Every time the President of the United States makes a speech, the market- both Forex and Equity- reacts. While last Wednesday’s State of the Union Address may have had a temporary positive effect for the USD, the American public suffered from mixed reactions.

Is it over yet? That was the question President Obama addressed in his State of Union Speech. The president, typically an eloquent and charismatic orator seemed to be lecturing the American public, rather than trying to persuade them. Although towards the end of his 70 minute address, he finally fell back into the “YES WE CAN” mood of his campaign, and with every round of applause he smiled as if to say - see they still love me.

Unfortunately for the president the mood of the US has shifted over the course of the past year. Gone with the wind are the days of complete trust in whatever the president says. Now Americans are skeptical and wary more and more of big government’s role in their lives, and with unemployment reaching 10%, the public still believes that this recession is far from over.

The rapid decline of approval in the Democratic actions, or lack thereof, can be clearly seen by the completely unexpected win of the Republican Senator in the very liberal state of Massachusetts. This seat - which was previously held by the late senator Ted Kennedy, is considered to be one the safest seats to win for the democrat party- was won by a Republican who spoke about reducing the deficit, stopping the democrats health care reform and lowering taxes. The fact that Massachusetts has not voted for a republican senator since the late 1960’ should be a wakeup call for Obama. The country wants him to move to the center and to govern form the center as he promised in his campaign.

However, as Mr. Obama’s went on into the night, it became apparent that he has not woken up. While the speech contained some valid points- such as the Deficit freeze and capital gains cuts for small business- as he continued to speak, it became more and more clear that his address was full of contradictions and empty promises.

The speech started with some good points mainly the Budget Freeze. However, Mr. Obama followed this by stating that there would be no budget freeze until 2011- and that the saving he anticipated from this budget freeze would only reduce the deficit by 3% (about $15 billion in total- hardly enough to put even the slightest dent in America’s $1.35 trillion deficit).

While his proposal to cut the capital gains tax for small business investment is a step in the right direction- the planned propositions falls short of what is needed to generate jobs and economic growth. Moreover, this statement seemed even more confusing and conflicting, as he stuck to cap-and-trade legislation, which will in affect increase taxes on business and will kill jobs.

Next he moved on to job creation- another very positive point. While on the surface it sounds very nice that he wishes to create new jobs, you have to ask yourself, how does he plan to create these jobs? And what types of jobs does he even plan to create?
Moreover, when the Bush administration tax cuts expire next year the taxes of the people who own businesses that provide jobs will increase. If a business pays more in taxes it tends to hire fewer workers.

This speech clearly exemplifies that Obama still retains his core belief that big government and government control is the answer to all problems- the opposite of Bill Clinton who in 1994 said in his state of the union that “the era of big government is over” which began a cycle of growth and prosperity. Obama , unlike Clinton is refusing to move to the center. It’s nice that students will be able to get loans that they won’t have to repay so they can go to college. But where are the jobs when they graduate? Obama’s answer is to spend, spend, spend. This is not the change that most Americans believe in.

Following the shocking Republican win in renowned liberal state of Massachusetts, President Obama desperately tried to win the approval of his democrat supporters by announcing his purposed plan of financial reforms for the Wall Street banks.

With the uncertainty of what these new regulations will mean for taxes and compensation foreign institutions are suddenly very wary of investing in countries that are considering imposing such rules. The US, France and Great Britain are deliberately shaking the confidence in the banking sector by threatening to impose these new regulations. This is not healthy for the global economy and may even threaten the global recovery.

It may be popular to bash the banks but is it good fiscal policy? Obama has proposed to limit the size of banks and their holding companies. But as the wall street journal pointed out the “problem with limiting the size of these institutions is that no one has the faintest idea what the right size is” What is the right size that will prevent a bank from being too big to fail? Who knows? Certainly not the congress.

