GO
Loading...

Romney Win Would Be Better for Avoiding 'Fiscal Cliff': Goldman

Thursday, 25 Oct 2012 | 2:40 PM ET
Steve McAlister | Photodisc | Getty Images

The "fiscal cliff" — and the calamitous hit to the economy that will come with it — is more likely to be avoided if Mitt Romney becomes president, Goldman Sachs told clients this week.

Therefore, this November's election is one of the most important in this country's recent history, according to the investment bank.

"A Romney win seems more likely to lead to a short-term extension of the 2001/2003 tax cuts and some aspects of the fiscal cliff," wrote Alec Phillips, the firm's U.S. political economist, in a note Wednesday. "A status quo political outcome raises the risk of a game of fiscal 'chicken' at year end, in which policy goes 'off the cliff' unless one party reverses their long-held position on the upper income portion of the tax cut."

(Read More: S&P to 1,550 — Then 'Off the Cliff': Strategist)

With a President-elect Romney guiding the way, a Republican-controlled House is more likely to work with the Democrat-controlled Senate to hatch at least an extension of the tax cuts and delay the automatic spending cuts, according to Goldman and many on Wall Street.

(Read More: What Is the Fiscal Cliff?)

"There is simply more risk to the stock market with an Obama win because of the risks of going off the fiscal cliff," said Lawrence McDonald, author, trader and political strategist. "He will have to work with Tea Party members of the House, and the president has also shown little skill in bipartisan deal making."

Polls and electronic markets currently point to a very close race at the top of the ticket. The consensus seems to be Republicans will retain control of the House and the Democrats will retain control of the Senate. However, Republicans are likely to pick up some seats in the Senate.

There is a chance that things could become so bitter this November that a lame-duck Congress walks away without any compromise, investors said. Goldman gives that a 33 percent chance of that happening and does not believe the stock market or economy is prepared for that hit.

(Read More: Obama Says Post-Election Deal Still Possible)

By Goldman's numbers, the tax hikes and spending cuts of the fiscal cliff amount to roughly 3.5 percent of GDP.

"At the end of the day, no one wants that blood on his hands," said Michael Block, chief equities strategist at Phoenix Partners Group. "The perception, though, is that Romney is more anti-cliff than Obama given the latter's strongly stated desire to raise taxes on the ultra-rich."

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the 'Halftime Report' each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.



______________________________________________________
Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment, but not have it published on our Web site, send your message to fastmoney@cnbc.com.