COMMENT by ALEX BRUMMER: Obama’s record-setting rally is third-best behind Franklin D. Roosevelt

By ALEX BRUMMER, CITY EDITOR

Updated: 03:02 EST, 22 January 2013

Barack Obama is often regarded as a disappointing president. Yet despite the horrendous unresolved budget problems of the United States, the fierce new regulatory regime imposed on Congress and the visceral hatred often expressed of his health reforms, investors have little to complain about.

In the four years since Obama’s first inauguration on January 20, 2009, in the wake of the Lehman Brothers collapse, the Standard & Poor’s 500 stock index climbed a handsome 85 per cent.

That is a bigger first-term gain than was achieved by his four immediate predecessors: George W Bush, Bill Clinton, George HW Bush and the late and great Ronald Reagan.

Four more years: Since Obama's first inauguration on January 20, 2009, in the wake of the Lehman Brothers collapse, the Standard & Poor's 500 stock index climbed a handsome 85 per cent

If the narrower but more widely followed Dow Jones industrial average is examined, then Obama’s stock market performance, as he embarks on his second term, ranks third-best behind that of Franklin D Roosevelt.

There is a pattern in this. Presidents who take office in the depth of recession, as was the case for FDR, Reagan and Obama, tend to reap the benefits of recovery.

It is easy to forget that the economy Obama inherited was deeply in the mire in the wake of the Lehman collapse and the bail-out of American banks.

In fact it was the Troubled Asset Relief Programme (TARP), that was implemented by the Bush White House in its final days, the Bush tax cuts and arguably Gordon Brown’s rescue of global financial systems that brought the US and the world back from the brink.

Among the reasons that equities have done so well is that in a series of nerve-jangling trading days in 2008, when at times it looked as if the capitalist system as we know it was coming apart, prices tumbled by an alarming 57 per cent – wiping out many people’s savings in a few short months.

Action taken by the Federal Reserve and other central banks, a combination of low interest rates and quantitative easing, sent bond yields plunging and eventually made equity returns look more attractive.

But there can be no conviction that Obama’s second term, even if growth is restored to trend, will be so good for equity investors.

The president faces unprecedented budget constraints. The spending caps signed into law in 2011 (when the US lost its Standard & Poor’s AAA credit rating) mean that investment in education, science and transport will be severely restricted.

Discretionary spending is set to shrink from 4.3 per cent of output to just 2.8 per cent.

Further cuts will come in March unless Obama’s second-term economic team, headed by new Treasury Secretary Jack Lew, can come to a better accommodation with Republicans.

Despite the grave budgetary problems there are grounds for optimism about the President’s second term.

The nation’s balance of payments, which has been in heavy deficit in every year since 1976, will begin to narrow as fracking takes off and the US becomes increasingly self-sufficient in gas and oil.

This in itself will create opportunities for reshoring of the manufacturing that fled overseas in search of lower costs.

The corollary of recovery and a falling jobless rate is that some time during Obama’s second term the process of normalising interest rates and curbing inflationary expectations will have to begin.

When that happens, all bets will be off for equities.

Blameless banks
One of the great mysteries of our time is how it is that the bankers, responsible for mis-selling at least £13billion of personal protection insurance (PPIs) and possibly £25bn, so easily slough off the blame.

The latest former banker to wash her hands of the affair is Helen Weir, formerly of Lloyds, following hot on the heels of Gordon Pell of Royal Bank of Scotland.

Antony Jenkins of Barclays already has declared his abstinence, despite being in charge of credit cards and retail banking when billions of pounds of policies were sold.

Believe this group and you would think that PPI was a scandal with no culprits. If that was the case, why have shareholders been hit with such a huge compensation bill?

Small hitters
The idea of a ‘Business Bank’ or, even better, a business investment bank to cater for the needs of entrepreneurship, has long been favoured by this newspaper.

But if the Business Department thinks that it has really put in place a team of ‘big hitters’ to guide this project it shows how little it knows about commerce in Britain.

Sir Peter Burt, as an experienced banker, will make a fine chairman, and Tory peer Baroness Patience Wheatcroft has vision and experience at the highest levels.

Beyond them, big hitters look in short supply. Where are Sir John Rose, Sir Terry Leahy, David Tyler, Lord John Browne or Dame Marjorie Scardino when the country needs them?