Sep 27 2012

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Obama Tries to Run Out the Clock

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Hoping the Music Won't Stop

 Mitt Romney is finished.

Or haven’t you heard?

Turn on virtually any news program and talk turns to the dire straits of the Romney campaign, the missed opportunities and unforced errors, the pending doom.

And then there are the polls. Real Clear Politics has Obama up four points over Romney nationally, outside the margin of error.

But in the swing states, its worse. PPP has Obama up 7 points in Iowa. CBS has Obama up 10 points in Ohio and 9 points in Florida. No Republican has won the White House without Ohio, and it is virtually impossible for Romney to win without winning Florida.

Grim doesn’t say the half of it.

Moreover, Team Obama has apparently been successful in moving national optimism. CBS and the WSJ both show that the national “wrong track” number – people unsatisfied with the direction of the country – has been falling since the Democratic convention.

With early voting already under way in many states, the Mainstreams have declared that you can stick in fork in Romney – he’s done. All that is left is the pesky formality of counting the votes – and Obama’s impressive margins on Election Day.

The truth is far more complicated and precarious for the President.

To begin with, consider the corrosively misleading polling data – a product of voter turnout models that border on ridiculous.

Of course Obama is up 10 points in Ohio, if the sample size for the poll has +9 more Democrats than Republicans. It doesn’t seem to matter to pollsters that Obama didn’t even come close to that margin in 2008.

Indeed, the model that CBS/NYT used presupposes that that Obama would more than double his turnout among Democrats compared with 2008. Does any reasonable person believe that Obama, whose job approval number is below 50 percent, is going to generate greater enthusiasm this time?

Its rubbish.

But this faux polling is a crucial pillar for Team Obama in winning the election. The narrative of Obama winning in a walk not only energizes Democrats, it demoralizes Republicans and right leaning Independents. The”bandwagon” effect – wanting to be with the winner – is real in America. In this way, the polling perception can actually drive a reality.

And Team Obama desperately needs that polling data as a cushion should it fail to sustain its campaign’s central message, which requires a willing suspension of disbelief among the American people – specifically that the economy is slowly but surely getting betting better.

To their credit, Team Obama intuitively understands that the American people know exactly how bad things have been over the last four years. But, using Wall Street lingo, it also recognizes that citizens have largely “priced in” the economic pain as part of their political choice this year.

Thus, the critical inflection point for voters isn’t the accumulated record of economic disappointments, but rather where Americans sit today in relation to the worst of the recession. For a plurality of Americans, that place is marginally better than it was two years ago, a key advantage for the President.

That is why months of factual attacks by the GOP on the Obama record have failed to connect with undecideds.  If Obama policies, whatever their shortcomings, got the country to this point, then it is intellectually difficult to believe that four more years are going to bring ruin.

The winning strategy for Team Obama then, is to focus like a laser on the perception of a mending economy and – crucially – to connect the conditions in the minds of voters with POTUS’ policies, policies that will only continue if he is re-elected. So long as the persuadable voters believe they are better off now than they were, Republican attacks will ultimately prove fruitless because they contradict what voters are experiencing today.

But what appears to be the President’s strongest argument for re-election is ironically his greatest liability.

POTUS is at the mercy of a deteriorating  American and global economy that has the power to reconnect the Romney-Ryan indictment of the President with a very different, and darker, future than Obama is depending on.  The question is whether the baling wire and bubble gum that are currently holding the perception of the US economy together will last until Election Day; an assumption at odds with the emerging economic facts.

It is not that Team Obama didn’t do everything they could to extend their illusion.

With US prodding, the European Central Bank (ECB) finally announced that it would undertake unlimited sovereign bond purchases for “at-risk” countries in the southern tier on September 6th. By moving deliberately to backstop “at risk” countries, the ECB reassured governments and investors, easing pressure on sovereign interest rates and driving up stock markets around the globe. The threat of a European financial panic or contagion seemed to be contained, at least for a few months.

Then Ben Bernanke and the Fed did their part on September 13th, announcing a new round of potentially unlimited bond purchases under the aegis of QE-III, designed to drive virtually non-existent interest rates even lower to spark borrowing and catalyze business creation/expansion.

The Fed move drove the S&P 500 to its highest level since 2007.

The two actions appeared to catalyze a guarded, global economic optimism about the future, and optimsim that has  fueled the Obama campaign’s economic narrative. But this rosy perception can only last until economic reality returns, as it appears to have done now.

This past week, S&P has downgraded its assessment of Indian and Chinese growth, pivotal drivers in global economic activity.

In addition, S&P also downgraded EU growth for this year and next, predicting negative growth in Spain and Italy, and weak growth in the UK. France may see negative growth as early as the upcoming third quarter, while German surveys indicate that business conditions have continued to deteriorate for five months in a row.

To compound these Euro problems, difficult budget cuts required by the EU under the terms of agreements with Greece and Spain have sparked riots and continued political gridlock. And as the fine print of the ECB bailout program is more carefully scrutinized, it is clearer that the EU has designed a program more limited in scope and more stringent in requirements than may be necessary to maintain investor confidence.

Taken together, the S&P reports indicate dramatically slower global growth and roiling financial markets, all with the ability to impact the US.

That complements a slew of fresh statistics point out the tenuous and deteriorating state of the US economy.

A September 25th report showed that personal incomes dropped 8.2 percent during President Obama’s term, a drop that continued after the “official” end of the recession in June 2009. Worse news was announced today when QII GDP, which came out in July at an anemic 1.7 percent, was revised downward to 1.3 percent; a 65 percent reduction in economic growth from QI.

Looking forward, the story is no better.

Durable goods orders – a key component of the economy and a window into the current quarter’s GDP – dropped 13.2 percent in August; the biggest monthly decline since January 2009, when the US was in the worst throes of the recession. The Commerce Department also revised durable goods orders for July, from 4.1 percent growth to 3.3 percent. Combined, these reports indicate that 1.3 percent may be a ceiling for growth in QIII, instead of a floor for a rebound of some sort. The QIII GDP will be announced October 26th.

The election impact of the data is notning short of a cold shower for the Team Obama.

Two back to back quarters of nearly flat growth will do nothing to lower the unemployment rate (short of more people leaving the job market entirely out of despair, as happened in August).

More troublesome, not only are new jobs not being created in sufficient numbers, but the decline in orders points to the knock-on effect of increased layoffs that will show up the September and October unemployment reports (released October 5th and November 2nd, respectively).

In addition, October is earnings season on Wall Street. Right now, investors are bracing for negative earnings growth for companies in the S&P 500 – the first time this has occurred since the economic recovery began in 2009. That, in turn, will lead to a potentially volatile stock market, where losses impact Main Street 401(k)s and heavily influence consumer confidence and spending, which in turn then negatively impacts growth in a most unvirtuous cycle.

When these multiple realities are combined, the distilled message of continued economic uncertainty, if not outright peril, will severely challenge the President’s narrative. That, in turn, provides an opening for Romney-Ryan to re-connect with voters in proposing a fundementally different course of action from the President’s discredited policies.

At that point, Team Obama will only have the skewed polls to fall back upon as continuing, if ephemeral, “proof” that it will carry the day.

So, the key question of the election is not what will happen. The facts here are stark, validated and alarming.

What matters is how fast it happens – how quickly the economic situation unwinds – and whether it reaches voters on a conscious level before November 6th.

Right now, that is anyone’s guess.  What is certain is that the events are beyond the President’s control.

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