during his tenure, creating what today's Congressional austerity advocates might have called "a legacy of unpayable debt for our grandchildren.” But, as we saw, later growth (during Clinton) resolved that debt and created a budget surplus by 2000.

Q– Bob, President’s Obama detractors liken the Affordable

Care Act (i.e. Obamacare) to an Armageddon on business, sure to kill economic

growth and plunge the country back into recession.  Do you agree?

BBBB– To the contrary, ACA levels the playing field and will

be good for economic growth.  Where

previously only large corporations could afford employee health care plans, in

the future far more employees will have far more equitable coverage.  Further, today employees frequently are unable to leave a

company to start a new business because they would lose health care, which in

the future will not be true.

One leading indicator of the benefits of ACA might be the performance of healthcare and biotech stocks, which are up 20-30% and leaders in the current market rally.

Q– What policies would you recommend the Obama

administration follow in order to promote economic growth, more jobs and

greater returns for investors during the second term?

BBBB-  Obama needs to make the cornerstone of his second term creating new job growth.  That was the primary platform of his candidacy, and it is a platform long successful for the Democratic party.  If President Obama can do this and  govern effectively, this could be his real legacy.

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