EDITOR: | January 21st, 2013

Obama’s Second Act may prove beneficial for Rare Earths

| January 21, 2013 | No Comments

obamaToday will be remembered as a historic one: Barack Obama swore allegiance before the Constitution of the United States of America for the second time. The theme of his inauguration, after a first term marked by partisan differences, was Unity. President Obama urged Americans to put ideological differences aside and look to the Constitution for guidance, namely that “all men are created equal.” This was not just meant as evocative rhetoric; the theme represents a clear message that about the White House’s agenda for the second term. The idea of equality suggests that Americans can expect more efforts toward equality of rights, ranging from a strengthening of social assistance to gender, gay rights and – on this being Martin Luther King Day – civil rights. Obama delivered, by all accounts, a progressive and ‘liberal’ speech. Nevertheless, regardless of political persuasion, the ceremony revealed one of the remarkable aspects about the United States and why it has been a beacon for so many over the past two centuries: its ability to change and promote social progress as an African American, was sworn-in for the second time, having earned the People’s mandate to govern for four more years.

The grand atmosphere of the Capitol, surrounded by the Supreme Court, the Democratic and Republican leadership, his family, former Presidents Jimmy Carter and Bill Clinton and 800 thousand people, will turn more flippant by tomorrow afternoon as Washington returns to business and Obama’s second term begins in earnest. The inauguration speech hinted at the sort of approach that the White House will pursue in the next four years. Obama spoke of seeking more diplomatic and less military options toward resolving disputes with other nations. This is a clear reference to the fact that the world can expect Obama to engage in talks with Iran over its nuclear program rather than resorting, or endorsing, military action. The administration will also continue to encourage democratic developments in Africa, the Middle East and Asia through diplomacy. The sense is that Obama could contain (that is not increase – it will be very difficult to cut back) military spending. However, Obama also emphasized climate change, which in scientific and economic terms, suggests that research dollars will target alternative energy sources and related technological developments. It is well known that ‘green’ energy, from wind turbines to solar energy and especially to the development of more efficient batteries, requires rare earths. Obama hinted at the need to protect American technology – in what seemed a nod to the Smart Sale Act and to the need to develop domestic American resources rather than relying almost exclusively on imports – and whims – of foreign powers.

Obama also stressed the need for fair trading practices. This suggests that the Washington will be more supportive of research and mining of rare earths, a policy already hinted earlier in January as the construction of a dedicated REE research facility in Iowa was announced. The likelihood of more spending on alternative energy does not necessarily mean that the administration will abandon oil and related infrastructure such as pipelines to Canada. Obama delivered a clear appeal for less partisanship, which will require willingness to compromise on the part of his Office and the various Democrats in Congress as well. As the democratic developments, cited in the Speech, continue in sensitive regions of the world, we can expect the resulting political tensions and risks to keep oil prices and interest in the sector high. Nevertheless, there is one issue where Democrats and Republicans will surely find agreement: consumer confidence. In order for any of the optimistic scenarios to be fulfilled, Americans’ confidence in their economy must increase.

On Friday, January 18, the consumer confidence index dropped to 71.3, the lowest point in over a year and below the already low expectations of several (75) economists. The Index is an important indicator of the development of U.S. consumer spending, where the majority of economic output depends. Many Americans blamed US fiscal policies and the Congressional bickering over the Budget, the ‘debt Ceiling’ and the lingering problems tied to the ‘Fiscal Cliff’.  Republicans want more spending cuts, but as Obama’s speech made it abundantly clear, the White House has been most reluctant to adopt any fiscal solutions involving cuts. Meanwhile, the fiscal crisis risks further eroding US consumer confidence further, putting negative pressure on growth. Yet, in the week before the inauguration, the stock market indices in the United States achieved new highs, which shows that there is a ‘bullish market genie’ that wants to burst out; there is some trapped optimism inside a lamp hidden at the Fed ready to be released if Congress can set aside partisanship.


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