17 September 2008

Europe's Enthusiasm May Accidentally Defeat Obama

Since 1976, in every presidential election year when gasoline prices were lower than they were in the previous presidential election year, the party in the White House remained in the White House. While the prospect of prices declining to their 2004 level is extremely unlikely in the next 8 weeks, their recent pullback will have a large psychological impact on the public. Therefore it is ironic to note the supporting role Obama played in their rapid decline.

The Euro/US Dollar exchange rate is primarily driven by economic factors, but sentiment also plays an enormous role. The recent astounding crash in the Russian Rouble immediately upon their engagement with Georgian forces comes to mind. Therefore I find it extremely interesting that while the economic news about Europe deteriorated precipitously in the months leading up to July, the actual breakdown in the Euro began within days of Obama's speech to ecstatic crowds in Berlin. This rise in the dollar in turn reduced inflationary pressures making oil and other commodities less attractive investments. While Europe remains enthusiastic about an Obama presidency, their trader's vote of confidence may have unintended consequences.

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