Elections & Deficits & Budgets, Oh My!

The outcome of the election in the US was simple, in our view: America decided to keep the status quo. The status quo – a Republican House, Democratic Senate, and Democratic Presidency – was what brought us the debt ceiling fiasco of 2011. We are about to be embroiled in that same scenario again – this time it’s the trifecta of automatic spending cuts, tax increases and a debt ceiling problem. A common refrain in the politico-sphere lately has been that since this is Obama’s last term, a spirit of compromise is in the offing. I don’t know what makes anyone think that. I think the President has all the more reason to stick to his guns, without another election hanging over his head. Thus, we expect a rollicking ride as Republicans and Democrats duke it out over how to avoid the fiscal cliff, offering up every bit as much entertainment as we had in the summer and fall of 2011.

Furthermore, some evidence exists that second terms for Presidents are less beneficial to stock holders than first terms. Second terms are apparently when we finally get treated as adults, served up the medicine that is good for America but which we really don’t want, resulting in a less than optimal economy. Time will tell on that one.

Lest we sound too bearish, remember that these negotiations can’t last forever, and that even if this second term isn’t as good as the first, the first wasn’t terrible for investors. As always, we believe that nearly every market offers some opportunity; it’s just a matter of finding it.