HardAssetsInvestor

Written by Amine Bouchentouf  |

November 07, 2012

The Commodity Investor: With Election Over, Investors Must Closely Watch Econ Data, Policies & Regulations

Details

As the election dust settles, there are several issues and metrics that investors need to monitor.

As the Democratic Party celebrates the re-election victory for incumbent President Barack Obama, the next few days will be marked by a celebration and joyful mood by the winners.

On the other side, the Republican Party will be looking at why it lost the presidential election and seeking a strategy to position itself in a demographically and socially shifting United States. After the dust settles, the real task of governing and legislating begins, and it won’t be easy.

The U.S., by far the biggest economy in the world, is still facing anemic internal growth, relatively high historical unemployment and a weakening globally economy. In addition, even though the Democrats were able to keep the White House for a second term, the political environment in Washington is in a political gridlock and is faced by a divided Congress; therefore, getting practical policies passed will remain challenging.

In this week’s column, a follow-up of the previous column, The Commodity Investor examines some of the key issues facing the markets and whether the U.S. political system will be able to address these issues.

Economic Growth

When Obama begins his second term in office, he will still be faced with the same economic issues that characterized his first term. Granted, the economic situation isn’t as dire as it was when he first took office in January 2009. Back then, the U.S. economy was extremely weak and was in the midst of the biggest financial collapse since the Great Depression.

When Obama entered the office, the market was in a free fall following the collapse of Lehman Brothers, and the government had to actually nationalize several financial institutions to keep the financial system alive. Obama had to act aggressively and swiftly to prevent the auto industry—namely Chrysler and GM—from going belly up, and he did.

While the situation has stabilized since those dark days, the economy is still not running on all cylinders. Economic growth is still anemic and downright declining in certain states. GDP is at 2 percent and market performance is still relatively stagnant.

When the economy is doing well, that translates into higher equity prices and commodity prices, which is positive for investors. Commodity investors in particular should be constantly monitoring these GDP and economic numbers since they have a direct impact on the demand for key raw materials such as iron, coal, oil and natural gas. A stronger economy generally means robust commodity prices.