This is our chance,” said Barack Obama to a live audience of 250,000 on Wednesday, “to restore prosperity.” Obama is, as everyone notes, an astonishingly good speaker. So when you hear him say things like that it is almost possible to believe that he can somehow drag America out of recession and end the bear market decimating his citizens’ dreams. But unfortunately he can do nothing of the sort.
He can’t stop house prices (down 16% in the last year) falling. He can’t make banks – deeply scarred by the consequences of their own stupidity over the last decade – start lending again. So he can’t stop the rising scale of potential corporate bankruptcies in the US. Obama can’t make consumers, who can’t get credit and don’t have any real money left, go out and spend. They’ll probably have a few drinks for him this weekend, but after that I can’t see the Obama bounce doing much for America’s mall takings. He can’t force the Fed to cut interest rates much further – there’s not really anywhere to go from 1% anyway. And of course, even if he wants to, he can’t do much in the way of stimulative spending or tax cutting: note that last month the national debt hit such extreme levels that the National Debt Clock in Times Square actually ran out of digits. Finally, as he can’t do much about the US economy, he’s pretty helpless when it comes to doing much about the global economy. Chinese growth will keep slowing and Europe will continue to sink into its own long recession, whatever Obama does or says.
And that means that the bear market will soon be back with us. “The astonishing bounces of the last week or so that have seen most indices recover by 20% (and the Japanese market, the only one to which I have much personal exposure, by a pleasing 35%) might look to the rose-tinted eye like the return of the boom days. But they are much more likely to represent a bounce in the long and trying path to a bottom, which there is little point in trying to identify at this early stage. So what should investors do? Forget about betting on Obama as an economic miracle worker and hold on to their cash for a good while longer. Then bet on the cycle doing what it usually does – turning back up all by itself – instead.
On another matter, we’ve been thinking about property a bit more. We’ve been expecting house prices to fall dramatically for years, so most of us have long steered clear of the market. But, still, like everyone else, we have always assumed that over the long run – say 20 years – owning a property is more financially advantageous than renting one. But is it? To find out we teamed up with the BBC’s Money Programme and ran the numbers. You can find out the results on BBC2 at 7:30 next Thursday, or read them in next week’s magazine. I suspect they’ll surprise you.