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The market already expects Barack Obama to win

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Investors may not support Barack Obama, but they do expect him to be the next president of the United States. The smart ones do anyway.

If the polls are to be believed, Obama should easily defeat John McCain. Even the ultra-conservative talking heads on CNBC seem to have accepted this reality. Carl Quintinilla recently asked Pennyslvania Senator Bob Casey whether Obama will be "pulled to the left" if the Democrats win in a landslide. Why not ask Casey, who is pretty conservative as Democrats go, about Obama's five-year plan? I guess it's no surprise that the business network has Steve Forbes as a guest host on "Squawk Box." The Arizona senator needs all of the help he can get.

The market already -- wrongly in my view -- views Obama as a tax-and-spend liberal ready to suck away their capital gains and wrap America in bubble wrap to protect it from the ravages of world trade. The truth is more complex than these stereotypes. Obama plans to cut taxes for most Americans and favors fair trade policies. Markets, however, anticipate the future and people are scared. That explains why the Dow Jones industrial average is down more than 29%.


Should Obama win big and the Democrats get a fillibuster-proof majority in the Senate, the stock market will take that badly. The major averages will tumble as investors will be worried that the triple-headed monster of Nancy Pelosi, Harry Reid and Obama will wreak havoc on the country. As a member of the media elite who has campaigned for Obama, I share these concerns. Having one-party rule could create problems, particularly if the Democrats get full of themselves as they did during the 1990s in Congress.

Other possibilities raise their own sets of concerns. If Obama wins and the Democrats keep their power at or about the same levels, government will remain divided. Whether that means government will remain paralyzed is unclear. I think this is an unlikely scenario given the closeness of many state races.

Some investors may be hoping that McCain will pull off a political upset. Should that happen, it would put "Dewey Defeats Truman" to shame. I can't discount this possibility because McCain is gaining on Obama in some polls. Markets would rally, at least for a short while. The euphoria will not last, particularly if the Democrats maintain control of Congress.

Whatever the result of the election, many questions will remain for the next president to answer. That means markets will continue to be volatile for some time.

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Symbol Lookup
IndexesChangePrice
DJIA+4.768,183.17
NASDAQ+5.381,752.55
S&P 500+3.12882.68

Last updated: July 09, 2009: 09:46 PM

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