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An Investor's Guide to the 2012 Iowa Caucuses

Whether you see it as an example of direct democracy in action or an over-hyped media circus, there's no question that the Iowa caucuses will influence this year's presidential election.

Traditionally, the top three finishers in the Iowa caucuses have had the best shot at securing the Republican nomination for president. And while U.S. President Barack Obama has enjoyed a bit of a surge in the polls recently, he's far from a lock to win a second term.

So investors – regardless of their political affiliation – would be smart to closely consider each potential candidate's economic platform, as well as their chances of winning the nomination.

This year the Republican field is as competitive as I've ever seen. You can make a case for multiple candidates winning the caucuses, and any candidate could be boosted into the thick of the race by a strong finish.

Even the participants that are unlikely to win either Iowa or the nomination have significant strengths and policy ideas that could be absorbed by other candidates.

For investors, there are two criteria: First, how well will a candidate's ideas and personality play in the market and in the U.S. economy? And second, how likely is the candidate to beat President Obama in November 2012?

Generally, a Republican victory in 2012, if accompanied by Republican control of Congress, would be good for the market and would cut domestic public spending below that of a renewed Obama administration. It would also keep taxes lower, although a substantial tax increase is probably inevitable in 2013-14.

A Republican president would repeal Obama's healthcare legislation, although it's unlikely that that would save much money or solve healthcare's funding problems.

A Republican president also would probably replace U.S. Federal Reserve Chairman Ben Bernanke, although a President Mitt Romney or President Newt Gingrich would be unlikely to change the overall "loose money" thrust of monetary policy unless forced to do so.

Most likely Republican candidates would also pursue a more aggressive – and expensive – foreign policy than a re-elected Obama. So unless a real budget-cutter is elected, there will be little improvement in the U.S. budgetary position and a likely worsening in inflation over time, leading to another financing crisis well this side of 2016.

That said, let's take a detailed look at each candidate in this field guide to the 2012 Iowa Caucuses.

Jon HuntsmanJr.

Jon Huntsman, 51, was President Obama's Ambassador to China after being Governor of Utah. In Utah, he increased spending 33% during his term, not a good sign for his ability to balance the federal budget. He also backed "cap and trade" legislation on global warming and the 2007 immigration amnesty bill.

In an attempt to attract economic conservatives, he has put forward a supply-side tax reform, but he appears blocked by Mitt Romney, another moderate Mormon, in his attempt to gain traction. His best shot is New Hampshire on Jan. 10, but unless Romney fades very fast, he's unlikely to go much further. However, he is media-savvy, which could help. Still, he's not viable as a vice presidential candidate for either Ron Paul or Rick Perry, because the neoconservative lobby (which wants an aggressive foreign policy) does not like his fairly dovish foreign policy views.

If by some fluke he won the nomination, he'd have a good chance against Obama, and if elected, he'd probably be quite a good middle-of-the-road president and good for the market.

Rick Santorum

Rick Santorum, 53, was Senator from Pennsylvania 1995-2007, unluckily losing his 2006 re-election bid by 18%. He's the darling of the social conservatives and of the neocon foreign policy hawks, with an economic policy of tax breaks for manufacturing.

He has focused on Iowa, and needs a top-three finish there to remain viable. If he does well, and Romney drops out, his underlying support could propel him forward.

Santorum is knowledgeable but has a rather aggressive personality and can be a wooden speaker. That makes him very unlikely to win against Obama. Though, he might mollify conservatives (but alienate Ron Paul supporters) as a vice president on a Romney ticket.

If elected president, he'd be bad at compromise across the Congressional aisle, protectionist, and probably not good for the market, although smokestack companies might benefit.

Michele Bachmann

Michele Bachmann, 55, is a three-term Congresswoman from Minnesota. She is a strong social and economic conservative with moderate views on foreign policy, voting against President Bush's 2007 Iraq "surge." She won the straw poll in Ames, IA, in August but has faded since.

Still, Bachmann claims conservative purity against other candidates such as Romney, Gingrich, and even Perry. She's knowledgeable but prone to gaffes, and for that reason is unlikely to win the nomination or beat Obama if she did.

It's possible that Bachmann could serve as vice president to Romney, but the Sarah Palin precedent works against her.

Rick Perry

Rick Perry, 61, has been Governor of Texas since 2001. That makes him the longest-serving governor in the state's history. During his time there Perry has presided over an excellent job-creating record (albeit helped by high energy prices).

