Barack Obama had better enjoy the celebration in Chicago tonight, because the really tough work starts tomorrow. He'll immediately have to grapple with two enormous issues: how to heal the ailing economy, and whether to govern from the left, the left-center, or the center.
Reality will return this Friday, when the October jobs report is expected to confirm that the economy is in a deepening recession. Nonfarm payrolls are expected to drop by 200,000 or more and the jobless rate is expected to rise sharply from last month's 6.1 percent level.
Obama knows that a new president can't turn the economy around on a dime; all he can do in the short run is offer hope and try to increase confidence. That's Obama's strong suit. Just as Bill Clinton could feel your pain, Obama will make it clear that he's prepared to work 24/7 to improve the economy.
In many respects, the biggest issue in Washington and the markets is identical — a lack of confidence. Obama knows this, and he has an ally — an adoring, worshipful press, which will make the analogy, ad nauseum, that he's a 21st Century John F. Kennedy. Obama's inauguration address on Jan. 20 undoubtedly will borrow from Kennedy's memorable phrases in his 1961 speech.
But can Obama permanently jump-start confidence, or will there simply be a "sugar high" around Inauguration Day? That hinges on the second big issue — how will he govern? Will he veer sharply to the left if Democrats misinterpret the election results as a mandate for a big-spending, over-regulating government?
If that happens — if he pushes immediately for a big tax hike or oppressive new regulations — the markets could rebel. What the markets and consumers both want is a reason to be confident, and I think it's likely that Obama will try to satisfy both. Within days — if not hours — I believe Obama will convene a blue chip team of economic advisors to debate steps to keep the recession from deepening. In an effort to impress the markets, this group will consist of heavyweights like Warren Buffett and Paul Volcker.
What about the Nancy Pelosi House, filled with liberal dinosaurs like Charlie Rangel, Pete Stark, John Conyers and John Dingell? At some point, Obama will have to disappoint the left, just as Bill Clinton did when he embraced a balanced budget, free trade and NAFTA. My guess is that the first disappointments will come on health care and taxes hikes, as Obama indicates he'll have to go slow.
Could Obama cave in to the left? That would indicate that he misinterpreted the meaning of this election. It wasn't about an electorate suddenly embracing a liberal philosophy; this still is a center-left country that simply got sick of George W. Bush and his policies.
Most important, I think Obama is smart enough to remember a painful lesson the Democrats learned in 1994. After the Hillary Clinton health care fiasco, the Republicans came roaring back in Bill Clinton's first mid-term election, as Newt Gingrich and conservative insurgents recaptured the House. A similar fate could await Obama if he's perceived as a leftist.
Obama's strongest talent is his ability to communicate, and I think he'll rely on that — not radical policies — to boost consumer and market confidence. After the last several dreary years in Washington, he has a very very low bar to clear.
Greg Valliere is the chief strategist at the Stanford Washington Research Group, and was previously Managing Dirctor and Chief Strategist with the Schwab Washington Research Group. He is a regular CNBC contributor.