The new era has begun and we're all beginning to see what we can expect during The Age of Obama.  Entering on the Presidential scene last year, Obama called on a new generation to join in a campaign based on hope, driving change in Washington, and ending the war in Iraq.  His opponent proved to be a relatively weak candidate and when the financial crisis hit it was the final blow on the Republicans.  Obama was destined to win, and now we are seeing how the politics and issues of the day are likely to play out.

It has been the perfect storm.  The free market system and the foundation of capitalism cracked under pressure in an unprecedented gaming of the system that will take years to correct.  Regardless of who is at fault, we know who benefited; the financial services companies and executives who took unregulated risks playing with our future.  Let's be frank, the failure of the free market system occurred on the watch of a Republican President in the face of that party's beliefs in limited oversight, fewer regulations and free markets.  While many of the beneficiaries of the game supported the party, and believe me it was a party, the excesses of the free market system provide the fuel for The Age of Obama.

How many of us who voted for Obama thought he would pass a $800 billion spending bill during his first thirty days in office and submit a budget projecting a $1.75 trillion budget deficit?  If many of us would have predicted such enormous spending proposals, we probably wouldn't have voted for him; and that's the point.  Republicans understand this and now they have found their true voice.  Let's not talk about being complicit in supporting the decisions and problems which got us into this financial crisis, let's focus on the tax and spend liberals who have always dominated and led the Democratic party.  From the Republican perspective, Obama's decisions are just setting the trap, but for the Democrats now is the time to press their hand and realign government.  As almost the anti-Reagan, Obama is redirecting and increasing spending with the hope that taxes and revenue will follow.  Reagan cut taxes and hoped that changes in spending would follow, but we all know how that turned out.

During The Age of Obama, we can expect the clash of two central ideas and philosophies.  This is the fight based on the rebirth of the Young Republicans versus the New Age Democrats.  Obama has seized the moment, and using a basketball analogy, is using a full court press to take advantage of the speed and momentum of the moment.  The Republicans are outmanned and showing they don’t have the bench or the skill to break the press, but this will likely change.  Obama knows this is the case and that is why we will likely see him pull out all of the stops early in his first term.  The remainder of his first term and possibly his second will be a waiting game.  Watching the political fight but with no need to engage as the economy's rebound will be the scoreboard and tax policy will follow the requirements of what needs to be done to reduce the deficit.  Big government, higher taxes, inflation and higher interest rates are sure to come.

How will these trends affect your business?  Do you believe the stimulus and spending coming out of Washington is necessary and the right thing to do?

 

We're only thirty days into Obama's tenure as President, and the critics seem to be confused.  On the one hand, the criticism of Obama has been focused on too few specifics and not enough action.  On the other hand, some feel he is moving too fast and that the weekly and almost daily barrage of media appearances and speeches are confusing.  This criticism comes during a time of crisis when we're all looking for the silver lining or some sign that we may actually get out of this mess, but just as importantly it comes as we are being introduced to how our new President will operate.

The comparisons to past Presidents is inevitable, but what is clear is that no President since FDR has faced a crisis of this magnitude during his first days in office, and Obama has the least amount of direct experience preparing him for the job since…Bush 43.  When the smartest minds in the world have difficulty defining a path to fix our financial system, how productive is it for the media and talking heads to criticize Obama on a "lack of specifics"?  I mean would anyone really accept a prescription to remedy our problems during the first couple of weeks of Obama's presidency?  This criticism extended to Obama's Treasury Secretary, Timothy Geithner in much stronger terms as the market tanked based on the view that Geithner's comments to Congress lacked specifics.  The biggest mistake would seem to be that Obama set up Geithner for failure by raising expectations, but once again, can you really blame Obama for either moving too fast or lacking in specifics at a granular level on the financial fix before his treasury secretary had even spoken to the country?

It seems to me that for all of Obama's relative lack of experience and obvious desire to be successful, he gets it.  The critics and talking heads on CNBC should get it too, but they seem to think in 24 hour news cycles with an inability to think about the journey we have really just begun.  Obama is setting the tone and we should not be surprised by what appears to be a contrast in speeds and expectation setting.  Obama has been consistent in his belief that Washington is broken and that our problems will take considerable time to fix.  He would be irresponsible to suggest anything less.  On the other hand, he is moving at light speed to address all of the issues simultaneously.  Aside from the political reasons for doing so, he is forcing change by driving the pace.  Congress likes to talk but they have problems taking serious action quickly.  The American People are also tired of what they see as a lack of leadership and action in Washington.  Obama is action oriented and cautiously optimistic.  Doesn't that make sense?

