Mario Gabelli believes the Obama administration will embrace banks and business in general as part of a plan to move to the "populist center."
"The administration is going to say, OK, we bashed the banks we got re-elected, now let's make love," Gabelli, Gamco Investors' CEO, told Bloomberg TV yesterday. In a series of videos posted on Bloomberg's site, Gabelli outlined what he expects from the economy and President Obama's administration over the next several months.
He said housing is recovering at a dramatic rate, and that will benefit banks like Wells Fargo, even though net interest margins are not that good yet. Financials, which are 17 percent of the S&P 500 index, will have a better year in 2013, Gabelli maintained. The housing recovery also is having a positive effect on U.S. consumers, whose spending represents 70 percent of U.S. GDP. "The only hiccup is that housing is $6 trillion below where it was in '07. Consumers are feeling better except for cash flow. They need more jobs and more pay per hour," he said.
Gabelli, who manages 16 mutual funds and $36.9 billion for his firm, believes Obama will be an "extraordinary cheerleader" for business as part of an effort to make America more competitive. American companies will have to be encouraged to spend money to create new manufacturing and industrial jobs with higher hourly pay rates and that enable them to compete globally, he said.
The U.S. government could help the American economy by reducing the U.S. corporate tax rate to 28 percent from 35 percent for about four years, reducing the impact of Dodd-Frank regulations and allowing natural gas to be a dominant element of the federal Environmental Protection Agency's energy policy, Gabelli said.
At the same time tax breaks pushed by lobbyists need to be eliminated, he said. For example, the break on carried interest -- profits paid to private equity managers and others on investments -- that allows it to be taxed as a long-term capital gain should be changed, he said. Also, "spraying a little fluid on coal" should not qualify for a tax break either, he added.
Gabelli did not see the steep drop in the equity markets since Obama was re-elected Tuesday as a harbinger of long-term U.S. economic problems. "Basically it was totally anticipated, even if you came from Mars, if you thought Obama was going to win you would sell off," he said.
Why? Because the market began making adjustments in anticipation of the "fiscal cliff," the term used to describe automatic tax increases and spending cuts to take effect January 1 unless Congress acts. For example, with taxes on dividends expected to rise, it's no surprise that utility stock prices dropped in the market sell off, he said.
Gabelli, like many other observers, believes Congress will "kick the can down the road" by enacting measures that will temporarily extend tax cuts and spending to avoid possibly pushing the United States into a recession. "There is no way we'll solve all these fundamental issues by January," he says. "You have fundamental issues with regard to tax reform."
Some time early next year -- in January, February or March, Gabelli says, he is hopeful the markets will stabilize and start rising when it becomes clear how Congress will deal with the fiscal cliff.