- The State Of The Union Market

The biggest problem with Hope and Change wasn't hope, it was change. When the deeds of men fail to meet the lofty standards of hope, it's only the person doing the hoping that suffers. But when an elitist, anti-business redistributionist talks about changing things, that uncertainty makes everyone suffer. Businesses curl up into the fetal position, markets pull back into their shells, and everyone waits to see what havoc is going to come from government. That pretty well describes what's happened in America during Obama's first year.

But now... thanks in part to Scott (41) Brown, Obama has had a political defeat in the form of his failed healthcare initiative. He's no longer seen as the omniscient, walking on water savior of the progressive movement and cannot do whatever he likes to America based on his whim. The Democratic faithful are deserting him in droves, and true to form, his fellow elected officials are beginning to worry more about saving their own skeevy hides than fulfilling his vision.

The healtcare bill died last week and today we hear that Cap and Trade is also a dead legislative initiative. Global warming as a political principle is a laughingstock as are the people who still support it. That means that the taxes they dreamed of will not be levied, and businesses will be abel to use that money to instead hire more workers. Even Obama's dream of 'making the fat cat's pay" is beginning to look like thin gruel to the electorate. People know that the poor hire no one, and they don't like the idea of team Obama eating their lunch by raising taxes that keep them unemployed.

Since that's so, we can begin to reduce the level of political risk we incorporate into most financial models, and we can begin to worry about what the data actually says. Now that Obama is no longer any greater a threat to stability than any other Democrat, things can begin to improve and business can begin to make assumptions about the threats that the future holds. All this has been brought about by Obama's first major political failure.

It will take some time before people begin to be certain about that, but in the next few months, I'd expect the individual investors to begin to creep back into the markets, and for professional investors to begin to prudently expand their positions out along the risk curve. There remain a number of serious macroeconomic issues and the chance for government intervention still exists, particularly in the capital markets and banking. But to a great extent that risk of major change has now diminished.