Pocketbook issues threaten Obama

By Alex Brummer for the Daily Mail
Updated: 03:29 EDT, 27 May 2011

Barack Obama has had a terrific few weeks. The killing of Osama Bin Laden produced a turnabout in his terrible poll ratings.

All this has been followed by his touchy-feely tour of Ireland and the fantastic pomp and circumstance of the London visit.

It was Ronald Reagan's adviser Michael Deaver who discovered that if the television pictures were good enough, the public would ignore the less than fawning words of the White House press corps.

But what no American president can ever spurn are the pocketbook issues.

Obama looked well placed when he came to office to become a two-term president on the grounds that leaders elected during a period of economic dislocation - Reagan and Bill Clinton to name two - normally benefit from the bounce in growth, employment and the Dow Jones which follows.

The current president's problem is that while he has the pretty pictures and the improvement in the stock market, the economy does not yet look to be fully cured from the great recession.

The updated first quarter output data disappointed, remaining stuck at a 1.8% annualised rate (that is slower than Britain) instead of being revised up to 2.2% as widely expected.

Initial unemployment claims also edged up over the last week, leaving the jobless rate close to 9%. The breakdown of the growth figures suggests that among the key factors was a sharp downturn in government spending as Congress and the president come to grips with the budget deficit.

But what is really driving output is the income which American companies are earning from their overseas operations which climbed from $160bn to $202bn.

This would seem to confirm that much of the rest of the world is doing better than the US itself.

Terrific though this is for shareholders in US companies with big foreign operations, it is less than pleasing for American citizens. It is also problematic for the budget, in that American firms such as Microsoft have a habit of parking income offshore to keep it out of the reach of the US Treasury.

None of this can be particularly reassuring for the White House.

In many ways Obama transcends normal politics because of what Stanford fellow Shelby Steele (writing in the Wall Street Journal) calls 'cultural charisma'.

Obama still has time to turn the economy and jobless situation around in 2012. But he cannot afford to forget that, in the end, it is pocketbook issues which settle most American elections.

Made in Britain

When Marks & Spencer unveiled results earlier this week it was regarded as a national event of enormous significance.

It is hard to conjure up the same enthusiasm about upmarket retailer Burberry, even though its market value of £5.5bn (the shares have doubled over the last 12 months) is not very different from M&S's £6.2bn.

So what is it that makes Burberry so attractive? It is the only British company which has made a real impact in the luxury branded goods market.

At present its most profitable market remains Japan (which is one of the few places where it doesn't have full ownership), but China and the other Far Eastern markets are quickly catching up.

What is good about Burberry is that even though it has out-sourced its chief executive's job to the Americans - Angela Arhendts is the second US boss in a row - it hasn't done the same further down the chain.

So it sells British designer chic by graduates of British arts colleges made largely in British factories.

The current plan is to stir the imagination in traditional markets including good old London town, Chicago and Hong Kong with some store refurbishments at a cost of £200m. This set back the shares 5pc, despite a handsome profits uplift.

Investors can have no reason to complain.

Swiss gift

UBS reportedly has a cunning strategy designed to deal with demands from the Swiss regulator that it turns its investment bank arm into a separate subsidiary.

The main content of the proposal is that the 'casino' part of the bank is shipped overseas allowing the Swiss arm to concentrate on traditional customers and wealth management.

The reluctance of regulator Finma to allow the investment bank to threaten the stability of the Swiss economy is understandable.

But how welcome a freestanding UBS investment bank would be in London - which has enough on its plate ring-fencing the UK investment banks - is questionable. Such a separation would presumably damage UBS prospects for cross-selling products one of the main reasons why commercial banks like investment banking arms.

Perhaps it will allow UBS to rehabilitate the evocative SG Warburg brand.