Election 2012: Is Today's Presidential Election More About Lost Dreams Or a New Promise?

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In what can only be described as a madcap dash for votes in key battleground states, President Barack Obama and Candidate Mitt Romney worked the crowds late into the night.

As well they should. Almost every Election 2012 poll I've seen has the candidates in a neck-and-neck race headed into today's finish line.

As of press time:

  • CNN's survey has them in a dead heat at 49% to 49%.
  • Pew Research shows Candidate Romney behind President Obama by a 50% to 47% margin.
  • The Politico/George Washington University survey reflects a tie at 48%.
  • And the latest NBC/Wall Street Journal numbers show President Obama pulling ahead with 48% compared to Candidate Romney at 47%.

On the other hand, Intrade, which is the world's leading predictions market, shows a 67.2% probability that Obama will win. What's interesting about that is that Intrade also shows a 22.5% chance that the winner of the Electoral College will actually lose the popular vote.

Given these mismatches, I can only hope we're not left counting chads or something equally ridiculous tonight when the polls finally close. The markets really wouldn't like that.

As it is, all the major averages are on hold. Not literally mind you, but figuratively. Nearly every trader and institutional manager I know is treading lightly at the moment.

Why?

Because they know that by Wednesday morning half of them will be wrong. That means they'll have to adjust both their outlooks and their portfolios.

In the financial scheme of things, though, the election is a sideshow. The far bigger issue when it comes to your money is the fiscal cliff. And I am not alone in my thinking, either.

A recent CNN poll suggests that 60% of market professionals are far more concerned about what's going to happen when spending cuts and tax increases hit January 1 than they are about who's in the White House.

I don't think they're wrong to be worried, either…

Election 2012 Is Just One Stop on a Troubled Road

No matter who wins, the fiscal cliff is headed our way at breakneck speed. There will be no time for relaxing, no time for back slapping and no time to ease into the White House or even return to it for that matter:

  • The so-called Bush tax cuts expire December 31st at midnight. That means we revert to higher, Clinton-era taxes barring any fresh policy decisions.
  • $1.2 trillion in automatic budget cuts go into effect January 1 unless Congress can figure out how to bring that much more money into the nation's piggybank…immediately.
  • And America crashes into its debt ceiling (again) in early 2013.

The other thing to consider is that there are a whole slew of things which could keep the markets from making a meaningful break in either direction, not the least of which is earnings.

Right now, earnings are decelerating around the world and that means investors would be prudent to continue playing defense. My favorite choices remain large global dividend payers with fortress-like balance sheets and a solid record of rewarding shareholders.

And don't forget about the 11 states voting for governors today. One hundred percent of them have budget problems that will make national news in the months ahead. That speaks to even more bailouts and conceivably some sort of national policy response, depending on how debt markets adjust.

Generally speaking, this is not good for equities and okay for bonds; though to be fair, we're probably a lot closer to a bond market reversal than we are to a further rally.

Meanwhile, the euro is off again as fear renews over a Eurozone breakup on news that Greece is thrashing about like a hooked fish because both its payment and austerity measures are at risk. I've said before that I expect the euro to achieve parity with the dollar before this is over and I see nothing that changes my view at this point.

Then there's China. The 18th National Party Congress gets underway Thursday and the world will bear witness to a once-in-a-decade power transition at a time when the Red Dragon is plagued by economic challenges and corruption on a scale that has boggled even the most jaded of insiders.

Still, the nation is growing and American companies are betting big there. Some, like Yum! Brands (NYSE: YUM), Coca-Cola (NYSE: KO), and McDonalds (NYSE: MCD) are obvious.

But some like MSD and Best Buy (NYSE: BBY) aren't. The former, which you may know better as Merck (NYSE: MRK) in the United States, expects 30% growth in China over the next 12 months alone and triple that in the next five years. That's why the company is hiring reps and building a $1.5 billion research facility in Beijing despite slash-and-burn expense reductions in the United States and Europe.

Despite well-publicized turnaround problems in the United States and a former CEO under investigation for questionable personal conduct, Best Buy has been purchasing profitable Five Star locations in mainland China since 2008, where 1.3 billion potential consumers represent growth, even as the broader nation struggles. Yet, I was just in one of their stores yesterday and I have a hard time imagining they'll succeed here even if they get growth there.

What Election 2012 Means For Your Portfolio

So what will be affected by today's elections?

Given the macro environment at the moment, I think that comes down to where the two men, President Obama and Candidate Romney, are most divided: energy, defense and healthcare.

