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Win or lose, the most recent vice-presidential choices never mattered much when it came to the economy.
From Joe Biden to Sarah Palin to John Edwards, none of them were ever known for their grasp of economic policy.
But Paul Ryan is different.
His selection as vice presidential nominee last weekend has significant implications for the economy if the Republican ticket wins Election 2012.
In fact, the selection tells us more about Mitt Romney than we knew before, since Ryan is committed to a group of policies difficult to implement but which would change the direction of U.S. fiscal policy.
If you're interested in an adult conversation about the dangers of the fiscal cliff, the selection of Paul Ryan ensures you are going to get one this fall.
As an investor, that means you need to position yourself to benefit from a GOP win, without damaging your wealth if the just about equal possibility occurs of losing to President Barack Obama and Vice-President Biden.
With Ryan now in the race, here's what you need to know about this up-and-comer from Wisconsin.
What Paul Ryan Brings to the Ticket
As head of the House Budget Committee, Paul Ryan has made two major economic proposals, both of which have been passed by the Republican-controlled House of Representatives.
One is to restructure Medicare, keeping it as it stands for those over 55, but transferring those below that age into a premium-support scheme that would leave individuals more fully in control of their healthcare costs.
The other is a budget that, apart from reforming entitlements, proposes to reduce top tax rates and pay for that reduction through means-testing the home mortgage, state income tax, medical insurance and charitable tax deductions.
From Mitt Romney's point of view, Ryan's Medicare proposal is the more dangerous issue in the campaign since the Ryan budget proposal is fairly close to Romney's own.
However, with his selection of Ryan we can assume that Romney is prepared to defend the principles of Ryan's Medicare plan, and that if he wins, something like the Ryan plan and his budget will be put forward to Congress.
Of course, being a sausage factory, what Congress actually gets enacted may bear little resemblance to the wholesome ingredients that go into the mixture!
One other key issue at stake in this election is monetary policy.
Like the other Republican candidates, Romney pledged not to re-nominate Ben Bernanke when his term expires in January 2014.
But the truth is, Ryan is much more seriously committed to reforming the current monetary policy and eliminating the huge costs it has inflicted on American savers and the pensions industry.
Given that the majority of Republicans are also committed to Bernanke-replacement and higher interest rates, we can be fairly confident that a Romney/Ryan victory would prove a watershed moment in U.S. monetary policy.
Election 2012: An Investor's Guide to Romney/Ryan
As investors, we can assume that if Romney wins, a serious effort will be made to cut public spending, possibly accompanied by a net tax increase, although with a slashing of tax deductions fairly similar to the 1986 tax legislation.
We can also assume that Obama's healthcare legislation will be revisited, with a greater emphasis on the private sector and an attack on cozy healthcare oligopolies in the hospital, pharmaceutical and insurance sectors.
Finally, we can assume that interest rates will rise.
With those outcomes we can certainly plan on what to do if the Romney/Ryan ticket wins the November election.
Investors should short the hospital and pharmaceutical sectors, whose profits will be squeezed, but go long the private insurance sector, whose role may well increase.
Because interest rates are likely to increase, investors should also short government bonds — even though the deficit will finally be addressed.
A Romney/Ryan win will also be bad for the home builders because of the reduction in subsidies for housing and the likely attack on Fannie Mae and Freddie Mac will slow their recovery from the 2007-12 housing downturn. Builders at the high end like Toll Brothers (NYSE:TOL) look especially vulnerable.
However, as investors we cannot usefully do any of this before the election.
However, there is one thing investors can do before the election. They can buy the ProShares UltraShort 20+ years Treasury ETF (NYSE:TBT). This ETF takes a leveraged short position in long-term Treasury bond futures, so if interest rates rise (and bond prices decline) TBT benefits.
Whichever candidate wins, it looks like a good buy. If Romney/Ryan wins, interest rates will rise in 2013, and Treasury bond prices decline.
If Obama/Biden prevails, then less will be done to address the Federal budget deficit, while monetary policy will be kept very loose.
In that case, either inflation will surge or the market will start worrying seriously about the long-term U.S. budget position, or both. Again, that will be good for TBT, although the payoff may be delayed slightly longer.
Of course, the last major economic policy figure to run for the Vice Presidency was Jack Kemp in 1996, an author of the 1980s Kemp-Roth tax cuts. It's said Kemp has been a major formative influence on Ryan.
Whether Romney/Ryan faces the same fate as Dole/Kemp remains to be seen.
Either way, you can expect the debate to be one of two very different ideas.
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CORRECTION– In your 10th paragraph, you state :……"leaving individuals in control of their health care costs"…… Actually Ryan/Romney would leave big HEALTH INSURANCE CONGLOMERATES in control, because although seniors under 55 would get vouchers for their health care, the cost of medical insurance would rise faster than the value of the voucher, thus providing seniors LESS ABLE to afford care in the future.
