Last night, Jonathan and I went to the Chartered Financial Analyst (CFA) NC Annual Meeting at the Grandover Resort in Greensboro. Our speaker was Andy Laperriere, CFA from ISI speaking giving us an “Economic Policy Outlook”. And as dry as that might sound, it was possibly the most informative and helpful talk we could have booked.
Andy’s firm applies science, statistics, and reason to politics, economics, and financial markets. Highlights:
- His second bullet point contained the phrase “unprecedented fiscal cliff”…good job on not burying the lede.
- Congress – he seemed pretty certain we’ll see a Republican majority. Democrats have to pick up 25 seats…doesn’t happen very often in the circumstances we’re in.
- Presidential race. It’s nearly 50/50 for him, but his boss made him choose so he leans Romney if election is today, partly due to two stats:
- An incumbent has never garnered more popular vote that 2 points above his approval rating. Obama is currently at ~48%
- An incumbent’s vote share has typically be tied closely with the trailing 12 months’ change in real disposable personal income. Meaning: when people are richer than 12 months ago, the incumbent president has a better chance of winning. Of the last 15 incumbents, Obama is sitting on the lowest change in real disposable income over the last 12 months than any president except Carter (who failed to get reelected in 1980). If Obama stuck to the trend, the model would suggest he only gets ~45% of the vote. He noted that he doesn’t believe in single variable models (this data point doesn’t mean Obama can’t win, it’ll just mean if he does, it will be an outlier).
- He thinks we’ll get a deal in terms of tax breaks because we’ll have to raise the debt ceiling and if we have to raise the debt ceiling (again) we’ll have to have a deal. Sort of the argument “if something can’t continue, it won’t”
- Laperriere sees this happening in 2013. Sees winners as equities, the dollar, treasuries, and the losers being health care stocks. His other outcomes are less pretty.
- If all tax cuts expire and health care taxes hit, he sees a $1700 tax increase to the family making $40-50k. That’s a big dent and not politically easy to swallow.
- Someone asked about his thoughts on the Wisconsin election. Said he thought Walker was near assured a win and the media would make it out to be a bigger story that it really was. He didn’t think it would be a big deal unless he only won by 1% (moral victory for democrats) or if he won by 15% (boost to republicans). Interestingly we see the results today that he won by 7%…and the media makes a big deal out of it. Two-for-Two.
My takeaway is that he expects a deal to be made but not after some significant uncertainty. Don’t let the next debt ceiling, rating downgrade rumors, political musical chairs get translated into doom. At least in his opinion.
Note: if I get the slides, I’ll update with some of the charts. They really drove it home.