Sentiment Is Gradually Turning

02/11/2009 11:04 am EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Mary Anne and Pamela Aden, editors of The Aden Forecast, say overall sentiment is improving as the Obama administration grapples with the troubled economy.

The Obama presidency has coincided with extremely oversold levels in most of the markets. [Yet] in the US, Obama currently has [a 68%] approval rating, and people are feeling more optimistic than they have in a long time. They’re looking forward to better times ahead, but they’re not expecting miracles. They like President Obama’s openness and his way of taking action, but they also know the reality of the situation and they’re willing to give him time.

Despite the worsening economy, sentiment is half the battle. If people are feeling better and more optimistic about the future because they like what’s happening, then it’s going to affect the markets and the economy.

So for now, sentiment is beginning to change, both domestically and internationally, and this alone is a huge deal. It’s a bright spot on the horizon. And if this positive sentiment stays in force, it will affect all of us, and we best be prepared.

For starters, Obama is going full speed ahead with a massive, very expensive stimulus package. He’s going even further than the Bush team went. Basically, he’s spending on everything from health care, infrastructure, education, assistance for the unemployed and poor, to providing tax breaks and so on. (The package passed the Senate Tuesday, and both houses of Congress will now negotiate a final bill for the president’s signature—Editor.)

Obama has assembled a good economic team, which includes former Federal Reserve chief Paul Volcker. Like the former Bush officials in charge, they’re determined to do whatever it takes to turn the economy around and get it moving again.

If that means trillions of dollars, expanding government control over banking, work programs, ethics rules, buying toxic bank assets, printing ever-larger amounts of money, buying government bonds—you name it and they’re going to do it.

They’re planning to spend this unprecedented amount of money, knowing that US debt and future liabilities, like Social Security and Medicare, are already the equivalent of nearly half a million dollars for every US household, which will obviously go much higher before this massive financial crisis is over.

The ultimate cost will be rampant inflation further down the road, looking over this recession valley. It’ll also mean rising interest rates, collapsing bond prices, a soaring gold price, and rising commodity prices. But the near-term concerns are so urgent and immediate, that’s where their focus is.

Will they succeed? We’ve been seeing some early first signs that suggest the outcome for the economy will eventually be positive. If this proves to be the case, then as the economy slowly comes back, optimism will grow stronger, which in turn will boost confidence and the economy even more, and it’ll all begin to feed on itself.

This month there were more signs, indicating this is the way it’ll likely play out. But again, we need to see more. (Tuesday the Dow Jones Industrial Average lost almost 400 points on disappointment with the president’s financial rescue plan—Editor.)

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