3 things to watch for after Election Day
The time for promises is almost over, and soon the work will begin. Here are the key economic points to keep any eye on.
It's a full-on sprint to the finish for President Barack Obama and GOP challenger Mitt Romney as polling in battleground states remains within the margin of error. It's going to be a photo finish after months of negative attack ads, heated political discourse on the direction of the country and wildcards like curiously strong jobs numbers and the aftermath of Sandy.
Here are three things to watch for starting Wednesday morning after the president for the next four years -- save some unforeseen Election Day fracas or contentious recount -- is unveiled.
The fiscal cliff
The first order of business will be for Obama, lame duck or not, to start negotiating with the lame-duck session of Congress on the fiscal cliff of tax hikes and spending cuts worth 5% of GDP that will hit Jan. 1 unless action is taken. Adding to the drama is the fact that the U.S. Treasury will hit its $16.4 trillion debt ceiling limit sometime in January or February.
Failure is not an option. Going over the cliff would result in a new recession, financial turmoil and more credit rating downgrades of the type that sent stocks careening last summer. But there are no easy answers, especially with the kill-or-be-killed blood sport that passes for bipartisanship these days.
As I explored in a recent column, the most likely outcome -- regardless of the election -- will be a "mini-cliff" package of budget cuts. Merrill Lynch is looking for a little more than $300 billion, with the makeup of the cuts dependent upon the victor next Tuesday.
Simply getting rid of the fiscal cliff by reversing planned tax hikes and spending cuts, would cause our national debt to explode. The bipartisan Committee for a Responsible Federal Budget believes the nation's debt held by the public would grow by an additional $7.5 trillion through 2022 -- an increase of nearly 70% over the next 10 years.
And because of the way more government debt damages the ability of an economy to grow, the longer we wait the harder it will be to create the wealth and prosperity needed to solve the problem.
Next on the to-do list will be reversing the pessimism being felt by our CEOs and small business owners that's causing them to cut back sharply on capital expenditures and new hiring. The data suggests they're worried about things like the fiscal cliff, Europe's ongoing sovereign debt crisis, a pullback in China's growth rate and a rising tide of regulatory burdens.
While consumers are ebullient right now, with one measure of consumer confidence rising to a post-recession high, unless CEOs start feeling better and making capital investments and headcount expansions again, the economy's growth rate will continue to stall and the unemployment rate will pop back over the 8% level.
Consider how executives from Cummins (CMI) to JPMorgan (JPM) are slashing headcounts. Consider how core capital goods orders are collapsing. Consider that, without a one-off surge in government spending last quarter, GDP growth would've been much, much weaker.
The jobs deficit
And finally, the next president will have to deal with the economy's most intractable problem: Putting the millions of people who have lost their job and/or left the workforce back on the clock. Until we get more jobs, and rising incomes, the economy will continue to spin its wheels in the muck despite the trillions of stimulus dollars -- from the federal government and the Federal Reserve -- that have been put in.
Not an easy task. But no one said being the leader of the free world was easy.
For now, I continue to recommend my clients and readers maintain a defensive posture with a focus on safe havens like Treasury bonds and the U.S. dollar -- both of which should perform well if the fiscal cliff negotiations turn ugly, as I expect. Examples include the Direxion 3x Treasury Bull (TMF) and the US Dollar Bullish Fund (UUP). This may seem counter intuitive, buying the assets and the currency of a country that can't fix big problems. But that's just the way things are.
Disclosure: Anthony has recommended TMF and UUP to his clients.
Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
"Reduce the tax on profits held abroad if it is broght home and creates jobs.Those profits have already paid foreign taxes, they should not have to pay big U.S, taxes"
That's idiocy. Tax imports to the level that American prices directly compete. We have retailers clearing out goods at 95% off retail or more. That margin wouldn't exist if the playing field were level. On a level playing field, importers would be OUT OF BUSINESS and investors like you-- underminers of America-- would be broke. There would be no unemployment and a very strong economy.
January 21- Louis XVI beheaded
January 31- More assignats (like a Dollar here)
February - Formation of a committee of Public Safety: rioting in the streets of Paris over high prices March - Revolutionary Tribrunal established: Reign of Terror begins.