An Obama win suggests the "greenies" will have a field day with continued emphasis on solar, wind and electric alternatives. Given the administration's widely publicized screw-ups in this area, use caution though and do not confuse subsidies with profit potential. It's still hard to find solid small-cap tech companies in a defensively oriented big cap market. Unless you've got a strong stomach for volatility or an extraordinarily compelling reason for investing under the circumstances, I'd stay away.

A Romney win will likely translate into further opportunities in "big" energy. I hate that term but I use it because everybody gets what it is…the lifeblood of our country. Expect coal, oil, drilling and pipeline companies to jump. Generally speaking, master limited pipeline partnerships or MLPs for short, are my favorites here. They tend to pay solid dividends and can be largely immune to swings in the underlying commodities.

Defense is pretty much a no-brainer. Candidate Romney has made it clear that he favors a strong military and that suggests, by implication, a strong defense industry. This speaks to investments in weapons manufacturers and high-tech companies making weapons systems infrastructure.

On the other hand, President Obama's continued leadership will likely result in stark cuts. I'm not so sure the world's environment will favor that at the moment, but it's worth a cautionary note.

I don't see a big difference one way or the other with regard to healthcare. The insurance companies are likely to make out like bandits in the years ahead, if for no other reason that neither President Obama nor Candidate Romney can change course quickly or effectively from where we are now.

Our healthcare system is a train wreck, and an expensive one at that. Neither candidate has the political willpower to take on serious Medicare/Medicaid reform despite the fact that everybody knows it's the 800-pound gorilla in the room.

In closing, I'll leave you with one final thought.

Wrapped up in the moment, we love to believe in our leaders. Rightly or wrongly, we're wired that way.

The problem is that in our rush to judge the "other side" as part of the political process, we forget that any economic policy, any fiscal response to trouble, any change in taxes ultimately depends on Congress.

Wall Street knows this.

That's why over the past 47 years, according to author Eric Singer who penned The Congressional Effect, the markets have risen less than 1% a year when Congress is actually in session but 16% a year annualized when it's in recess.

Unfortunately, sending all 535 members home for good isn't on the ballot.

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. smoots | November 6, 2012

    Americans,……….the great brainwashed, the lovers of the police and welfare state. I fear they will get everthing they hope for.

  2. John D Elmstedt Jr | November 6, 2012

    Barack Obama has been in office for over 3 years, In that time The US has not had a Federal Budget. You can't address TAXES or FEDERAL SPENDING without a Budget. Give Mitt Romney a Shot!!!

    • DD | November 6, 2012

      Oh please – With Robme in the WH, you're looking at WWIII with him being Hell bent on invading Iran under the same Boy Bush Iraq lies and at the behest of Israel – the Weapons of Mass Delusion facade.

      Oh and let’s not forget how he blames China for currency manipulation when in fact it's the US that is devaluing its currency and is behind much of the manipulations and chaos that is going on world wide.

      If American's had just half a brain, they would not vote for either or would vote for a third party.

      The hypocrisy in mind blowing!!

  3. Eileen | November 6, 2012

    One thing not mentioned is that polls so far have more Democratic voters than Republican ones. So they will skew towards the Democratic candidate. I also this will be a repeat of Al Gore/George Bush election with one difference: the Democrats will be the ones doing the horseplaying.

  4. bob | November 6, 2012

    who cares about which guy is good for the market. the market is not the economy.

    • Counting Ace | November 6, 2012

      Well, bob. This is an article and website about investing. I cannot invest in "the economy" so why are you here and reading this if you are not interested in the market? I am looking for insights into the market.

  5. Ernie Mykyte | November 6, 2012

    I'm a snowbird. I spend six months in Canada and six months in Sun Lakes (paradise to paradise). I have many American friends and we of course share discussions regarding governments on both sides. My conclusion is this: Americans do not pay enough tax (Canadians pay too much). I can drive across the border from Osoyoos, BC, Canada to Oroville, Washington, USA and save fifteen dollars on a tank of gasoline (gasoline Canada probably sold to the US in the first place). The difference is tax. If every US driver paid that extra every time he filled up look at the revenue!!! I could go on and on (a bottle of booze $10 in Phoenix, US, $60 in Canada). Romney earns $14 million and pays 13%!!! I pay more than double that percentage on my meager income. And of course the biggie US citizens can write off the interest on their mortgage!!!

    Ernie

  6. H. Craig Bradley | November 6, 2012

    THE LURE OF WISHFUL THINKING

    The "budget gap" is reported to be 1.6 Trillion Dollars per year. So, for meaningful progress to be made working towards a balanced budget, we would have to reduce spending by that amount and do it for 10 years. We could do it by raising taxes, cutting spending (including mandatory spending, a.k.a. entitlement programs), and some extra inflation ( The Federal Governments favorite method because nobody really gets it right).

