Well, the elections are over and we can now watch attorney ads instead of nasty political ads. In general, the election went as we predicted. The Republicans have taken the largest house majority since WWII and now have the Senate. The question is what does this mean?
There are two options: the GOP assumes a leadership role and tries to pass legislation (that the president will sign); or continues obstructionist roles. If the obstructionist strategy continues, we will have more brinksmanship and battles. On the other hand, if we get cooperation, a variety of things could happen. A possible outcome is that Paul Ryan will push for tax reform.
The low hanging fruit is corporate reform and repatriation, which would bring billions back into the US for capital expenditures and buybacks. Right now, it is beneficial for corporations to leave their profits abroad rather than bring them home, due to our corporate tax law. Burger King just changed its headquarters to Canada. As my friend Greg Valliere says, "When I say the words 'tax haven' and 'Canada' in the same breath, our tax system is broken."
The tax extenders, like the qualified charitable distributions from IRAs are likely to pass before year-end. It is unlikely anyone will touch Medicare or Social Security before 2017. Obamacare will still be here, but they may remove the medical device tax and the employer mandate (that depends on Obama's pen). It is unlikely we will see individual tax reform. It sounds good, but everyone will start cobbling on their favorite things: "What about charitable contributions? Mortgage interest? Small businesses?"
Spending is unlikely to increase by any significant measure. Defense spending needs to be maintained, so something will likely happen there. We think Keystone will re-appear, and possibly pass. I am sure out of 535 people, someone in that group will have something to say about Obamacare.
In Michigan, Rick Snyder won re-election and Gary Peters was elected to the Senate. That outcome is interesting because of the party shift. Obviously, a portion of the electorate crossed party lines and voted for the candidates, not necessarily the party. Our prediction is Governor Snyder will continue his current policies of fiscal responsibility, and hopefully address roads, education and jobs. Senator Peters was formerly on the House Financial Services Committee. Both were supporters of the Detroit Grand Bargain. We think the outcome is a 'stay the course' vote in Michigan.
History shows us the very best market situation is a unified congress and lame duck opposition president. In fact, the Republican Senate/House and Democratic president has historically been best for the markets (maybe we remember that one of the only surpluses ever was in the Clinton-Gingrich days). So we are slightly more optimistic. Of course, Congress could just stay obstructionist, which we think enhances Hillary Clinton's position for 2016. One last word: if you have an old car, you might be able to keep your bumper stickers for 2016; you could have Jeb Bush run against Hillary Clinton.