The race for the White House

US ElectionsThe ebb and flow of the incredibly long run into the US Presidential election is approaching the pointy end. While the challenger, Mitt Romney, gained traction after the first Presidential debate. A strong performance from President Obama, on Tuesday, propelled him further ahead.

Just looking at the odds, 4/11 odds on. In favour of Obama seem to be a reasonably clear sign in a two horse race. To add insult to injury. I just read some research that Romney now looks set to lose his home state of Massachusetts. Where he was previously Governor – a first for 80 years.

So what does this have to potential to do to markets?
A Romney win would see the end of the Bernanke tenure at the Federal Reserve. Which would also mean an end to QE3. And a likely slide in most US assets, with the exception of the Dollar. Gold, in particular, I would expect to see a sharp and immediate decline.
However, an Obama win would continue to see money being printed. Asset prices (Stocks and Gold, in particular) move higher, and the maintenance of the weaker US Dollar.

On the surface, the latter would seem appealing – a nice rising market, weak dollar and so forth, however, the long terms costs for this are really unfathomable – by whom and how, is the money going to get paid back?
So far, 64% of those companies reporting have beaten expectations, pointing toward growth, and while there have been some big disappointers too – Google and Microsoft, being examples, US consumer sentiment is at a 5 year high. This is an extremely positive sign. So too was the recent employment figures, which copped some flak from GE Management great, Jack Welch, as to their authenticity.

One of the major factors in any potential US recovery, is the consumer – get their confidence up, stop them saving and instead, spending and the engine will at least be turned on. Some of the other equally important factors include the weaker dollar, helping exporters, and lower labour costs. Whether or not this is sustainable, it is what is going on right now.

Further to that, and as a rule of thumb, years 1 and 2, following a US election, are typically the strongest, in terms of market performance, so let’s brace ourselves – sitting on the sidelines and watching is really is not an option.

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