Negatives are "crony capitalism" deals of state handouts to companies relocating to Texas and his poor debate skills.

Perry is a strong economic conservative. He's proposing a 20% flat tax, opening up the U.S. to major energy production, abolishing three cabinet departments – Commerce, Education, and Energy – and making Congress part-time.

He also has strong Evangelical and moderate social conservative beliefs. His foreign policy remains cloudy but is mildly isolationist.

Perry began his campaign leading in polls, then debate gaffes pushed him down. Focusing heavily on Iowa, Perry needs a top-three finish, but is well funded and could benefit from other candidates dropping out, since his ideas are well suited to the GOP mainstream.

Perry could give Obama a run for his money, provided he survived the debates. As President Perry, he would be strongly free-market and hard-money oriented, with good negotiation skills with Congress but subject to media hostility. Since many environmental restrictions could be removed by executive order, Perry would be excellent for energy sector stocks and probably good for the economy.

Ron Paul

Ron Paul, 76, is a 12-term Congressman from Texas (serving since 1976 with breaks). He was the libertarian candidate for president in 1988 and a GOP presidential candidate in 2008.

Paul is strongly conservative economically, inspired by the Austrian School of economics. He believes in the gold standard, proposes cutting federal spending by $1 trillion in his first year in office, and abolishing departments of Commerce, Education, Energy, the Interior, and Housing and Urban Development.

His foreign policy is heavily isolationist – even pacifist – and his social policy is moderately libertarian.

Paul is a highly eccentric candidate hated by much of the party establishment. He is knowledgeable and gained considerable credibility by accurately predicting the 2008 financial meltdown. His economic policy is popular with party conservatives but not the general electorate. His foreign policy is very unpopular with the GOP establishment but may have considerable hidden appeal to the electorate, especially the young.

Paul is currently leading in the Iowa caucuses by a slim margin, and has good fundraising and excellent organizational capability. If he were to win the nomination, he would have a better shot than most to beat Obama because of his youth support.

Paul has said he won't run a third party candidacy (which would almost guarantee Obama's re-election). However, his son, Kentucky Senator Rand Paul, is less extreme on foreign policy and would make sense as a vice presidential candidate for an establishment figure who wanted to ensure the Paul movement's support.

As president, Ron Paul would have fun with the Fed, but great difficulty assembling legislative coalitions or ensuring party discipline. His tight money policy would be highly beneficial in the long run, but would in the short-run involve a painful weeding out of "malinvestment," which would cause a stock market crash.

Newt Gingrich

Newt Gingrich, 68, is a former 10-term Congressman and served as Speaker of the House of Representatives from 1994-98.

Gingrich has eclectic political views, and a fountain of new ideas which aren't always sound. He can be ultra-conservative or moderately liberal, depending on the issue and the timing – he can be surprisingly supportive of "big government" solutions. He's also fairly "neocon" on foreign policy, though he describes himself as a "cheap hawk."

Gingrich organized the Republican takeover of Congress in 1994, but four years later was ousted by colleagues dissatisfied with his leadership style. Negatives include his post-Speaker lobbying career and his marital difficulties. He's currently tied for the lead in national polls, second in Iowa, and leading in South Carolina (primary: January 21).

Gingrich is short of money and disorganized, so would have difficulty winning the nomination, but might prove a strong opponent for Obama because of his debating skills. As president, he would be center-right, with his greatest achievements through forming bipartisan Congressional majorities. His foreign policy might be expensive, however. He has promised to replace Fed Chairman Bernanke, but it's doubtful he has a hard money commitment like Paul and Perry.

Look for a sideways market with inflation, with military contractors doing well.

Mitt Romney

Mitt Romney, 64, is the former Governor of Massachusetts and CEO of Bain Capital, a highly successful private equity company. Romney is still by far the front-runner for the nomination on Intrade, the political odds-making site.

He's unlikely to win Iowa, but should win New Hampshire and do well in South Carolina, where he has been endorsed by Governor Nikki Haley. Romney has espoused a wide variety of political positions. However, his healthcare plan in Massachusetts, and his father George Romney's political career as Governor of Michigan and 1968 presidential candidate, make me believe Romney would govern to the left of the Republican party, with occasional forays further left as fashionable Washington and media opinion influenced him.

