America’s Political Woes

Howard Baker’s famous question, uttered in the days of the Watergate hearings, is now being echoed in reference to Benghazi and other matters: “What did the President know and when did he know it?” A series of revelations seems to be damaging the Obama White House. These revelations and their aftermath mean trouble for the President’s economic and fiscal agenda.

We also see widespread discussion concerning the Internal Revenue Service (IRS) and its targeting of specific conservative groups and their charitable affiliations. Revelations seem to indicate that the IRS had a one-sided approach to scrutinizing organizations seeking tax-exempt status.

We see the Secretary of Health allegedly soliciting corporate contributions in order to facilitate the roll out of ObamaCare.

We see ongoing debate about whether or not the US Department of State and the White House attempted a cover-up in connection with the Benghazi affair.

And we see more and more suggestions that the US Department of Justice confiscated, examined, or otherwise probed journalists’ records and files. The Associated Press probe is just one of the examples.

Each of these issues will be dissected politically by investigative committees. The press will inquire, as it should. Obama supporters will claim that the attacks on the President are persecution. Obama detractors will quickly say, “See, I told you so” – and the vitriol will intensify.

We are not taking a public stand on any of these issues. We have our personal views. Indeed, our firm’s 29 members have diverse personal views. But what we are all seeing is that these developments make a lame-duck President lamer. The current situation also means that the markets have to reprise the evolution of Obama’s economic agenda.

A weakened President distracted by revelations that are embarrassing and perhaps illegal does not have the clout he would otherwise have when it comes to negotiating the outcomes of an economic agenda. Obama is distracted by the defensive activity he must now engage in.

His cabinet positions are weakened at the same time. Congress is energized in its continuous probing. The result is that there will be less economic intervention ahead. Markets like that. They like to have less government, not more of it.

I remember when the revelations started with Richard Nixon’s presidency. One can note that one of the articles of impeachment passed by the House of Representatives at that time included IRS misuse allegations. In those days, of course, it was a Republican President facing a Democratic House.

The point of this is that current markets are driven by low interest rates and by an economic recovery that appears to be taking hold in the US at a gradual pace. Markets are focused on the lack of inflation now and on the expectation that we are unlikely to see a quick resurgence of inflation for some time to come.

Markets are not responding to the allegations about the President, his cabinet members, and his administration. If that changes, and the administration becomes truly wounded in a political sense and truly consumed by having to defend the actions of some of its departments of government, then market reaction could become negative and intense. We do not see that happening today, but that possibility has now been introduced, given revelations about the IRS, the Associated Press, and others.

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About David Kotok 42 Articles

Affiliation: Cumberland Advisors

David R. Kotok cofounded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in economics from The Wharton School of the University of Pennsylvania, an M.S. in organizational dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a masters in philosophy from the University of Pennsylvania.

Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron's, and other publications. He is a frequent contributor to Bloomberg TV and radio, CNBC TV programs, Fox Business, Yahoo Finance and others.

Mr. Kotok currently serves as a Director and Program Chairman of the Global Interdependence Center (GIC) (, whose mission is to encourage the expansion of global dialogue and free trade in order to improve cooperation and understanding among nation states, with the goal of reducing international conflicts and improving worldwide living standards. Mr. Kotok chairs its Central Banking Series, and organized a five-continent dialogue held in Philadelphia, Paris, Zambia (Livingstone), Hanoi, Singapore, Prague, Capetown, Shanghai, Hong Kong, Rome, Milan, Tallinn, and Santiago, Chile. He has received the Global Citizen Award from GIC for his efforts.

Mr. Kotok is a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), serves on the Research Advisory Board of BCA Research, and is also a member of the Philadelphia Council for Business Economics (PCBE).

Mr. Kotok has served as a Commissioner of the Delaware River Port Authority (DRPA) and on the Treasury Transition Teams for New Jersey Governors Kean and Whitman. He has also served as a board member of the New Jersey Economic Development Authority and as Chairman of the New Jersey Casino Reinvestment Development Authority.

Mr. Kotok hosts an annual Maine fishing trip, where, it is rumored, most of the nation’s important financial and economic decisions are actually made.

Visit: Cumberland Advisors

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