Yawn. Well at least now the US election is finally behind us. After well over a year of boring discussions and arguments, lacking in depth or actual policies, Governor Romney missed an open goal and President Obama was returned to 1600 Pennsylvania Avenue.
Rather than raging against the machine, the American people opted for more of the same. The media seemed surprised by the width of the win, but this was really only because they tried to convince their watchers and readers that it was a close battle.
Rather than win on the economy, Romney was washed up on the rocks of social issues. At a time when the US is facing such a testing economic situation this is a clear sign of the base level of politics, which exists on both sides of the Atlantic.
In the days after the election equity markets have come under pressure, as investors now know their enemy and his likely actions in the coming years. Broadly, the view has been bad for banks and good for bonds.
In reality, we think that this is too simplistic a view of the likely ramifications. Certainly the fact that Ben Bernanke’s seat as chairman of the Federal Reserve is safe has come as soothing news to bond markets and should guarantee that QEternity is here to stay. This has very important implications for all asset markets.
The key risk for US markets is the impending “fiscal cliff” and our minds are focusing on what the election result means for the important battle over spending cuts and forced tax hikes.
This is the reason why markets have been grumpy over the last few days. Despite the split in Congress, we believe that the “shellacking” that the Republicans took will force them to play ball, rather than force the economy over the cliff.
The simple truth is that they will need to re-group and refocus on the US mid-terms, which we can “look forward” to in a short two years. They will not want to be seen as the party-poopers who slammed the brakes on the recent US recovery and drove the US economy back in to recession.
My view is that maintaining the status quo ante will be good for global markets, as uncertainty over a new commander-in-chief and new chairman of the Federal Reserve would have been unhelpful.
Obama talked eloquently of “hope” we share his hope and pray that the politicians come together and do all they can to foster the brittle US recovery and put useful policies in place to ensure the medium term stability of US finances.
With the election now out of the way, businesses need to see signs of sensible policies to encourage them to spend, invest and drive the economy forward in 2013.
Typically the Republican victories are seen as good for markets, but this time we think that a Democrat win could be very fruitful once the cliff is sorted out.
Thomas Becket is chief investment officer at Psigma Investment Management