From my perspective, it makes perfect sense.  Obama is attempting to shape the debate by setting expectations appropriately as to the magnitude of the problems while whipping up Washington to act.  The critics shouldn't be confused.  Obama is demonstrating how he will shape the debate.  We should expect more of the same and it's highly unlikely that Obama will be tempted to play cheerleader.  The markets will eventually understand this and the detachment from the 24 hour news cycle coming out of Washington and New York will help bring stability to the markets.  We need a rational market, and Obama's psychology seems to be just right for the times from my perspective.

What do you think?  Does Obama know what he is doing?

During this past week, many of us witnessed the rant of Rick Santelli of CNBC on the trading floor here in Chicago.  It was good entertainment for sure, but it also seemed to hit an exposed nerve for many of us.  On the heels of several months of volatility in the markets, the continued erosion of capital, and the passage of the stimulus bill, the Obama administration announced it's plan to address the mortgage mess, and the free enterprisers snapped.  How can our government pick winners and losers and reward homeowners who never should have owned a home in the first place?  Why do good, hardworking people who continue to make their mortgage payments have to bailout these deadbeats who got us into this mess in the first place?  It's just not fair!

We've all heard the argument and many of us feel strongly about the free enterprise system and the fundamental belief that continued bailouts from the government will only make the problems worse and prolong the process of recovery.  In theory, it makes great sense.  If the free enterprise system is left to it's own devices the excesses will be mitigated and the market will correct on it's own.  As a pure theory, it is elegantly simple.  The only problem is that government has always intervened.  The battle between the free enterprisers and the interventionists is an argument of a dream versus reality.  It just doesn't make sense.  We will never have a pure free enterprise system, and the need to intervene is greatest in times of crisis.  This isn't just a recession, we're experiencing the effects of the failure of our financial system, and more intervention is inevitable.  

The discussion and debate over the last few months has been interesting, and the varying views on how to shore up the financial system, stimulate the economy, and clean up the mortgage mess have energized those who believe the free enterprise system should be left alone.  I'm uncomfortable too with one bailout after another with seemingly no end in sight.  We're all suffering from bailout fatigue.  But the whining has got to stop and the irresponsible fear mongering during these times only adds to the anxiety and uncertainty driving the continued sell off in the markets.  We have a crisis of confidence, and Rick Santelli may have helped his career with his well publicized rant, but these are days for realism not dreamers.

Where should the government draw the line?  When will we know that the financial system is working again?  Let me know your thoughts.

Are we really debating whether or not General Motors will declare bankruptcy?  Perhaps there is some hope that GM will avoid bankruptcy under the "too big to fail" clause, but all signs seem to indicate that bankruptcy is the only true option at the end of the day.  

As executive recruiters and advisers, we've been witnessing and impacting the exodus from Detroit and the auto industry for some time.  Increasingly over the last two years, diehard industry veterans have thrown in the towel on their careers and passion for an industry that has been in their veins.  We've all heard the story and many of us know of people and families who comment that Detroit and the auto industry will never be the same.  While the depressed real estate market prevented many executives from giving up on the local market, the pendulum has swung.  I recently met with a former CFO in the industry, and he said, "I've provided references on no fewer than six very talented financial executives who all made moves and had to write checks to walk away from their homes".

In addition to the talent drain, does anyone actually believe that the Big 3 can change fast enough to save their business models?  We all know about the retiree costs and the unsustainable labor contracts, but can GM actually downsize and innovate fast enough to build cars for the future?  As Korea, China and India are all focused on the opportunity without the baggage of the Big 3's legacy costs, one could argue that it is next to impossible for GM and Chrysler to move fast enough.  Ford is a little bit ahead, but few see much material difference between the three from a macro perspective.  

So why would the government continue to throw money at the industry?  Bankers will tell you that we have no choice as bankruptcy is not an option due the lack of DIP financing, but this is a short term constraint.  At some point, the continued bailouts of AIG, based on the fear of the complete unraveling of the CDS market, and GM, based on the impact to the employment picture and the economy must give way to acceptance that each must eventually be allowed to fail.  They've already failed and we're just postponing the inevitable.  At the end of the day, the incremental approach may feel less painful, but it's time to let the bankruptcy process give GM and Chrysler the push they need to completely overhaul their businesses.

What do you think?  If bankruptcy is inevitable, when will it be a good time to let the process play out?  How will new energy sources like LNG and electric plug-ins change our buying behavior and when?