Obama's Refocus on Banking Reform Is Too Little, Too Soon
And as the employment situation again deteriorates following a glimmer of hope in December -- one that President Obama was quick to take credit for -- prospects for the Democratic party in the fast-approaching congressional elections look dire. That, of course, will have consequences for financial markets.
It has been fairly obvious -- and widely noted -- that President Obama may be been moving quickly to tap populist, anti-bank fervor in the wake of the shocking U.S. Senate election in Massachusetts. And while many are seeing the upset as a proxy for voter sentiment on health care, the magnitude of the backlash now at hand may be missed in that reading.
According to former Democratic National Committee Chairman Howard Dean, polls conducted in the wake of Martha Coakley's Senate race defeat revealed that 18% of voters who voted for Republican candidate Scott Brown in Massachusetts had voted for Obama in the presidential elections. Of those, 60% actually supported health care legislation that included a public option, a reform that has been stripped out of current versions of the bill. Thus, those votes for Brown, despite his vigorous opposition to health care reform, can hardly be seen as equating to votes specifically against the health care reform agenda.
However, voters in even the most liberal regions of the country now seem to be increasingly skeptical of the Obama administration. And new banking regulations -- which are generating yawning, wait-and-see reactions from even high-profile Democratic stalwarts -- are very unlikely to turn that tide.
Consequences for Stocks, the Dollar
As for the proposed legislation, too little is known about the details to draw any conclusions yet. Bank stocks, which got hammered following the announcement, may have been unduly sold off.
Meanwhile, stocks in the health care sector, which were buoyed by the outcome in Massachusetts, may be in for an additional tailwind if the Democratic party's approval ratings continue to wane, despite some Democrats' pledges to keep pushing on health care reform.
The most consequential and central implications of the political developments, though, may be for U.S. dollar. The dollar traded lower over the last year as investors anticipated near-zero interest rates and mounting government spending continuing indefinitely. But the greenback has mounted a sharp turnaround as of late -- hitting assets like gold and stocks as a result -- and a further change in the sentiment could be in the works.
Some Republicans, meanwhile, have been clamoring for the Fed to raise interest rates and the government to curb its spending. The more the White House fumbles, the higher the likelihood becomes of those policies being implemented. And a stronger dollar than was anticipated could be the upshot.