The next proposal is to prevent “proprietary trading”. It may sound impressive to say we will now control these out of control banks, but there are already regulations that limit what a bank can and can’t do with their deposits that are government insured. Banks can’t participate in underwriting or deal in securities. As for the bank holding companies they are using money that is not government backed and so why should the government stop them from doing what they want with their own funds?

Obama wants to stop these risky practices. However there are measures already in place that protect the banks from the riskier activities of their holding companies. All these new regulations will do is force the bank holding companies to stop doing what they do best - make money. But why stop with just the big banks - “if we are going to stop Goldman Sacks and Morgan Stanley from taking risks in securities trading because they are too big to fail, why not stop securities trading by all large investment firms or insurance companies?”(Wall Street journal)

Finally, it is important to remember why there was a financial crisis in the first place - it was caused by subprime mortgages which led to banks failing and needing to be bailed out because they had too much invested in these risky mortgages.

But if the banks are prevented from engaging in securities trading they are left with few options for investment and one their only options is real estate. The last real estate bubble was not an isolated historical event- real estate goes up and down - and so another bubble followed by a bust could cause another banking crisis if the banks are forced to concentrate their investments in this area.

“Instead of trying to punish the banking industry, Obama should try to understand why the banks became so heavily invested in real estate” Instead of enforcing punitive new restrictions “the solution to the long term problems of the banking business is not to narrow the activities of bank holding companies but to broaden them.” This is not the popular thing to do - it may look like a reward for bad behaviour but in the long run it could prevent a future crisis.

As for the Forex market, the USD is in for a rocky road. Since being sworn into office, we are have yet to see the results of president Obama’s “Changes”. With US unemployment at 10%, the country and the world want to see results not hear more talk. Obama will have to do far less talking and more successful and economically sound financial decisions for the world to resume its faith in the American currency.

Since being sworn into office, a little over a year ago, President Obama has not ceased to shock the world, with all of his proposed “Changes” for the United States. His latest speech, on his plan to limit risk-trading by U.S banks was no different.

Over a week ago, President Obama shared with the world his most recent vision of government intervention in the United States.

For those of you who did not hear, he proposed a plan to limit risk-trading by U.S banks, by limiting the size of the banks and the share of the funding that can come from non-deposit source, while also declaring that commercial banking and proprietary trading activities would be segregated in the future.

The proposal would be part of a series of regulations preventing banks from property trading as well as investing in hedge funds. And like all of Mr. Obama’s speeches, people stopped, listened and like all of his controversial plans, the public suffered from mixed reactions.

While, it could be perceived that these reforms could potentially set the United States on the right track by preventing a future financial crisis similar to the one occurring now; Mr. Obama’s plan for financial reforms, could also be interpreted as a desperate and frantic attempt to appeal popular anti Wall Street sentiments.

With unemployment numbers in the US skyrocketing to 10%, the president is looking for a scapegoat. The banks are an ideal target, as it is never considered bad politics to blame the banks. New regulations for the banks are intended to prevent a future financial crisis like the one experienced this past year.

This of course presupposes that was entirely the fault of the banks to begin with and that they deserve to be punished. The banks took public money- they accepted a bailout and then managed to have one of their most profitable years.

For Obama this is unconscionable - and so, even though much of the money has been paid back the government has decided that since they bailed the banks out they are entitled to now interfere in their business.

The outcome of this regulatory activity may not have the result the president desires. Will it prevent future financial crises is a question but what is clearer is the uncertainty even the announcement of this proposal has already created. If there is one thing the financial markets, both Forex and Equity alike, hate it is uncertainty. The immediate result of the announcement was a dramatic sell off in equity markets all over the world.

With Obama only one year into his first term, and little of his “Changes” doing good, if any at all, America and the world, are  left wondering if the president can pull it together and actually help his country recover from one of the worst financial recessions. So far there is little hope, especially when President Obama continues to demonstrate his limited understanding of how the financial market operates, as well as why we are currently in a recession.  We are left wondering, has Obama missed the point again?