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Odey: the seven major risks a Romney victory would pose
by Dylan Lobo on Nov 02, 2012 at 07:00
Odey Asset Management believes if Mitt Romney wins this week's US election he would pose a 'major' problem for the world's biggest economy.
As the Republican leader and president Barack Obama battle to prove who is the strongest leader in times of disaster following 'Superstorm Sandy, latest polls show the contest is tightening ahead of the 6 November Election.
In the crucial swing states, leading polls show there is little to choose between the Republicans and the Democrats. In Iowa Obama is on 50%, six points ahead of Romney, while in New Hampshire the Democrat leader is on 49% versus the Republican's 47%.
Pundits are expecting a tight contest and Odey Asset Management is concerned a Romney victory would result in a multitude of risks in the US.
In a note to clients, the wealth management boutique, headed by Crispin Odey (pictured), highlighted the following seven major risks a Romney victory would pose.
* The biggest one is the possible challenge to the Fed’s independence. This would scare the bond vigilantes badly and lead the market to price in an early termination of QE. Both would conspire to increase bond yields sharply. We have seen long end curve steepeners being positioned this week on exactly that view.
* In the same vein, Republican fiscal plans are for increased defence spending and decreased taxes. For anyone who isn’t a believer in the Laffer Curve, that combination implies a bigger budget deficit. It is just 'guns and butter,' under a different name.
* The combined thrust of the GoP's (Grand Old Party) monetary/fiscal stance therefore threatens to increase Treasury issuance and take away the Fed’s ability to monetise it. The general threat is therefore of a large rise in longer-dated bond yields.
* The GoP also dislike the housing agencies, so the risk here is that the subsidy to home buying from the agencies’ inexhaustible appetite for paper gets removed.
* The replacement of DeMarco at Fannie Mae and the associated easing of mortgage credit conditions – something that is pretty much certain on an Obama win – would not happen.
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