Breakout

Election 2012: Investors Weighing Worst Case Scenarios

Breakout

It's taken the better part of two years and $2 billion dollars to get where we are in this Presidential election, and what do we have to show for it? A statistical dead heat, by most accounts, where only the most-partisan observers are willing to make predictions.

For those who are willing to wait and see, there is a growing sense of unease that, maybe - just maybe - we could be headed for that nightmare scenario again, where we wake up Wednesday morning not knowing who the next president will be. Many on Wall Street are predicting anything short of a clear voter verdict will upset the markets.

"If there is uncertainty as to the outcome of the election, than that is just another mountain of uncertainty with regard to the fiscal cliff and that is just going to be problematic for the stock market," says Hank Smith, the CIO at Haverford. "Time is running out."

And it's not only deferred fiscal cliff talks that have him worried. Another big unknown that could upset the investing world would be the rare circumstance where a candidate loses the popular vote but wins the electoral vote, and thus claims the White House. It's a situation that's happened three times before, but never to an incumbent President. Here again, I think concerns are overblown that markets somehow can't take it, or will freak out, if there's not an instantaneous answer or a clear consensus. In 1992, for example, President Clinton won just 43% of the vote, as a result of third-party candidate Ross Perot snagging 19%, and he was able to assume the office and bring a divided nation together.

See Related: Awaiting the End of Uncertainty? Don't Hold Your Breath

And that is exactly what the next president will have to do too, no matter how muddled the outcome might be.

"I think (whoever wins) is going to have to reach across the aisle," Smith says. "We have huge issues. We've got to have comprehensive tax reform, a grand bargain that includes entitlement spending reforms."

While Republican control of the House and Democratic control of the Senate are not expected to change, Smith is of the mind that, after four years in hiding, bipartisanship is set to make a comeback -- no matter who wins the White House.

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Where to Invest Ahead of a Fiscal Cliff Resolution

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