It's Not the Economy, Stupid

Stocks opened sharply lower today as markets digest the news of Obama's election win. The Dow Jones Industrial Average (INDEX: ^DJI  ) and the broader S&P 500 (INDEX: ^GSPC  ) are down 1.6% and 1.55%, respectively, as of 10:10 a.m. EST. That seems a bit odd; given the data that was available, Obama's reelection should not come as a major surprise.

The macro view
Conventional wisdom suggests that elections come down to the state of and prospects for the domestic economy. Was that the case in this election? If it was, it should have been Mitt Romney's contest to lose. As someone in my Twitter in feed pointed out:

Either economics was not the critical issue in this election or Romney, despite his credentials as a successful businessman, was ineffective in articulating to the electorate why he would be the superior candidate on this front.

If you're concerned about what Obama's return to office means for the economy, I recommend you read my Foolish colleague Morgan Housel's "The Best Presidents for the Economy." Morgan presents the economic data associated with each president since Roosevelt. Some of it may surprise you.

The micro view
U.S. activist investor Nelson Peltz has taken a 1% stake in French food group Danone (NASDAQOTH: DANOY  ) on the basis that the company has room to cut costs and be more disciplined in its use of cash. Focused on yogurt, bottled water, and baby and medical nutrition, Danone is one of the crown jewels of the French corporate sector. In fact, I'd go as far as to say that it is a Berkshire Hathaway-type (NYSE: BRK-B  ) business -- although, at 20 times normalized trailing earnings, the shares don't look like they sport a Warren Buffett-type price tag. French businesses aren't typically receptive to Anglo-Saxon activists, but Peltz is forging ahead.

Speaking of Berkshire Hathaway, if you want to understand why the stock represents a compelling opportunity now, click here to receive Foolish analyst and value-investing maven Joe Magyer's premium report on the stock.


Read/Post Comments (5) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 07, 2012, at 11:05 AM, dfmurphy3 wrote:

    I looked at the 'Best Presidents for... ' article, and you should be smart enough to know that the stock market returns and profits are not necessarily a 'good' thing, given the historical context. The timing of Obama's first term starting (during the financial crisis) gives him a low 'cost basis' for those returns. In addition, the massive amounts of stimulus being pumped into the economy is inflating commodities and propping up banking profits, which is not 'real'. Finally, the fact that companies have record earnings is because they massively cut labor costs, which can be seen in the unemployment rate. Inflation being low is only because there is no velocity of money, since the economy is still weak. Don't use single data points to manipulate it into a partisan argument. The economy is far more complicated than that. TMF is supposed to be better than this.

  • Report this Comment On November 07, 2012, at 11:12 AM, crash2012 wrote:

    Actually, It was a surprise Obama would win. The people that got him elected were in no way tied to the stock market. The dow was up yesterday in the anticipation that romney would win. How does any sensable business person think that we can pay 6 trillion by 2014 on Obamacare. This is the most uncertain time since the great depression or our nations history.

  • Report this Comment On November 07, 2012, at 11:25 AM, Canalkid2 wrote:

    Great article. The election outcome really was not a surprise to people whose business it is to forecast the odds using sophisticated analysis. Smart money was predicting that the odds favored this outcome months ago. Like some of the reactions to this article, the market action has the feel to me of petulant traders not getting their way and selling their shares like 2 year olds refusing to eat their vegetables. Economics is more than numbers, it is about sentiments that drive behaviors. We can create the market we want in the same way we can create the world we want. In the end, it's about adults making adult decisions.

  • Report this Comment On November 07, 2012, at 2:41 PM, caljam71 wrote:

    It was not too surprising that Obama won. A recent study showed that in non-open elections, the incumbent is typically re-elected if the stock market has performed well during his tenure. Regardless of how poor the economy has been during the past 4 years, the stock market has been on a very nice a bear market rally. The big problem going forward for Mr. Obama will be the coming end of that rally. He might soon wish he had NOT won this election as this market starts to seriously fizzle in the near future and he gains the moniker Barack "Hoover" Obama instead of Barack Hussein Obama.

  • Report this Comment On November 07, 2012, at 3:25 PM, Reagan1980 wrote:

    How sad that an electorate so naive will lead us over the cliff with new debt. Obama's re-election verifies the prognosis of one-time Soviet dictator,

    Kruschev: "We will bury you from within!"

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