Election Day approaches. Investors are jumpy as if the fate of the markets depends on which candidate is elected. Here’s my take: it doesn’t matter who wins. The markets are going up after the elections, no matter who wins.
For you political party activists out there, my attitude must border on heresy but remember I’m an independent so color me cynical. It is not that I don’t care, because I do, but I don’t listen to the rhetoric. As readers who have been reading my election series columns understands, what is said in election debates does not normally translate into policy once the candidate is elected.
So here is my thinking. After the election, the Bush tax cuts will be extended and very little if any spending will be cut no matter who wins. The much-feared Fiscal Cliff will be resolved by kicking the can down the road for a few months until the new members of Congress and the Senate are seated.
If President Obama is re-elected, he will cave in on his demand that those making $250,000 or more will not be included in the Bush tax cut extensions. He will have won the election and will suddenly find religion. Assuming that the House and Senate retain roughly the same ratio of Democrats versus Republicans, I expect Barak Obama to become the "Great Pragmatist."
He won’t sacrifice the tax extensions, which would deliver a serious body blow to the majority of Americans, simply to
Mitt Romney, on the other hand, may have an easier time of it. His victory would carry little baggage with it. He would have a fresh start among both parties. Clearly, the Bush tax cut extensions would be in the bag. Romney will also postpone the impact of the Fiscal Cliff by urging the lame duck congress to apply "temporary" measures until he and the new Congress take office. Like Obama, Romney would neither raise taxes nor cut spending at least over the next year, since both men know that it would be the surest way to tip the country back into recession.
In my opinion, his policies "to get America back to work" would be almost identical to those of the current president. He won’t touch Ben Bernanke or Fed policy for at least the next year since he will need that Fed stimulus to continue while he forges new fiscal policies on both sides of the aisle.
The policies that would finally be enacted would be largely crafted in the House and Senate, rather than in Romney’s White House, in my opinion. If austerity gains the upper hand, we roll over into recession like Europe. If cooler (and smarter) heads prevail, we just may regain some economic momentum.
In the meantime, once investors realize that the world will not end and that the Fiscal Cliff will be avoided in the short term, they may even begin to focus on what matters: the economy. And that, my dear readers, is going to be a rather positive surprise, no thanks to the politicians.
Fed policy is once again saving the day and I believe we will see increasingly good news out of the housing markets and other areas of the economy. Of course, the newly-elected president will take credit for that, but don’t you believe it. The credit goes to Ben Bernanke and his FOMC members -- none of which are running for office.
Bill Schmick is registered as an investment advisor representative with Berkshire Money Management. Billís forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or e-mail him at Bill@afewdollarsmore.com