ProShares UltraShort 20+ degrades in value with the variation of bond rates. So it is not a sure thing if Obama wins (which I think he will, I can not think that a majority will bite into so-called radical changes, it does not possess the ability to do so), waiting a long time for rates to rise can mean a loss…..so to me there is more risk than you state. But happy to be shown otherwise, not meaning to criticize.
What would the Romney/Ryan victory do about the American Farm Bill, as compared to the Obama/Bidan Farm Bill, I dont see it discussed at all, is it an important policy in either the Republican or Democratic Party or not.
Will look forward to any comments from your contributors.
Regards
EJ
For the first time I have major disagreements with your column. Paul Ryan is a light-weight–16 years in Congress and he hasn't ever had any significant legislation passed. He is not a popular guy in his own State, and he is certainly not a vote-getter. His health care proposal didn't pass the Senate because he chose not to compromise in any way or build any kind of consensus–which is, as you admit, a requirement in the legislature. Also, the proposal is base on a number of faulty assumptions about health care. Ryan's "plan" is just a more extreme version of… Read more »
I'm 67yrs old. I have never seen any thing a republican has done for 98% of the population, they always catter to the wealthy,s American or are these 2% even Americans, I grew up in the fourth and fifty,s worry about communism it turned out my fears have been the republican party all along. Lies Lies Lies If these gangster,s win this presidential election our country should see the largest revolt in the history of our world I hope the American people would not lay down and take this RAPE which would be forced on us, We are 98% Strenght… Read more »
Oh, come on. This is just silly. Ryan is a fruad. He utters the names Rand, Mises, and Hayek and then votes for the following: The bank bailout known as TARP The bailout of the auto industry The use of military force in Iraq The Medicare part D entitlement Continued funding for the war in Afghanistan, The National Defense Authorization Act The union bolstering Davis-Bacon prevailing wage mandate Raising the debt ceiling numerous times. Sound like a budget cutter to you? Sound like a free market guy? Hardly. And, despite the media and democrat hysteria, his budget proposals are timid.… Read more »
I don't see why Romney needs to accept and defend all Ryan's thinking. All Romney should say is that when the Romney Administration needs to make a decision he will solicit a range of differing ideas from his cabinet, advisors and, yes, his vice president. But the final decision would be his.
JOSEPH VENNERI IS A KOREAN VETERAN HONORABLY RELEASED OFFICER ACCOMODATIONS EVERY COMMAND AND AN EXTRAORDINARY MINISTER FIRST AND FOREMOST I NEED YOUR ADDRESS TO SEND YOU THE GREATEST POEM I EVER WROTE THAT WILL WIN YOU THE ELECTION CALLED "WHY CAN'T WE LOVE AND BE LOVED" I HAVE VISITED 13000 PATIENTS AND "SHUT INS" IN TEN YEARS AND TWO MASSES EVERY SUNDAY SPANISH AND ENGLISH AND AM REALLY RESPECTED THE SPANISH PEOPLE ARE VERY COMPASSIONATE BUT DO NOT UNDERSTAND THEIR OWN RELIGION WE DO NOT BELIEVE IN "ABORTION" AND "GAY MARRIAGE" WHICH OBAMA AND IDIOT PELOSI CAME OUT FOR THAT… Read more »
THAT IS MY CORRECT EMAIL PLEASE SEND ADDRESS MY PRAYERS SINCERELY
REVERAND VENNERI
Alas, the phrase "more control over your (whatever)" … for Medicare and SS? Just like 401K plans, where the sizzle nevr really met the steak, just in case we forget about 2007, and how long it will take to recover our 'control' regardless of 'breathtaking' returns from the depths of our losses! Vouchers? … oh yeah, my retirement benefits were put on a voucher about 4 yrs. ago, helping to support the 30% annual increases since. Please don't get me wrong, while a disaturbing trend, premiums a manageable right now; just don't insult my intelligence saying this is soooo gooood!… Read more »
How will a Romney-Ryan victory affect those of us who are heavily invested in precious metals, especially silver?
I will be casting my vote for Mr Rommeny and Ryan. It is unamerican to vote for a socialist I fought to save this contry as a US Marine and I don,t want to see it fall now.
So, here's what I read from your comment "Investors should short the hospital and pharmaceutical sectors, whose profits will be squeezed, but go long the private insurance sector, whose role may well increase": the organizations that actually provide health solutions will suffer, while the middle men (insurance companies) will benefit. In a nutshell, you described exactly what's wrong with the GOP position on healthcare and medicare. Thank you for making this so clear. I've made more money during Democratic administrations than I did (and lost less) with Republican administrations, so I don't buy the "GOP will be good for your… Read more »
I think a manditory 401k should replace SSI, medical ins, and unemployment ins. After working a few years you got a pile of your own money to pay for stuff. At your own discression. Businesses could to afford to pay it's employees more or match your funds. Every 5 years you could put 1/2 your fund into an annunity that starts paying you at 60. At 60 you could accelerate paying off all your debt before you retire, or reinvest it. This would work if the fed would just stop devaluing our currency. When you die your family would inherit… Read more »
You seem a bit confused. SSI (not funded by payroll taxes) is not the same as Social Security. Medical and unemployment insurance have nothing to do with retirement plans like 401(k) plans. The investment options in 401(k) plans are designed to protect the sponsor from lawsuits and include no hedging or principal protection options. Might as well buy lottery tickets. Defined contribution plans (like a 401(k)) have been widely adopted because employers get to set their own contribution limits.
