As an advisor, I’m happy to have clarity. My job isn’t to root one way or the other. I simply want to know who will be in office for the next four years so I can provide advice and manage investments with a high level of confidence. Now that we know President Obama will remain in office for another four years, I think it’s safe to say we can expect a continuation of many of the current market trends. The win for Obama means that Fed chairman Ben Bernanke will remain in office, at least until January 31, 2014, when his current term ends. It’s still unclear whether he will continue as Fed chairman or step down.
So, knowing Bernanke remains as chairman, what can we expect from a standpoint of monetary policy? Answer: a continuation of easing, including:
- Low interest rates – higher yielding investments should continue to be buoyed
- A weak US Dollar compared to other currencies – especially the emerging nation currencies
- Higher commodity prices
- Higher stock prices in the short-term (despite today’s sell-off…)
As for our fiscal policy, a lot rides on the upcoming “fiscal cliff.” Personally, I think they’ll have to extend a lot of the current tax rates/breaks. There just isn’t enough time to agree on a new plan and the effect of allowing the current policy to expire would most likely drive us into the next recession. One thing President Obama has made clear though, is that he wants to raise taxes on the “wealthy.” As I mentioned last month, this should add an extra level of support under municipal bonds, which are up nicely today.
I made some final re-positioning of portfolios yesterday before the results were in and will use today’s weakness (and any further weakness) to benefit from the bullet points outlined above.
Nick