Quotidien finance innovation, innovation financière journal
Financial Year with Finyear


Obama is re-elected and Bernanke reprieved

Despite all the talk of the election being too close to call, the result in the Electoral College was clearly going Obama's way by polling day. Whether this was due to the effect of Hurricane Sandy, which gave a late boost to the President, or something more deep rooted, Obama has succeeded in winning against a very unpromising economic backdrop.

Obama is re-elected and Bernanke reprieved
No President since Roosevelt has won with unemployment this high. The fact that the number of people out of work has been falling has clearly helped. However, there may also have been some recognition that it takes time for an economy to recover after a major banking crisis. As I noted in a recent Bloomberg interview, “the US is performing right in line with the past experience of economies emerging from a financial crisis” and whilst it might have done better, it was not clear that Romney offered an alternative to offset the powerful headwind from bank and household de-leveraging.

It was a clear victory for the President who won 303 electoral votes to Mr Romney’s 206 (with Florida still to declare). Wins were secured in a series of key states in the northeast, but it was victory in the key swing state of Ohio where many will argue the election was won. He retained Pennsylvania, a Democrat stronghold for many years and early signs signal triumph in Florida, which seems to have leaned in the president’s favour.

As predicted, the Democrats have maintained control of the Senate, which they have held since 2007, and the Republicans have retained control of the House of Representatives. The status quo prevails and the issue now is whether there will be enough common ground for Republicans and Democrats to reach an agreement on the fiscal cliff, the $600 billion of tightening scheduled to hit the economy in the New Year.

Meanwhile, one beneficiary of the result will be Federal Reserve chairman Ben Bernanke who will have the continued support of the President, rather than face the task of working with someone who has already announced he will not renew his term of office. From this perspective, markets can relax as money printing (QE) is set to continue.

On the fiscal cliff, the early signs are mixed. House Republicans have already said they do not see the election as a mandate for raising taxes. However, Obama’s victory speech seemed to be reaching for unity.

It remains our view that a compromise will emerge as neither side wants to be blamed for plunging the economy back into recession. Furthermore, there does seem to be a general agreement on extending the Bush tax cuts (which represent more than $200 billion of the fiscal cliff). The difference being that Obama would not extend the cuts to the wealthy, resulting in an extra fiscal tightening of around 0.5% GDP.

It is not just the scale, but the detail of the fiscal package that will be important. Uncertainty over the tax code may be a factor behind the fall in corporate capital expenditure in the US, and businesses will be looking for clarity if they are to resume spending. Equity investors will also be keen to see how proposals to increase dividend and capital gains taxes from 15% to 43.4% and 23.8% respectively play out.

The difficulty is that time is limited, with an agreement needed in the short six-week post-election period before year end. Given what we have seen in the past and in Europe today, politicians will want to take any agreement to the wire.

Keith Wade, Chief Economist & Strategist
Schroders Quickview
7 November 2012

Important Information:
The views and opinions contained herein are those of Keith Wade, Chief Economist & Strategist and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. For professional investors and advisers only. This document is not suitable for retail clients. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Services Authority. For your security, communications may be taped or monitored.

Jeudi 15 Novembre 2012

Nouveau commentaire :

Your email address will not be published. Required fields are marked *
Votre adresse de messagerie ne sera pas publiée. Les champs obligatoires sont indiqués avec *

Recevez la newsletter quotidienne


Le Magazine

Lettres métiers

Livres Blancs