How anyone can suggest putting one's entire retirement nest egg into 401Ks after what we just went through in 2007 is beyond comprehension. Especially since the Banksters are still running loose without any regulations to shackle their criminal behavior.
In what world do you live? Mitt Romney is running from the Ryan plan on all fours. Dream on.
Ryan voted for each of the proposals that created the massive deficit we now struggle with (TARP, Iraq & Afghan wars, Medicare part D) How is it logically possible that the same individual could now be for deficit reduction? Don't read his lips, review his actions and you will see just another politician doing business as usual. Regardless of where you stand politically, Voodoo economics is Voodoo economics. Whether or not the Fed chair changes hands, Volcker is not coming back. Higher rates are a certainty, the question is timing. Markets will eventually raise rates without waiting to see what… Read more »
Not only is Gov. Romney running from the Ryan Plan, but also republican candidates for other public office. Votes while in office count. Earning a salary should count. When only 2% of the bills proposed in the Congress get passed, some people aren't doing right by their salary. When there are no serious jobs bills pondered when we need to put people to work, why are bills like the Right-To-Carry Reciprocity Act, The Protect Life Act, NPR Defunding Act…and other such non-urgent poppycock the only bills that have received any attention?
Please remove me from your mailing list. Your shallow, idiotic politics will make me question your judgement on everything else you may have to say in the future. Thank you.
How is leaving individuals in control of their health care costs a good thing? What this means is providing vouchers to senior citizens to limit the amount they can spend on healthcare, and then making them pay the rest out of pocket. All while not lowering healthcare costs, but instead giving insurance companies and healthcare providers free reign to charge whatever they want. I do believe in fixing the defecit, but why not out of the insurance companies pocket instead of out of our grand mothers.
Ryan is as big a liar and fat cat ass wipe as Romney.After my sub runs out I,too will cancel.
Ryan the Flim Flam man is going to plug the loop holes of the middle class taxpayers to give his super rich friends lower taxes. Keep it up the revolution is right around the corner.
The problem was NOT Sarah Palin.
The problem was John McCain.
John should be in the retirement home, not as a siting US Senator.
The election was lost the moment McCain became the republican candidate.
NO ADDRESS HERE IS FOR THE CONVENTION FOR CHRISTIE!! WHY CANT 'WE LOVE AND BE LOVED WHY CAN'T WE LIVE AND LET LIVE FEEL MORE THAN WE ARE FELT OF GIVE MOR THAN OTHERS WILL GIVE WHY CAN'T WE OPEN OUR HEARTS WHY CAN'T WE HOLD OUT OUR HANDS THEN WE WILL ALL PLAY A PART IN THIS STAGE GOD HAS SET ON OUR LAND TEACH ONE ANOTHER TO LOVE HELP ONE ANOTHER TO LIVE SPREAD OUR PEACE FROM ABOOVE BE HAPPY FROM WHAT WE CAN GIVE THIS IS MY PRAYER EVERY NIGHT TO END HATRED AND WAR EVERY WHERE… Read more »
What a poorly thought-out piece of political commentary. Ryan is a sham. Of course, you would be a fan of Ayan Rand and for personal responsibility if you were born into wealth like Ryan and Romney. Gee, I wonder why I am in a 32 % tax bracket with Romney paying 14 % and Ryan paying 17%, thanks to unearned investment income from trusts. Think that skews their thinking. If you are relying on these two to put fairness into the tax system, you will be waiting a long time. Hutchinson forgot, it seems, that Obama made an attempt to… Read more »
I like when the one reader says Paul is disliked in his home state ,it makes me wonder what state that reader is talking about he is only where he is because he brought people together told the truth with out 3,000 pages that Nancy say we will read that part when we get to it, he might need to back up and think what he wrote Paul does not walk on water all he did was win in districts that where Democrats and no I did not say rats , he treated all the same and put it on… Read more »
Ryan and the medicare voucher plan is the privatization of medicare at the expense of the old and sick.This atempt to take away from the old and sick while the wealthy get more tax breaks does not seem fair.
What universe do you live in, Hutchinson? Palin balanced budgets her whole political life. Read her 59,000 pages of emails. Left Alaska with a $12 billion surplus, forward funded education for three years, put in place ACES, a new value system for oil receipts. Its for sure Biden and Edwards don't know anything about economic policy and neither does Obama. Hes hasn't balanced a budget his entire life. Palin was the only one who supported Ryans policys.