Pimco’s Kashkari: Romney Victory Would Boost Markets

Monday, 05 Nov 2012 12:10 PM

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A Mitt Romney presidential victory would send stocks climbing, especially if Republicans make major gains in Congress and end fiscal uncertainty, said Neel Kashkari, head of global equities at fund giant Pimco.

An Obama victory could be see some applause on the notion that current loose monetary policies that have fueled recent stock-market rallies would stay in place, though despite his campaign rhetoric, Romney won’t push for tighter monetary policies either.

“Look at long-term fiscal policy. The markets want to see an end to gridlock. For the last couple years Republicans and Democrats have not agreed on anything. In this scenario, I believe a Romney win and a Republican sweep would be good for the markets because that increases chances that we tackle entitlement reform and tax reform in the next couple years,” Kashkari told CNBC.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

“If we have divided government, if President Obama is re-elected, that means the markets are going to be more cautious, they’re going to take a wait-and-see approach — can Republicans and Democrats come together?”

When it comes to monetary policy, an Obama victory would likely mean the next four years will see no change from the loose policies carried out by current Fed Chairman Ben Bernanke, which have included rate cuts, liquidity-inducing asset purchases from banks and language suggesting conditions meriting such intervention will stick around for several years.

Romney has suggested he would replace Bernanke once his term expires in January 2014, though don’t expect him to put an inflation hawk in charge of the U.S. central bank.

“If a very hawkish Fed chairman were put in place and they very aggressively brought the liquidity out of the system, that would very likely tip us back into recession, so that’s why we don’t think even a President Romney — even though he’s been hawkish on the campaign trail — we think he recognizes what’s at stake,” Kashkari told the network.

“He wants the economy to grow, he’s likely going to appoint a mainstream economist who is not going to deviate dramatically.”

Meanwhile, at the end of this year, a series of tax cuts and benefits are scheduled to expire at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the country sliding into a recession next year if left unattended by Congress.

Lawmakers have been unwilling to touch tax and spending reforms in an election year though some have suggested they can convene after elections or even early in 2013 and tackle the problem head on or even with temporary measures.

An Obama re-election could fuel volatility and uncertainty there, as well.

“I think under a re-elected President Obama, I would expect to see volatility increase especially as it relates around the fiscal cliff, because we are going to need to see them come together — divided government needs to work together,” Kashkari said.

“They have not worked together very well over the past couple years so the markets are going to take a wait-and-see approach, and there’s a good chance there’s going to be fighting and brinkmanship until the last second for the fiscal cliff.”

While a strong showing among Republicans won’t ensure swift and lasting policy response to the fiscal cliff, it could mean calmer markets.

“With a Republican sweep, it’s more likely they’ll kick the can down the road for six months or a year, so I would expect to see marginally less volatility as it relates to those fiscal issues in the near term.”

Other market observers agree a Romney victory will bring cheer to financial markets on hopes the former Massachusetts governor would dismantle regulations rolled out under the Obama administration such as the Affordable Care Act and the Dodd-Frank financial overhaul law.

Critics say such legislation has fueled tax and regulatory uncertainties that have prompted businesses to spend more time worrying about what they will owe the IRS and whether they are in compliance with news rules as opposed to expanding and hiring.

“If you get a Romney win, it could be better for the market in the short-term, knee-jerk reaction, since it could be taken as being a more business and investment-friendly administration,” said Brian Lazorishak, a senior vice president of Chase Investment Counsel, according to CNNMoney.

“While the market might sell off on an Obama win, it’s hard to see how long that would last.”

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

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