[dropcap]I[/dropcap]t was a short, quiet President’s Day week. Greece secured bailout funds which seemingly eliminate the prospect of a default next month, but questions around longer-term solvency remain. Stocks and bonds changed little. Oil was up roughly 4 percent on elevated fears about Iran and increasing economic confidence. Prices at the pump are reflecting higher oil prices, which Republicans are attempting to use as ammunition against Obama.
S&P 500: 1,366 (+0.3%)
MSCI EAFE: +1.6%
U.S. 10-Year Treasury Yield: 1.98% (-0.02%)
Gold: $1,772 (+2.9%)
USD/EUR: $1.346 (+2.4%)
- Monday – Greece was awarded 130 billion euros in aid. The terms of the deal are intended to reduce debt-to-GDP to 120 percent, but many are skeptical they will be fulfilled. The ECB was allowed to swap its debt for similar issues to avoid losses. Greece agreed to cut pensions, the minimum wage, and a host of social spending initiatives. Some fear sharp austerity will drive the country into depression.
- Wednesday – Obama proposed to overhaul the U.S. corporate tax code by lowering the top rate from 35 percent to 28 percent while eliminating many deductions. Manufacturers would be the biggest winner, while oil and gas companies would be adversely affected.
- Thursday – The U.S. Post Office announced plans to eliminate 35,000 jobs over the next four years.
Obama-mania feels like a distant memory. Even so, it increasingly looks like another four years of Obama in the White House. While Mitt Romney is still the clear favorite for the GOP nomination (80 percent according to the futures markets on Intrade), the fact that people are still talking about seemingly unelectable Rick Santorum pegs Romney as a weak candidate. As a general rule, it is very hard to defeat incumbent presidents. Obama is beatable, but it would take a stronger, more charismatic candidate than has emerged.
Markets seem fine with this, and perhaps the increasing clarity is a small piece of the rapid decline in stock volatility. But there are implications. Obama is a prolific spender. Also, more Obama means more Bernanke, who continues to push the boundaries of accommodative monetary policy. The combination requires a lot of hope if you are a holder of longer-term U.S. bonds.