Busch: The Summers of our Discontent

To recap on August 6th, I put out my list of things that needed to change to boost the markets.

Here they are again:

  1. Job growth that is consistently +100k.
  2. The Federal Reserve rolling over the quantitative easing purchases that are maturing.
  3. Congress announcing it will extend the Bush tax cuts for 1 or 2 years.
  4. Congress announcing it will extend the Death tax holiday for 1 or 2 years.
  5. Congress announcing a cut in the corporate tax rate.
  6. A turning over of the current White House economic team. (Romer and Orzag have already resigned.)
  7. A new economic team that contains members of the business community.
  8. A focus on polls showing a turnover of the House of Representatives.
  9. A focus on polls showing a turnover of the Senate.
  10. Republican leadership announcing they will back the Ryan deficit reduction plan.
  11. Bipartisan agreement to vote on Wyden-Gregg tax reform bill.
  12. A continued sell off in the US dollar that helps boost exports.
  13. A 5-10% appreciation of the Chinese renminbi.
  14. A signing of free trade agreements by the United States.
  15. The CFTC, the SEC and the Fed announcing they will follow the lead of Basel III and delay implementation of new capital rules.

As you can see, the list isn't perfect, but they are coming to fruition and the market has been rallying on them.

The latest is the resignation of President Obama's top economic adviser Larry Summers. The NYT reports that, "The White House says the departure has been long-planned(my emphasis)....His departure gives Mr. Obama a chance to reshape his economics team after the midterm elections, when Republicans are expected to gain strength and possibly reclaim the majority in Congress."

Long planned since the unemployment rate went to 9.6%, US GDP has decelerated and the Presidential approval ratings dropped significantly. I do agree that President Obama will reshape his team and this will be critical from the future of the country and the economy.

The criticism of the Obama economic team was that it was too academic and didn't have enough people with real world, private sector experience.

The key component missing appears to have been an understanding of the challenges of running a business and how regulatory burdens create uncertainty and generates a lack of confidence for hiring.

President Barack Obama
Photo by : Pete Souza
President Barack Obama

Going forward, the President will be faced with a choice over the direction he wants to pursue to reinvigorate the economy and therefore the personnel required to change policy.

To a small extent, this has begun already occurred his proposal on business depreciation and his willingness to sign free trade accords.

These are good signs, but only signs.

President Obama will signal to the markets what his intentions are with new appointments to his administration. I would expect that the last key person on the economics team will leave after the November midterm elections. From an expectations standpoint, the markets will be disappointed if there isn't a new US Treasury Secretary with strong the private sector experience.

For now, the big 15 keep rolling. However, the extension of this rally will need further indications of business friendly policies and indications of a pivot to the center by the president. Watch for his appointees to tell the markets which way he's going to go.

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.