09/26/2012 06:50 pm ET Updated Dec 06, 2017

Even An Obama Victory Might Be Market Positive


Though whether there was a genuine "simultaneous catch" at the end of Sunday night's Packers-Seahawks NFL football game is probably more on the minds of voters this week, below the pop culture radar and the pro-Obama disinformation out of CNN, MSNBC and network TV, it's clear that the U.S. stock market is taking a breather from its recent Fed-goosed run-up. Nervous Nellie traders -- as opposed to the wiser investor class -- are bailing out of stocks en masse this week, happy to park their sizable 2012 gains in advance of a possible Goldman-predicted, fiscal-cliff-engendered, recession.

However, Crotty says, "Not So Fast, Market-Timing Amigos." There are still two market-shaping events on the horizon, both of which might bode well for stocks. And have no doubt about this: so goes stocks, so goes jobs, wages, housing, student loans, and money for cops, teachers, firemen, infrastructure, health care, defense, food stamps, and the amount of money that mom and dad can donate to your AFI thesis film at Monk Space. So, yes, this applies to ALL of you.

The first event is the October 3 presidential debate. The odds are stacked against Mr. Romney. Mainly because even a mediocre performance by the President will be spun by mainstream media as an Obama triumph. We already see bias in the reporting on each candidate's recent, and inevitable, gaffes. Romney was pilloried for his poorly crafted, if secretly, and perhaps illegally, recorded "47%" remark, while Obama got off largely scot-free for his more outrageous claim that recent events in the Middle East -- tens of thousands of dead Syrians, the murder of our Libyan ambassador, the storming and ransacking of U.S. embassy grounds in 20 nations, the sudden transformation of the Arab Spring into a radical Islamic takeover, and the continued nutball ravings of the Holocaust-denying, nuke-seeking, homo-hating Iranian president -- are just "bumps in the road."

Romney clearly has a huge Obama home-court advantage to overcome. However, if the post-debate polls clearly evince a Romney triumph, the market will like it.

Each subsequent debate will also carry market-moving importance. But the next game-changing event will be the November jobs report, just days before the general election. If that number is as bad as predicted, it will be the final impression that jobs-focused swing voters will take into polling booths in the crucial swing states of Nevada, Colorado, Iowa, Wisconsin, Virginia, and North Carolina (all of whom are universally considered toss-ups, even with Obama's post-convention bounce). Not good news for the President, who to date successfully distracted the electorate from his mediocre economic performance with ad hominem sideshows about Bain Capital and Romney's tax returns (even though Governor Romney has been far more charitable than the comparatively parsimonious Biden and Obama).

A Romney victory in November would be the most bullish signal that the markets could receive. It would mean that Obama's proposed, and onerous - 54% of Americans have money invested in the stock market -- increased taxes on capital gains, dividends and interest will not take effect. Moreover, it likely means that the GOP will rule the House, Senate and White House, paving the way for a quick resolution of the looming fiscal cliff.

However, even if Obama pulls out a November victory -- which still seems likely, despite the worst jobs number by an incumbent since FDR, and a Middle East that resembles the 1979 mess enabled by Jimmy Carter -- it still might be market-positive. This is because the Democrats are highly unlikely to regain control of the House. As a result, Obama will be forced to compromise on taxes -- and more likely to make bigger concessions than he has in the past -- since he will be termed out come 2016. Obama is, in my subjective opinion, most likely to cave on increasing taxes on capital gains, dividends, and interest in exchange for some kind of increased taxes on his oft-derided "millionaires and billionaires."

This is because the Community-Organizer-In-Chief knows about populist optics. Obama knows the symbolic value in pandering to his base with increased income taxes on wealthy bogeymen. The Obama base implicitly understands income taxes. They are less conversant in the vagaries of capital gains, interest, and dividends.

Moreover, Obama knows that the jobs and GDP numbers would have been far worse on his watch were it not for the wealth effect created by the Fed-goosed increase in stock market valuations since the March, 2009 lows. An increased income tax will be the red meat his OWS-meets-Alinsky-meets-Sharpton faithful crave, allowing Obama to quietly keep the the market from cratering by adroitly shelving his planned increases taxes on capital gains, interest, and dividends.

A final event will be the December 31 deadline for resolving the fiscal cliff itself. Obviously, if Romney wins, and Republicans win control of both chambers of Congress, the fiscal cliff gets resolved with no sizable market pain, though probably not well into 2013 (once the new Congress takes office). However, even if Obama wins and the Democrats miraculously win control of both chambers, investors will still have a chance to bail before the worst of Obama's tax reforms take effect. That is, one has till the last trading day of the year to sell one's stocks with no increased taxes on one's capital gains, interest, and dividends, no matter what taxes Obama forces through. This is because even if Obama bum rushes through dramatically increased taxes on capital gains, interest, and dividends in the lame duck session, they likely will not affect 2012 returns. Moreoever, the certainty that comes after a presidential election - even if an economic leftist like Obama is elected - is market-positive. Mainly because, above all else, investors crave policy certainty and clarity. And an Obama victory would at least provide that.

Obviously, the best of all possible market scenarios is a series of Romney victories in the presidential debates, followed by a commanding Romney triumph come November and GOP filibuster-proof majorities in Congress. However, even if that result is not remotely achieved, there's still a chance for a return to last week's peak market levels or even beyond. But one must pay close attention to the political landscape over the next few months to know, in the words of Kenny Rodgers, "when to hold 'em, when to fold 'em, when to walk away," and, in the words of Tracy Chapman, when to "run, run, run, run, run, run, run, run, run."