Since Mr. Romney is well positioned to win the presidential election, I’ll take a few minutes to explain what I think might happen if Governor Romney is elected the 44th President of the United States. If Republicans also win both houses of Congress, expect there to be quite a few changes. Many of the changes will affect Corporate America and the economy which affects our finances.
In general, President Romney would move to make government a lesser factor (getting out of the way) in the life of individuals and businesses.Some potential things that may happen as a result of a Romney presidency, in no particular order:
Investment World – within the year
- The dollar will strengthen (the weak dollar is the main cause of increased gas prices at the pump)
- Interest rates will go up – great for seniors dependent on interest income – lock in mortgage rates sooner rather than later - total return on treasury bonds may be negative if interest rate rise
- U.S. corporations will ramp up expansion as the government regulation rope is loosened around their neck – business expansion = more jobs
- Entrepreneurship will explode as a major economic growth factor
- The percentage of people employed (about 63% today – the lowest since 1983) will rise up again and in time the actual unemployment rate will begin to drop
- Individuals will begin to move cash from their money market accounts into equity investments. Our clients have had an inordinately high percentage of their money invested in money markets or very conservatively as a reaction to the growing deficit the past few years. If Romney wins, portfolio allocation will be different than if he does not.
- Your income tax rates will not sky-rocket (Fiscal Cliff), they may even go down. The 73,000 page federal tax code will also have some write-offs taken away. It will be interesting to follow as a bipartisan group of politicians will decide what tax deductions are eliminated.
- Capital gain and dividend tax rates will not go from today’s 15% rate to a maximum of over 40% the way they might have if left to revert back to old rates.
- The Supreme Court ruled tax known as Obamacare will in large part go away. Some parts of it will stay, but most of the 20 new Obamacare taxes would go away. This will save businesses and individuals thousands of dollars that can be plowed into the private sector. For the past few years, many businesses were showing a net profit without growing sales by cutting expenses (read jobs) and getting by with fewer employees. Look for top line revenue growth and GDP to grow at higher rates than it has been the past few years.
- The FICA withholding tax needs to return so that future social security accounts are funded. That means a little less take home pay for everybody.
Government Spending Growth Will Slow Down
- Most of the time when the government reports they are cutting spending, they mean they are cutting the “growth” in spending. For example, a $100 billion expenditure that has built in increases of 4%, but the growth figure gets cut back to 2% over the next five years. That will be called a $10 billion “cut” in government spending, while the expense is still growing $10 billion over the next five years.
- These reductions in growth will return money to the private sector which has always been a good thing for private sector jobs and the U.S. stock market. Mitt Romney wants federal spending capped at 20% of GDP. Right now we are at 24%, which historically a very high figure. This is a simple percentage to monitor if you want to analyze if government spending is out of control.
- Dodd-Frank regulations will be eliminated – a boom for business
- New rules for medical insurance will encourage higher deductibles, vouchers and a means test for the cost of Medicare (the wealthy will pay more).
- A bipartisan agreement on an overall plan of action.
The growing fiscal hole that our country has been moving into the past three years has really been a downer. The main growth numbers we have seen are the number of people who have stopped looking for work and the number of people on food stamps (both record highs). Roughly 100 million people—one-third of the U.S. population—receive aid from at least one means-tested welfare program each month. This has grown by one-third the past few years. This is tragic and has come at a cost of over $5 trillion dollars in debt and growing by one trillion per year.
I think the direction is about to change and the glass is “half full” again.As a believer in free markets and that less government interference (from both parties) is almost always better, I am very excited about the direction we will be taking. If Republicans take over, they need to be true to their word and put significant cost cutting policies in place while reducing the onerous business regulations and taxes that stifle our economy it . My faith in this happening was made stronger when fiscally conservative Representative Paul Ryan was added to the ticket.
We will know in a few weeks if we can expect many of these changes to happen in 2013. No matter who wins the presidential election, I will be making changes to my personal portfolio as well as my client’s. The changes will be quite different depending on who the winner.Check back with me for recommendations to your investment portfolio next month.