I don’t know whether it is obvious to me, but it was obvious to me that Obama will win since this January. Of course, if Obama doesn’t win in November, I will really fall out of chair, and breaking my glasses.
Why would he win? The reason is very simple. During economic downturn, the incumbent is almost always voted OUT. Since the incumbent party is Republican, it will be voted out. This rule actually applies internationally, and has been happening globally if you have paid attention to election results in other countries.
Unfortunately, with Democrats coming, the biggest problem is their socialistic approach to voters. Their tendency is to spend more and tax more especially on the rich people. There is nothing wrong with taxing rich people. But if your income is high, and for every dollar that you earn, you are paying more than 50% to government, the incentive to earn more is less, and the incentive to lay back is more. Furthermore, when the marginal tax rate is high, it usually means that money/capital will flee in the long term.
Alright, let’s forget about long term for a second (who cares anyway in Washington). Spending is good if it’s allocated properly. Spending will stimulate economics. But WHERE IS THE MONEY? There is no money. Only debt. Likely, US will double its debt to 20 trillions in less than 10 years. In the meantime, Asia & oil countries will probably be afraid of supporting the monetary expansion in US further. After these financial crisises, US simply has no credibility in foreigners’ eyes anymore.
So if you have spending and more debt, but no “global saving glut” to soak up your debt, where are you going to get your money? The answer is obviously that you just PRINT it (equivalently to that Federal Reserve will be expanding its balance sheet, holding a lot more treasury bonds or IOUs to come).
So stocks should recover somewhat, but $US should go down.
For more specifics, as I have said previously, alternative energy should still be good for a short-term play for either Obama or McCain. I believe that there is also too much uncertainty in health care sector, especially in regards to insurance companies. I don’t want to take a bet either way on that sector. If health care sector becomes one of the inflation beneficiary, then it will be a great time to buy them. If instead, they experience heavy pricing pressure from government health plan, then they may not be the best investment. