Romney or Obama? Should investors be rooting for one or the other?
What looked like a slam-dunk for the prez six months ago turned into a contest that could rival Bush-Gore for a messy ending. Romney’s gone from the straight guy in a Gong Show Republican nomination contest full of God nuts and angry old boys to being a credible moderate. Obama squandered the massive political capital of 2008 by hunting the wrong dog. The economy’s now biting him hard.
Meanwhile the middle class has been razed and income disparities widened. The American renaissance is way too slow for most voters, and many are ready for a new approach. Whatever it is, they say, it can’t be that much worse. That attitude leads to electoral shocks.
For months markets factored in an Obama win. What does that mean?
Well, Democrats stand for more spending, more government, more intervention and (these days) more stimulus. For example, Obama spent about $2 trillion on direct subsidies and payments to try and revive the housing market (didn’t work). Washington actually paid people to buy new cars while injecting billions into the auto companies and bailing out the very banks which helped screw the economy. The White House has supported the central bank spending billions in borrowed money (and newly created cash) to buy back government bonds. So under his watch, the deficit and debt have ballooned.
Republicans, in contrast, are seen with an agenda of slashing government, cutting public spending, reducing taxes and regulations and focusing on debt and deficit reduction. Long term gain through short term pain, including rolling back recent health care reforms, pissing off China and gutting the tax code. Romney would likely turf Fed boss Ben Bernanke, go protectionist and devolve some powers to the states. He appeals to the god-guns-&-gold crowd, rugged individualism, Tea Party wingnuts and embodies patrician capitalism. Both he and Obama are millionaires, but Romney because he manages and Obama because he inspires. Or used to.
A clear Obama win will rally markets. A clear Romney will have little impact. An unclear outcome will fuel volatility, especially as we head for the fiscal cliff.
Whazzat? Well, horsetrading in Washington, especially around last autumn’s budget fiasco, give us a potential economic predicament. Barring new deals being struck, mandatory tax increases and simultaneous budget cuts click in at the dawn of 2013. That would make federal revenues soar almost 20% and reduce spending by 1%. The effect is dramatic – slashing the US budget deficit in half and cutting $7 trillion in future red ink over ten years.
Sounds good, but…
Such a boost in taxes, slapped on a moribund economy, would likely be recessionary. Government services, social spending and defence expenditures would all be chopped. Meanwhile, remember that debt ceiling crisis in 2011? Right. It’s coming back. The US officially runs out of money in a month or so, and the ceiling needs to be raised again.
That’s the cliff. It has the potential to undo all of the glacial recovery from the 2008-9 disaster, stall expansion and throw millions more out of work, this snuffing the housing revival. And throw in some gnashing and moaning by the financial markets.
So back to the election. If Obama wins, he’ll face opposition and delay from a Republican-dominated Congress in solving this. If Romney wins, he’ll keep the spending cuts and kill the tax hikes. If the outcome is unclear for a few weeks (distinctly possible, if polls are believable), then this pathetic blog will brim with the doomers and nugget-hoarders who swarmed last weekend.
But, of course, there will be a compromise. No US bonds will go into default. No obligations missed. And any market sell-off will be exactly what the last one turned out to be – a significant buying opportunity. If you have cash, go find your chequebook.
My conclusion: the winner’s irrelevant. US growth in the next four years will be substantial, punctuated by sharply higher consumer spending, a real estate renaissance, several million new or restored jobs and an economy expanding by at least 4% by 2015. The American president, whomever it might be, will ride it. Obama ends up the messiah he believes himself to be. Or Romney gets eight years at the helm.
Your time to capitalize on this is closing.