Post Election Prediction…

I wanted to make a prediction on the economy and the stock market post election.  I’m interested to hear how people on both sides think this will all work out.

There are two facts that need to be contended with that are working against the economy no matter who wins.

1.  Companies are running out of growth.  Many large companies have seen good profit numbers due PRIMARILY to getting their costs under control.  Getting lean and mean.  Now that they are done with that, and have wrung the sponge dry, increased profits must come from business growth.

2.  The massive tax increase set for January 1st will be stifling.  A complete and utter drag on the economy.

3.  Interest rates cannot stay at this rate forever and the Fed cannot continue to print money.

If Obama wins –  The day after the election the market may actually go up a bit.  Only for the reason that some “uncertainty” will be removed from the stock equation.  This will be short lived as more focus is back on the lack of corporate growth.  Companies will go into a shell and not move money into projects with a higher risk profile.  They will try and hunker down for four more years.

The Private Equity sector will slam on the breaks again.  The risk profiles of institutional and family funds will drop immediately.  The capital for companies and projects with a higher risk profile will find that there is very little investment capital to be found.  Combine this with the massive tax increase set for January 1st… and two things will happen.  1. The economy will surely fall into a second recession.  It can be no other way.  As money tightens and companies slow down….. it can be no other way.  2. Job growth at the very best will be anemic and most likely unemployment will go up once again.

If Romney wins- The day after the election the market may actually go up significantly.  Because “uncertainty” will be removed from the stock equation and that investors will appreciate a new pro-business President coming into power vs the current anti-capitalist President.  This uptick should buoy stocks through their flat earnings for the next couple of quarters.

Companies will finally come out of their shells and begin to move money into projects with a higher risk profile.  If obamacare gets thrown out, this will be an even faster move.  In addition, small businesses (sub 50 employees) will start growing as well.

The Private Equity sector will jump for joy.  The risk profiles of institutional and family funds will increase within 2 quarters.  The capital for companies and projects with a higher risk profile will find many more opportunities for capital.

There is still the issue of “Taxmageddon”.  This disaster needs to be mitigated, without printing money!  We’ll see what happens, but this could still cause a significant negative effect on the economy.

Even with Romney we may be on the razor’s edge of a recession for a couple of quarters.  It will be interesting to see.  But once the bullet is dodged, there will be a sustained growth in employment.  Who knows, maybe we get under 7% by the end of 2013 and down to 5% by 2016.

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