At Schwab Impact, Valliere Says Political Gridlock Will Be Good for Markets

Greg Valliere suggests markets will benefit from change in balance of power

Political strategist Greg Valliere suggests that the important development next week won’t be on Election Day, but on the day after, when the political balance of power will “shift significantly,” with the Republicans gaining control in the House of Representatives and gaining “seven, eight, maybe nine” seats in the Senate. Following the Democrat’s “gigantic defeat,” said Valliere on Wednesday evening, “the ensuing political gridlock” will in fact be a net positive for the markets, and he also expects that the Bush Administration tax cuts will be extended before the end of this year, perhaps for as many as two or three years.

Removing the uncertainty surrounding the outcome of the election and the expiring Bush-era tax scheme may very well help corporate American “spend some of that $1 trillion they’re sitting on,” Valliere (left) said.

Valliere is the chief political strategist for the Potomac Research Group and a longtime observer of the Washington scene. He has been a fixture at the Schwab Impact conferences for years, including the show now going on in Boston.

Valliere received the biggest applause from the audience of 3,700 when he said that within 72 hours of the election Nancy Pelosi will likely step down as Speaker of the House to be replaced by Steny Hoyer of Maryland, whom Valliere called “quite pro-business for a Democrat.” He also received applause when he suggested that President Barack Obama might want to consider at least one person for his Cabinet who has some business experience.

As for the economy, Valliere said he agreed with Schwab’s chief investment strategist, Liz Ann Sonders (left), that there will not be a double-dip recession. He also suggested that there was much dissension at the Federal Reserve over what to do, or not do, to further stimulate the sluggish recovery, and that next week’s FOMC meeting will end with a “statement from the Fed saying they’ll do a little more” quantitative easing, but won’t add significantly to its “$2.2 trillion balance sheet.” Instead, he thinks the central bankers will keep the Fed funds rate at zero; and that it "won’t be until early 2012" before there's any movement in that rate.

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