Written by Dave Young, President of Paragon Wealth Management

The number one question I am frequently asked is, “How do
I think the presidential election will affect the market?”  In prior elections, I have always had a
preference who won, but my preference did not affect our investment
strategy.  This election is
different.  I believe the outcome of the
election will affect our management strategies, possibly significantly.

I will apologize in advance to those who do not share my
political views.  I do not mean to offend
you.  However, my opinions are based on
my experience managing portfolios for the past 26 years rather than pure
political ideology.  I look at this
election from an investment perspective and the potential impact it will have
on your portfolio.

Historically, in an election year, the market is usually
weak and trending down during August and September.  Then, during October it turns up.   November and December are usually choppy but have
an upward bias.  If a Republican or the
incumbent wins, the market is usually stronger going into the election.   Historically, over the course of the year,
the market ends the year about eight percent higher if a Republican wins rather
than a Democrat.

From an investment standpoint it would be nice to know how
this election is going to play out.  That
is the trillion dollar question.  Most
polls show the race very close with Obama having the edge in some swing states.  On the other hand, political pundits make the
case that the polls aren’t accurate, just like they weren’t accurate when they
showed Carter six points ahead of Reagan just days before Reagan won that

This election is very close.
It is unlikely to be clear until after the election.  It is a tossup on who will control the Senate.  We do know that Republicans will continue to
control the House of Representatives.

If Obama wins a second term and the Democrats maintain
control of the Senate, it is unlikely that we will see a meaningful change in direction.  Thus far, their unsustainable path took our
national debt from 10 Trillion to a mind boggling 16 Trillion dollars in just
four years.  President Obama has promoted
an agenda of class warfare and demonized the job creators who currently pay
most of the taxes.  This divisive agenda
has scared many investors out of the market.
It has created uncertainty for anyone starting a new business or who
needs to invest for their future.  Obama’s
policies have significantly slowed the economic recovery and kept unemployment
at historically high levels.

Stocks have moved up against a backdrop of a very low GDP
and very high unemployment.  That is hard
to understand until you take into account the effects of three years of
artificially held super low interest rates, exceptionally strong corporate
profits (fueled by layoffs) and relatively low stock valuations.

Regardless of who wins, it will take a few years for the
impact of their decisions to play out.
Realistically, if Obama wins then we will not feel the full negative effects
of his policies until 2014 or 2015.
Likewise, if Romney wins and does what he has campaigned on, then we
won’t feel the positive effects until 2014 or 2015.  So, the markets may just meander along or
even drift up until then.

On the other hand, because so many investors invest
emotionally and are afraid of Obama’s policies, we have to be ready for the
possibility that those investors may sell out of the markets because of an
Obama victory.  Conversely, a Romney
victory could have the opposite effect with investors piling into the market
and pushing it up, albeit purely for emotional reasons.

In summary, leading up to and after the election there are
compelling arguments to be made for staying invested as well as selling out and
going to cash.  It depends on who wins
and how investors react.  For us, the
investors reaction to the election will be more important than its actual
economic impact.

There is a compelling case for a potential bull
market, a bear market or a flat market.
Accordingly, we will be watching the markets intently, following our
indicators closely and adjusting our portfolios accordingly.  It’s ironic that in order for investors to once
again have hope and see real change they might need to elect Romney rather than
the official “Hope and Change” candidate.
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.