The race for President of the United States just got interesting. Mitt Romney’s choice of Paul Ryan as his running mate pits Romney/Ryan against Obama/what’s-his-name. Romney has signaled his lack of desperation by NOT choosing a running mate as inexperienced as what’s-her-name, and his choice of Paul Ryan is a bold statement that this campaign is about the economy and the size of our government. It is not about “right to life”, health care, education or the environment. It is not about foreign affairs either (but Ryan should make sure he knows the name of the sitting president of Uzbekibekibekistan).
Romney’s choice of Ryan says that this campaign is about lower taxes and smaller government. It is about the economy, stupid. The choice of Paul Ryan is an announcement that the Romney campaign intends to attack the Obama Administration for inept fiscal economic policy. Afghanistan will be an asterisk. Middle East foreign policy will be a footnote. Obamacare will be a large footnote. But the text of this campaign will be the economy and unemployment.
There are two camps which have become more distinct over the past four years: those who think government spending will eventually kick-start this economy and create jobs (Keynesians)…and those who think the private sector is the ultimate and most efficient source of employment (almost everyone else).
I don’t want to burst anyone’s bubble but I think both sides are winging it. I don’t think anyone knows what the correct solution is. Furthermore, I think it is realistically possible that there IS no good solution to today’s economic climate…at least no good short-term solution. I think it is possible that the average citizen drank so much alcohol (too much debt) that he is not going to feel better until he has vomited (bankruptcies/business failures) several times and then slept it off (recession/depression)…and we can only hope he didn’t drink so much that it kills him (revolution). I fear that there are more than a few people who think that giving the drunk more alcohol might be the best short-term solution…it isn’t.
Keynesians point to eras in history when government spending allegedly helped the economy get back on its feet. Non-Keynesians point to eras when capitalism, left to its own devices, allegedly provided the most robust economies ever. Both sides are dealing with sample sizes which are much too small. Both sides tend to ignore other factors that may have contributed to economic recoveries. Both sides are mining data to support their biases. Neither side has much of a clue. But ten years from now, one side will get to say to the other, “See, we told you that wouldn’t work.”
Under Presidents Bush and Obama, we have seen massive government spending and virtually nothing to show for it. There are those who argue that the economy would be much worse had the government not stepped in when the private sector froze up. Fair enough. That’s probably true. But did we get our money’s worth? Is the economy proportionately better relative to the amount of debt that has been incurred? And can we continue to incur increasing amounts of massive debt on the speculation that it will jump-start the economy? At some point, you have to realize you don’t have enough money for a brand new Mercedes…you can only afford a used Civic with 80,000 miles on it.
Paul Ryan will likely solidify the Republican base but that will not be enough to win the election. The Republican base was never going to vote for Obama anyway. Romney/Ryan need more than just the Republican base. They need to sway the moderate voters who voted against McCain/Palin in 2008. It’s probably not too much to conjecture that Paul Ryan will garner more moderate votes than Sarah Palin.
The Democratic base is never going to vote for Romney. Even if they don’t like Obama, they have no one else for whom to cast a ballot. So the key to this election is the moderate voters. Obama won the 2008 election because the McCain/Palin ticket scared all the moderates into voting democratic. It made more than a few voters uneasy that Sarah Palin could be one brain aneurism away from the most important job in the world…THE MOST IMPORTANT JOB IN THE WORLD! Paul Ryan will not likely cause that level of uneasiness in the minds of moderate voters.
I think there are at least two key important unknowns in determining the outcome of this election. If unemployment figures escalate through November, that’s bad for Obama. If they decline, that’s not so bad for Obama (but not necessarily good either because they are still too high). The other unknown is the debates. The Obama vs. Romney debates should be fairly even with a slight edge to Obama but who knows? However, Ryan vs. Biden should be much more interesting than Palin vs. Biden, provided Paul Ryan can debate without looking at notes written on his hand.
If I had to handicap it today, I would give the edge to Obama. However, I think Paul Ryan could win this election if Romney stays out of the way.
Can there be a more underachieving country of athletes than India? With a population of 1.2 billion (four times as large as the United States), India garnered six measly medals at the 2012 Olympics in shooting, wrestling, boxing and badminton – not one of them gold. Sweden won SEVEN medals with a population less than ten million. India has TWO CITIES each with a larger population than the entire country of Sweden. Tajikistan even won a medal! Until the Olympics, you didn’t even know Tajikistan was a country. With a population just under eight million, Tajikistan has only been a country for 21 years. However, even though Tajikistan won only one medal, Paul Ryan better know who the sitting president is.
About the only times I have heard the words Greece, Italy or Spain in the past two weeks was when I was watching the Olympics. What happened? Did their economic problems just disappear? The interest rate on the Spanish 10-year bond keeps poking its head above 7% and the Greek 10-year bond is trading at an interest rate of 24%. Although both have been worse recently, they still don’t resonate with optimism.
Don’t be fooled. Everyone in Europe is on vacation and when they return, they still have to figure out how to bail out the Greek government and the Spanish banks.
Meanwhile, U.S. stock markets are loving the absence of news from abroad. Volatility has all but disappeared. Since June 1st, the S&P 500 has advanced over 10%. The Dow Jones Industrial Average has advanced/declined over 200 points in only five days during that period. It has become eerily quiet.
In addition to the temporary disappearance of bad news from Europe:
- Retail sales are up
- Manufacturing is up
- Housing prices have bottomed and prices have increased in some regions
- The price of money remains cheap
- Corporate balance sheets are healthy and dividends are increasing
- Leading economic indicators have turned positive
And the “fiscal cliff” everyone has been worrying about? The one where the Bush tax cuts expire at the year end? Ain’t gonna happen. And the markets are starting to realize it ain’t gonna happen. There is no way Congress will let the tax cuts expire all at once. There will be compromises about which tax cuts expire, which ones don’t expire, and for whom. However, the degree of compromise will be a function of who wins the presidential election.
At Boyer & Corporon Wealth Management, we continue to find good relative value in municipal bonds, corporate bonds and AAA-rated non-agency mortgage-backed securities. Yes, that’s right…non-agency mortgage-backed securities…the ones that blew up four years ago and caused a worldwide economic collapse. I always say the safest hotel in which to stay is the one that most recently experienced a major fire.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.