Housing construction and chemical industry especially attractive, says former Clinton adviser Robert Wescott
It doesn't really much matter who wins the presidential election in the US: Barack Obama or Mitt Romney. The far more interesting question is how well the ultra-conservative Tea Party will fare in the elections, says Robert Wescott, economics adviser to former US president Bill Clinton and head of Keybridge Research, an economic research consultancy that includes G7 governments among its clients.
IPE sister publication IPNederland spoke with Wescott as he visited Amsterdam on the invitation of Pioneer Investments.
If the Tea Party should make a strong showing, their extreme views will be likely to influence a Romney presidency strongly, "as Romney would feel beholden to the ultra-conservative end of his party and would be forced to appoint a number of cabinet members with Tea Party credentials and support". But Tea Party aside, the differences between Obama and Romney are far less pronounced than the swollen election rhetoric would have us believe, Wescott says.
"Like Romney, Obama intends to address the deficit and like Obama, Romney has no wish to indiscriminately slash spending and risk putting the economy back in recession," he says.
Regardless of who does win the election, the economist believes US policymakers will shortly come up with a solution to avoid the so-called 'fiscal cliff', in which $600bn (€463bn) in tax increases and budget cuts are scheduled to take effect automatically by the end of this year.
Neither democrats nor republicans want this to happen, and both parties agree in large part on how to avoid the fiscal cliff, so it should be possible for them to agree on a solution, Wescott says. "There is just a 5% chance the fiscal cliff will really bite," he adds. "I expect that two-thirds of the automatic budget cuts will be slashed and that we'll ultimately have cuts of approximately 1-1.5% of GDP in 2013 – a percentage that will still allow the economy to grow at a reasonable rate."
He is less optimistic about the chances of his favourite, Barack Obama. "The first debate did not go well for the president, and, despite a much better performance after that, polls show, this is a very, very tight race."
Regarding the economic prospects of the US, he is much more positive. "The American economy is doing better than people tend to think," he says. "The housing market, in particular, is rebounding much more strongly than many people realise. Housing starts are up, and the demand for new mortgages is so great that banks are having to hire scores of new loan officers to process applications. We're already seeing the positive effects of the housing rebound on construction and anything to do with housing – from furniture to appliances. And then, of course, there is also a positive psychological effect. People who see the value of their house go up are more willing to spend their money."
Wescott also cites the chemical sector as one of the most exciting areas in the US economy right now. "The price of natural gas in the US dropped to just $1.80 per million BTUs – that is very low, indeed, considering the price is $15 per million BTUs in Asia and $10 in Europe. Plus, we have just added 100 years to the proven reserves in terms of shale gas. As a result, we are seeing a revival of manufacturing in the industrial core, driven by cheap gas."
Investors would do well to focus on the US housing sector and related businesses, and, "from an investor standpoint, I'm also upbeat about anything to do with the chemical industry – from plastic bags to fertiliser", he concludes.