DOUG KASS: Three Reasons Paul Ryan Is Bad For The Market

doug kassDoug Kass

Photo: @dougkass

We’re surprised by how many voices we’ve heard suggesting that the selection of Paul Ryan as Mitt Romney’s running mate is a net negative for markets.Here’s investor Doug Kass, writing for RealMoney:

The selection of Paul Ryan may be viewed as a negative regarding the implementation of more monetary easing and based on the growing enmity between our political parties that could steepen the fiscal cliff. The good news is that, unlike the 2008 election in which arguably the Republican ticket was seen as a Saturday Night Live parody, Ryan’s candidacy will likely produce a more serious policy dialogue between the Republicans and Democrats than four years ago. In the interest of full disclosure, while I am a Democrat and disagree with his politics, I admire Ryan’s rigour and commitment to policy. But there are three reasons I see downside to Romney’s decision to pick Ryan, all presenting serious but different short-term market challenges. Ryan’s extremely conservative views and opinion of the Federal Reserve’s mandate (and the waning influence of its easing policy) will likely steepen the fiscal cliff given the increasing ideological schism and division between the two parties. Moreover, Ryan’s presence could weigh on and reduce the probability that the Federal Reserve will ease further in the weeks ahead. Ryan has previously stated that he would replace Fed Chairman Bernanke at the end of his term in 2014. Besides the stark differences in policy, Paul Ryan’s austere budget views could raise concerns about the trajectory of domestic economic growth in 2013.

Lewis Alexander of Nomura also recently said similar stuff, about his selection being a net negative for risk.

Conversely, in a new note out, Goldman’s Alec Phillips agrees that Paul Ryan definitely brings fiscal consolidation to the fore (as a policy issue) but is not necessarily convinced that the near term effects, at least regarding the fiscal cliff, really matters that much.

Republican Presidential candidate Mitt Romney announced on Saturday, August 11 that he has selected Rep. Paul Ryan, the Republican Chairman of the House Budget Committee, as his running mate. The selection of Rep. Ryan is notable because (1) he is more clearly associated with specific policy stances than most prior vice presidential candidates, and (2) the fiscal policy issues for which he is known also happen a key issue in the campaign as well as one of the key areas of economic uncertainty in the coming year. Market participants thus appear to be more interested than usual in the implications of the vice-presidential selection, particularly in light of the “fiscal cliff” at year end and the prospects for broader fiscal reforms in 2013.

While the selection of Rep. Ryan for the Republican ticket is very likely to increase the focus on fiscal issues in the presidential campaign, and thus might prompt increased discussion of the “fiscal cliff” on the campaign trail, this should have little bearing on the resolution of these issues at year end. We continue to believe that the economic effects of allowing the fiscal cliff to take effect in full will be the greatest motivation for members of Congress to reach an agreement.

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