The Exchange

The 3 Economic Factors That Will Decide the Election

The Exchange

By Lance Roberts

The Romney campaign is asking, "Are you better off?" while the Obama campaign is asking voters to trust them to finish the job. But all the speeches, hand shaking and baby kissing in the world won't change the fact that there are three economic factors that will decide who the next president will be. And while last week's jobs numbers were weak, quantitative easing by the Federal Reserve this week would rally an already strong market, boosting the psychology of the American consumer. For both parties, the next 60 days and just a few economic factors will decide the direction of our country for the next four years.

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The Stock Market

With the stock market rallying more than 11 percent thus far this year, President Obama has a silver lining in the grey cloud that is the economy. If you have invested in the markets, you probably made some money. And it's only going to get better if the Federal Reserve decides to inject more stimulus into the market this week.

This is just the kind of short-term boost Obama needs to give him some economic momentum heading into Election Day. Unfortunately for Main Street, however, this will actually hurt us in the long term. The fact is, corporations have been beating their own much lowered expectations but have not been reporting much in the way of organic revenue growth recently. Instead, they have fudged their books during earnings to compensate for the recessionary drag from the Eurozone and weak consumer spending. Meanwhile, the markets have ignored the fundamental underpinnings and have been rallying on "hope" for further quantitative easing by the Fed and bailouts of Spain and Italy by the ECB. At some point, the markets — which are overvaluated — will have to adjust themselves downward.


Employment is the biggest concern for the current administration, as many companies are currently sitting on cash and not hiring. Since Obama took office, full-time employment remains 1.4 million jobs below the level on the day he started. And while temporary jobs have increased by 1.5 million, those types of jobs do not give individuals the ability to sustain their current standard of living. The result has been a lower level of consumer confidence, as Americans max-out credit cards and tap into savings to survive.

The problem for Obama is that his plan to increase employment has been focused on the wrong areas. While he has pushed for new technologies and supported failing enterprises, the problems that keep businesses from hiring — uncertainty and poor sales — remain the biggest hurdles to increased hiring. And with the highest levels of unemployment in several battleground states, the final jobs report — due just before the election — could seal the fate of our president.

For Romney, the employment landscape is where he should make his stand. Focusing on a plan to jumpstart hiring in the U.S., reducing restrictions and regulations and creating a clear path on future tax issues will go a long way toward getting U.S. businesses to hire.

But the fact is what he is doing now to convince Americans he can revive our economy isn't working. With what I believe will be another tough month of economic data coming up, Romney still has to prove he is the right leader to create jobs. If he can, the final jobs number — which I believe will be equally as bad as Friday's — could convince millions of unemployed and underemployed who the right candidate is.

Global and Domestic Debt

Lastly, the ongoing economic crisis in Europe coupled with our own country's debt problems could be the deciding factor in the election.

Greek debt defaults, Spanish and Italian debt problems and China's preliminary economic woes could have a devastating impact on our own economy. A worst case scenario is a sharp resurgence in the Eurozone crisis that quickly pushes the domestic economy into recession. Even if Germany helps "save" the Eurozone, which is highly unlikely at this point, the Obama administration has distanced itself from the issue in the public sphere and will get no credit for any type of Eurozone debt solution agreement.

Domestically, we just saw the national debt go to $16 trillion, and the turmoil revolving around the "fiscal cliff" could have a major impact on how people vote.

That fact is government debt alone has surged by 40 percent since Obama took office and off-balance-sheet liabilities from Fannie Mae, Freddie Mac, Social Security and Medicare have continued to swell to enormous levels.

While the Obama campaign may continue to point to the mess that President Bush left them and tout that bailing out GM was a good thing, the average American isn't quite so stupid. They know a bad investment when they see one and they are fairly certain that bailing out the banks, Wall Street, AIG and a litany of others was not ultimately a good thing for them.

Romney and Ryan need to come in strongly on this front with a reasonable plan to offset spending on projects that will yield a positive economic return with austerity measures to begin reigning in debts and liabilities. A plan to reform Social Security and Medicare is critical but must not impact current recipients and those who are within five years of retirement.

President Obama had four years to rebuild our country, and while he made some tough decisions that very well may have saved America from the brink of an irrevocable depression, he has failed to keep people in their homes and incentivize companies to hire. Luckily for Obama, Romney has done very little to persuade voters that "the other candidate" is the better man for the job.

Either way, in the next two months, how the stock market reacts to the Fed, the final jobs numbers just days before the election and if Europe's and America's debt problems unravel may very well decide who becomes the next U.S. president.

Lance Roberts is CEO of StreetTalk Advisors.

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