Simit Patel

When looking at macroeconomic factors in 2009, one factor seems particularly important: Barack Obama.

Here's my take on what Obama means to the global economy:

1. Deficit Spending. Obama has explicitly stated that deficit spending should not be a concern over the past two years. Obama's words:

As I have blogged about previously, deficit spending could prove to be particularly dangerous in a market where credit is scarce, and where the appetite for additional debt is questionable. Increasing debt increases the likelihood of either (1) an increase in interest rates to make debt more appealing or (2) monetization of that debt by simply printing more money. Should we see this scenario arise, we may find an opportunity in shorting US Treasury bonds. And of course, debt monetization would be inflationary, and likely would result in US dollar devaluation.

2. Tariffs. Obama, coupled with a Democratic US Congress, increases the likelihood of tariffs and protectionist policies. This may lead to supply issues in the US economy, and thus rising consumer prices (though not necessarily a weaker US dollar).

3. Foreign Policy. Foreign policy is, in my opinion, a key issue that will prove to be difficult to predict. The geopolitical climate is particularly tense at the moment, as war with Russia and/or Iran still linger, as well as Obama's committment to the war in Afghanistan. In our current environment, war is not only about soldiers; it's also about economics. Iran can cut off oil supply lines from the Middle East to the United States, thus sending oil prices higher. Alternatively, countries holding US dollars or Treasury bonds can wage economic warfare by selling them, thus making it more difficult for the US government to secure debt at a time when its expenses are rising.

Thoughts on Trading Obamanomics

1. Watch interest rates and debt monetization; with deficit spending being embraced in a time when the US government debt is at record levels and the global appetite for US Treasury bonds may be waning, something will have to give. I personally view debt monetization and corresponding currency devaluation to be the greater concerns.

2. Protectionist policies will adversely affect import-dependent industries, as well as foreign companies dependent upon exports to the United States.

3. Obama has pledged to stimulate alternative energy development, which could prove to be bullish for alternative energy ETFs. Much of this effect, however, may already be priced into the market.

What's your take on trading the Obama presidency?

And of course, be sure to check out previous discussions about trading Obama on InformedTrades.

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