Presentation on theme: "War Room 28 June 2012 2012 Election Rundown. War Room Monthly macro discussion Using tools in context Update on HiddenLevers Features Your feedback welcome."— Presentation transcript:
2012 Election Rundown – Markets like Certainty Returns usually higher in months in Nov/Dec than Sep/Oct in election years Certainty is greeaaat!
Election + Markets – No pattern + not enough data Election Year Returns: Mean performance = 11% No pattern regarding party winning Only 16 elections in Modern American era (post wwII) Not enough data to determine party significance Note: HiddenLevers is NOT in the business of speculation about who wins elections.
Fiscal Cliff - Taxmageddon 01 Jan 2013 - the witching hour Bush Tax Cuts – Average family gets $3000 tax hike Cost of Bush tax cuts expiring over next decade - $4 trillion Payroll Tax Cuts expire Medicare tax on high earners (Obamacare) Estate Tax goes from 35% 55% Capital Gains + Dividends Tax : 15% normal income tax rates Total tax increase: almost $500b
Fiscal Cliff – Govt spending winding down 2013 Spending cuts First spending decline since 1999 Obama – Stimulus spending = over Unemployment extensions = over Teacher + Police earmarks = expired Fed - Operation twist – over Debt Ceiling hit end of 2012 Defense spending cuts – $500b Discretionary spending cuts– $700b Impact of Taxmageddon + Spending cuts Total = 5% of GDP
Candidate Opening Bids (fantasies) Obama Romney 1.Make Bush tax cuts permanent for all 2.Eliminate estate tax 3.Repeal Obamacare and associated funding 1.Make Bush tax cuts permanent for < 250k earners 2.Buffet Rule = 30% minimum tax rate for $1M+ earners 3.Pursue jobs plan = incremental stimulus No way Jose.
Candidates Opening Bids – Lame Duck Issues Who is in charge between November + January after the election? Obama re-elected: No better bargaining position in 2013 than now Gridlock = no partial extension of cuts Romney wins: No authority to act until late Jan = too late Temporary extension of Bush Tax Cuts almost certain
2012 Election Roadmap – Romney Best Case Status Quo Obama Dem 53/47 GOP 242/193 exec senate house Romney + GOP Congress Romney + Dem Congress Obama + GOP Congress Obama + Split Congress Obama + Dem Congress Romney + Split Congress Extend the Bush Tax Cuts why?
2012 Election Roadmap – Obama best case Status Quo Obama Dem 53/47 GOP 242/193 exec senate house Romney + GOP Congress Romney + Dem Congress Obama + GOP Congress Obama + Split Congress Obama + Dem Congress Romney + Split Congress Let Bush Tax Cuts expire for high earners why?
2012 Election Roadmap – Gridlock Likely Romney + GOP Congress Romney + Dem Congress Obama + GOP Congress Obama + Split Congress Obama + Dem Congress Romney + Split Congress Status Quo Obama Dem 53/47 GOP 242/193 exec senate house (pipe dream)
Gridlock – Back to the Future Remember Summer of 2011 ? 1.Debt Ceiling hit 2.Congress – gridlock on raising it 3.Obama – hands in pockets 4.S+P downgrades US Treasuries 5.Market collapses 16% (22/Jul – 03/Oct 2011)
2012 Election Roadmap – Take Aways 1.Most likely outcome of election remains a divided government 2.Neither side will get filibuster-proof majority that Obama had in 2008-09 3.Gridlock likely pushes US toward debt ceiling style showdown over Fiscal Cliff
Market Reaction: (1) History + (2) Leadership Guidance 1.2011 Debt Ceiling Showdown Aftermath analogy 2.Gridlock makes this the likely outcome 3.US decoupling story – decent chance for survival Guidance 1.Recession inevitable due to huge impact (-5% of GDP) 2.Poorly handled, with no plan of action = bloodbath 3.US decoupling scenario = das is kaput Both Scenarios: 1. Defense spending – cuts are significant 2. Treasuries – counter intuitive rally