May 3- Price control on grains
June 22- Forced loan degreed, a progressive Income Tax
August 1- Trading in specie prohibited
Sept 29- Law of the Maximum- price control extended to all food
October 16- Marie Antionette beheaded. Over 3,000 million new assignats issued during the year.
Only 1,200 million actually entered circulation.
This is straight from: Fiat Money Inflation in France by Andrew Dickson White. He read this to members of both parties in Congress in 1876. They listened and averted a repeat of history.
Not meant to be scary... but late January a new President is sworn in here in the USA. Who immediately will order more fiat Dollars printed because by then, our economy will be critically imperiled. Congress will form committees to appease the masses, but those committees will be beholden to lobbies, who will demand consumer level corrections. An attempt to fix the housing mess by a forced credit will fail and regardless of opposition- Income Taxes will go way up. Gold Silver and other metal trading and hoarding will be prohibited (if you own it, it's worthless because you can't do anything with it). An attempt to correct by fixing prices without recovering jobs- does nothing but to stop producers from producing because the cost to grow exceeds the harvest price. Supply dries up. The sitting President is impeached before year-end. It is found that way more fiat money went into Wall Street than Main Street but nonetheless is owed by all of us. Banks are shuttered. The Federal Reserve is ended. Wall Street is gotten rid of. Hired-in executives and board directors are thrown out and an attempt to recover people with skills- out of work for 5+ years by then-- is futile. THIS IS STRAIGHT FROM THE HISTORY BOOK. Are we that ignorant to repeat it? Obama already knows what hasn't worked and why. Romney would follow the instructions of wealth and self-interest. Are you blindly stupid? Or will you stand up and not repeat history?
When I went to the SS office to retire I found that my employer paid in to SS $150,000 and I paid in $150,000. Now it seems to me that our Government used my money and did not pay interest on it at all. I am not a rocket scientist but I can figure out that if I had control of my money I could have at the very least received some interest from my bank for ther use of this money.
A history lesson in dealing with the government is that you can be assured if your taxes are raised they dame sure will not pay down the debt with the money. They will increase the debt for more social programs to ensure a future election win. What do you think?
It's hard for our whole family to kind of understand this very closed race for the presidency. Romney has promised to literally modified Medicare to a Voucher system that smells a bad deal, and he will not explained it fully, for the old and future old! Our Social Security is floating in mid air, as he wants to privatized it, this only means that some gangsters and rich dudes will keep trillion of dollars in their coffers and perhaps if you behave well they will issue you monthly check, this applies to the citizens in SS now, and the future ones, so don't think you will be except from the chaos. But of course! All of it depended on where your money is kept, if in the Stock market, a sudden crash, and you can will kiss good bye to all you money, and years of savings! So, this is pointing to "American citizens you are truly very stupid". We all have the horrible experience of Bush, the years of unnecessary wars, Iraq, and Afghanistan, our many heroes killed in combat, and the thousand of Iraqis killed that did not have anything to do with it! Over thirteen trillion dollars lost! The losses of jobs send overseas by Romney Bain Corporation, and other large Corporations, also the tax cut for the rich, and the American citizens still, kiss the hand of the perpetrators by keeping him (them), in the present presidential race. We Americans, perhaps thousands all of us, all have the Amnesia Romney has, and the final mistake will be the electing Romney, it will bring all of us to the final Avenue of "Perdition". When Romney, that did not want to show us, the American people his many years past Tax filings, not knowing if he paid any taxes or not, and we still want to vote for him! During the Vietnam war he was in a transferred to France from his Mormon Church, and he was in good health, fully enjoying French hospitality, while our heroes died by the thousands. During the Iraq, and Afghanistan wars his sons were in some type of so called Missions by the Mormon church, while our true American heroes, and naturalized citizens died in the fighting field! He does not want FEMA, he is against women right's same pay same work, You are pregnant by rape, by a perverted, and have his baby for life, as you have no decision to make, and if you abort the creature you go to jail for murder! The best of this country, our women will not get equal pay for equal work! The rich will have a juicy tax cut, while we, the middle class will pay for it by taking all our tax deductions away! So it goes stupid American that live in the impregnated atmosphere of Bush, and Romney, and the liar of Ryan. Too bad you will all ignorant ones, all of you morons, force us to breath the same polluted junky presidential air that you will breathe if you put him (them), in the White House! If he gets there you all know you are soon in a fifth World Country!
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Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
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