Romney has a 53-point plan for the economy that includes minor and poorly designed tax cuts. He'd have been a great candidate in 2008, as his expertise would have served him well in the September crash. However, Wall Street and private equity-driven job cuts are now politically toxic, so Romney is less certain of the nomination than many think and would be a very vulnerable candidate against Obama.

If (perhaps owing to a "double-dip" recession) he managed to get elected, Romney's economic policy would be close to that of President George W. Bush, although it's likely he would add a trade war with China to Bush's policies. You could thus expect continued anemic growth with "Bernanke-esque" loose-money policy (he has said he would remove Bernanke, but that is most likely a sop to the primary electorate). Short-term, his election would give the market a fillip, but it wouldn't last.

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  1. Robert Stone | January 3, 2012

    There is one thing you are forgetting; without a drastic change in spending, cutting foreign aid and war there isn't going to be any dollar, it will be devalued , countries will pull out of the dollar, and it will crash. The only person who is talking serioiusly of making serioius cuts and not just to get votes, is R Paul. . He is not a pacifist, he is against undeclared long term war as a life style . He would do a swift thorough job, jot a long term war that depletes the economy and creates more enemies.

    None of the other candidates are serious about cutting spending the way it needs to be to survive.
    You are living in a dream world if you think these other candidates will do anything rather than keep going the same route as always.. and they don't have the broad support of independents, youth, which is catching fire across the nation.
    I d rather put my trust in someone who knows economy . What he advocates wont crash the market, it will save it from collapse or slow death

  2. Starr Barnum | January 3, 2012

    Another insightful non-biased assesment of the cuurent landscape.Could you extend your analysis into the emergence of a dark horse candidate who could save the day with strong leadership and bold ideas? A Ron Paul without the polarizing style.

  3. JNoha | January 3, 2012

    At least you refrained from calling Ron Paul a "nut job", although it is interesting you consider him "highly eccentric" but Newt is "eclectic".



  4. Stephen Murphy | January 3, 2012

    Sorry folks, you cannot depend on what a politician says before he/she is elected to mean anyhting after they obtain office. There preaching of an economic policy is all hot air. Also, dont expect any less spending, no matter which party is electedd. This debt will disipate with inflation and a rise in employment.

  5. John" | January 3, 2012

    Regarding Ron Paul, you wrote:

    1. "His foreign policy is heavily isolationist – even pacifist – and his social policy is moderately libertarian." WRONG. He is strongly non-interventionist, which was the intention of the Founding Fathers for this country and our position until the mid-1900's. Even CNN and FOX News have given up misrepresenting his ethical foreign policy positions as "isolationist". He is also strongly libertarian on social policy, as it should be, unless you think your nose belongs in my business and mine in yours. You know the difference on these matters. Stop using rhetoric like the manipulative mainstream power brokers do in order to make your point. Report the facts and let us think for ourselves and decide.

    2. "His economic policy is popular with party conservatives but not the general electorate." WHAT?! He has HUGE support among the general electorate BECAUSE of his economic policies. This is one of his main draws for those still stuck in the establishment mindset. You're not making your credibility as "journalists" look any better with such erroneous statements.

    3. "His tight money policy would be highly beneficial in the long run, but would in the short-run involve a painful weeding out of "malinvestment," which would cause a stock market crash." YES, and he's been very open about this from the beginning. He doesn't tell fairy tales of soft recoveries and other such garbage to the people whose very futures depend on this economy. He has always said there will be 12-18 months of hardship and then a strong, solid, well-founded rebound. NEWS FLASH! It is necessary because of all the financial games that we've allowed to be play! Let's man up, take our medicine, and get back on the road to solid, long term growth. Let's quit kicking this can down the road for the next 2-3 generations to suffer through.

    Here's the bottom line, in my opinion: It's either Ron Paul (or someone very much like him) in 2012 or complete bankruptcy for this country. I say abort this failed experiment of the last century NOW, before it causes more disaster here and abroad, and start it over from a sound, ethical perspective, one we can be proud of as we hand the next generation the reigns.

    • fallingman | January 3, 2012

      Thank you John. Very well said.

      (BTW…it's reins. Those pesky homonyms.)