    How many people really believe either candidate is going to lobby Congress for this kind of budget fix?? So, a financial collapse, a la Argentina, is a foregone conclusion. Ditto for Europe, Canada, Australia, Great Britian, and Japan. Nothing can realistically be done. All the Western developed economies have been printing money and have unresolvable debt problems.

  7. J. A. Cox | November 6, 2012

    I am a small business owner. I own three small businesses and employ real folks who depend on a check every two weeks. We do the best we can to help our employees, but let me tell you that it does make a difference who is in the white house. There is so much uncertainty right now and a ton of money on the sidelines. Obama is the worst president for business in my lifetime. President Romney will bring certainty to business and provide the environment we need for job creation, lower taxes and investment.

    If you do not think that whoever is president does not matter, your nuts. I see the disillusion and freight everyday. We can not survive four more years of Obama.

    • Dave | November 7, 2012

      As a small business owner myself, I do not understand the fear and paralysis of folks like yourself. Blaming the President for your failures or wishing the other candidate will rain riches on you is not how successful businesses are built. America did not become the envy of the World by being unable to adapt and prosper.
      Some folks here will agree with you, that the Government must be what's wrong with their business. Funny how an individual who blames others and waits for handouts is insulted, but a business which does the same is championed!

    • H. Craig Bradley | November 12, 2012

      YES, WE CAN

      No, not the rhyme that candidate Ross Parot used to parrot in the campaign of 1992 " Yes we k'an in Yu-ca-tan'." Nope. This time America voted for the "Japanese Way". What is that you might ask? In a nutshell, its chronic slow GDP growth of 1%-2%/year and stable, but high unemployment rates with little new jobs or businesses created. You are where you are and stuck doing what you are presently doing for the next 5-10 years. Probably 10 yrs., thus qualifying for a Japanese style "lost decade". You can survive it (Obama), just as the Japanese survived their own national self-inflicted malise.

      Just remember, it lasted 22 years in Japan and is still on. There is no cure for being stubborn or hard-headed like the Japanese or their American counterparts. Its not about ending well, it about continuing on without an end or resolution. Very Zen, it would appear.

  8. Mike Uminski | November 6, 2012

    Well folks grab your beind if Obummer wins, we will the distruction of the USA along with the military. His taxes will kill everyone, and how about 200,000 defense contractors will be laid off by massive cuts in defense. As they say a day without Obama, PRICELESS!!!!!!!!!!!!

  9. don | November 6, 2012

    I believe were really screwed if obama gets in for four more knowing his tricks he'll try for a thrid term. just because people get to much from our goverment now . this is how he'll win, BAD BAD NEWS

  10. D Moore | November 6, 2012

    9;30 pm Tue, Nov 6. I hope to wake up to a Romney win on Wed. However, I feel I will be disappointed.
    As a small business owner I feel under attack. I will fight to protect my castle. I will not hire. I will not spend. I will protect my assets from those who seek to take what i have built and earned.
    We are a country now divided and declining. I feel the market to reflect this in 2013. The next flight of the market will not be one beneficiary to most Americans, as they will be left behind groveling for their Government handouts, buried in enormous debt, high unemployment, and suffocating taxes.
    3G= God, Gold, Guns

  11. Bill Broughton | November 6, 2012

    1945 greatest creditor nation in world history. 2012 greatest debtor nation in world history. Sixty-seven years 9 Republican congresses. They voted like Democrats because if they didn't keep the candy store open they'd be voted out. Last time I checked it was congress who spent the money. Confucius said,"you can give a man something but you can't take it back." No matter who wins we are in for a large dose of salts.

    • DD | November 7, 2012

      1945 greatest creditor nation in world history – only because England handed the British Empire to the US on a plate with many thanks to the drunk Winston Churchill. England was broke after two wars in the first of the 20th C, now the US is broke for almost the exact same reasons – remember history repeats.

  12. Charles LaFayette | November 7, 2012

    The country has embraced socialism and that never worked . The end of our
    Constitution as he will continue acting as a dictator. What a shame.

  13. Nelson | November 7, 2012

    When Obama found that GM was heading for the trash heap he had it back on its feet immediately and a million persons back to work. The same for TIG and thousands of others that you don't seem to know about, including hundreds of small business subcontractors to GM. If Romni had won and your business was going under, what do you think Romni would hav done for you? Trash heap?

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