Well I told you so. My heart in the end went, marginally, for Romney and as I see deluded lefties across the media world delighting in another four years of hopey change I feel Romney’s pain. But my head told me Obama would win and so I have called it as an Obama victory from the moment it became clear he was going to face Mitt. I never flinched in that – whilst other conservative writers claimed Mitt had momentum and would inch it, this pundit got it 100% right. I shall cover the political and coverage aspects later but starting with the economy. Obama’s victory is not very good news for the USA.
Firstly the Republicans still firmly control the House (although the Democrats increased their majority in the Senate). That means that there will be no easy away to avoid gridlock as the huge structural issues the USA faces start to reach a point where they cannot be kicked down the road again. That point is now.
There are numerous elephants in the room. The national debt is $16 trillion. The US is running a vast budget deficit and that is in no way under control. Despite Quantitative easing (QE) on a mammoth scale the economic recovery has been anaemic and has created very few real (i.e. non beltway funded) jobs – real unemployment is at 1930s levels. The US has become addicted to QE. Cold Turkey is unthinkable. And finally in January we have the Fiscal Cliff when half a trillion of Bush tax cuts/spending plans disappear so kicking the real economy in the goolies.
So whatever Obama says about the economy recovering is basically a lie. I think that the technical term for where the US is right now is “fucked.” Its balance sheet is closer to Spain than solvent, its joblessness is closer to the Great Depression than just a modest recession, and Obama’s message is that we carry on with more of the same. And so we shall.
This means that the deficit will not be controlled and the National debt will balloon. This means that Ben Bernanke and the Fed will indeed continue with QE Ad Infinitum. This means that the answer to the Fiscal Cliff will not be tax cuts but “Targeted Government Spending” ( i.e. borrowing yet more because the Government always knows how to spend money more wisely that folks who actually earn it) and er…more QE. This means more taxpayers dosh for failing industries like Auto and for the Wall Street Banksters and to employ liberal arts graduates on the Federal payroll. It just means less disposable dosh for those who actually work and create wealth.
Sadly, as Romney identified, 47% of the electorate are now on the Government payroll – they take more from the US State than they give. Those people voted for Obama because it will be in their economic interests to do so. They will carry on doing so ad infinitum. Yes America will go bankrupt but until then their standard of living (off other folk’s labour) will be preserved not attacked. When the US goes bankrupt then …well that is for another day.
So from an investment thesis what to do? The long term short on the US dollar looks pretty safe. And with the world’s reserve currency likely to stay on the ropes from now onwards it looks very good for gold and oil – the former will finally push through $2000 oz in 2013. For equities? I suspect a sell off today but as the printing presses roll a series of ever weaker rallies over the coming 12 months. Personally I would rather not own US denominated assets, I’ll stick to gold if that is okay with you Mr President?
Just for the record I am not sure Romney would have been that different a captain on the Titanic. It is just – to mix my metaphor – that he would have taken a bit longer to crash the train. America’s problems are too big and no-one really seems keen to accept that and suggest a solution. Except Ron Paul natch.