  6. Larry Oakley | January 3, 2012

    In my opinion, the person who is most likely able to oust Obama is the best choice for the GOP. The next most important capabilities include: (1) Reducing the taxes businesses will have to pay; (2) Substantially eliminating the rules and regulations that hurt business; (3) Very substantially reducing government spending; (4) Getting rid of America's cost of the UN; (5) Getting rid of the Fed; (6) Reducing the terms of Congressional members; (7) Having members of Congress observe the exact same rules that citizens have; and many other conservative steps.

  7. Nancy Burks | January 3, 2012

    Your critique of the candidates is the most balanced and fair that I have read so far. As a conservative, Christian voter for Ron Paul, I am greatly distressed at the so-called Christian media trying to sway voters to their favorite candidate of the week (whomever that happens to be). They are really no better than the big media with their biases. Keep us posted.

  8. fallingman | January 3, 2012

    You could have shortened this to…."They're all interchangeable fascists, with no real differences between them and the Democrats in terms of actual POLICY beyond the fluffy words, except for Ron Paul and Gary Johnson."

    Of course, you couldn't say that, because you ignored Gary Johnson, just as the slimy MSM has. And why is that? He's a two term popular governor with a small government record. Oh, I just answered my own question, didn't I?

    • Steve | January 3, 2012

      Gary Johnson was a fine governor and a sincere person. He would make an excellent president, the likes of which this country has never seen. That being said, those voting would regard Johnson as too off-beat and a bit goofy on first impressions which are not the true Gary. Foreign leaders, bankers, and the markets would be caught off guard to America's advantage. I wouldn't know how effectively Johnson would debate Obama. Chances are Obama would also be off guard. It's a shame that Johnson is out of consideration.

  9. Cynthia | January 3, 2012

    Seems to me that statistics show that the markets do BETTER under Democratic presidents, a fact that escapes many. I suggest you get your facts straight before adding to that myth. Your statement that a Republican victory in 2012 would "be good for the market and would cut domestic public spending below that of a renewed Obama administration" is complete nonsense and speculation. You simply don't know what will occur. No one knows. Sounds like you're simply promoting your own Republican preference. Based on what I observe, the "rules" pertaining to the workings of government and to many financial institutions are being turned upside down; we simply don't know and would be foolish to assume what will happen. These statements remind me of those people who say that a stock can't possibly go down any further. Really? Think again. Don't underestimate this President. Given the serious situation he walked into and his limited experience, he's done a heck of a job in my book.

  10. jrj90620 | January 3, 2012

    Most Americans look to govt as some kind of parent figure,that will solve all the country's problems.That means they won't accept/elect someone like Ron Paul,who believes in personal responsibility.It took decades to get to this point of huge govt and would take decades to shrink govt back to a much smaller one.Any attempt to shrink govt over a short period would,likely, cause a revolution.I guess we just continue on our current path,until the Dollar crashes and we are forced to make major changes.

  11. Kat | January 3, 2012

    There are many who voted for Obama wanting less war and restoration of the constitution who are Utterly disappointed in what he has done. We are looking for a reasonable candidate who will actually do those things once elected. Ron Paul is the only one I see who will do that. He is also the only one who really understands the economy and has had a consistent message for 30 years, so I'm inclined to think he won't change his tune once elected (like Obama did)
    I am in my 40s and have traditionally voted Democrat, so Ron Paul's appeal is MUCH wider than what is being suggested here…

  12. K Marchbanks | January 3, 2012

    I say let's elect Obama for a second term. That way he can finish off the idea of socialism and liberalism in America. Just a few more years of his reign and we can start all over. Hopefully with the founding fathers' ideals! Vote Obama and get the change he promised in 08. Sorry I just can't resist the urge to use irony as the solution to ridiculous left ideals.

  13. fallingman | January 4, 2012

    It's now time to dismantle Santorum like we dismantled Newtron. It won't be hard. The man is a fool's fool and when you call him wooden, you're insulting wood.

    Enjoy your 15 minutes Rick before you crawl back into your hole.

    What does this clown do for a living?

  14. Tom Poynor | January 11, 2012

    I'm enheartenned by the comments on Ron Paul. As I see it he has been the most rock solid candidate that has come along. You can set your clock by his steadfastness. I see Ron bringing in disenchanted democrats and most republicans in the race against Obama. We have to face up to the fact if we don't put somebody in the White House that has the will to make the needed changes in turning just about everything around we will crash like a huge wave on the rising beach. Stopping the liberal wave I don't think would be possible in one term. That Ron Paul wants to try has my vote. But watch out for the undertoe Ron.

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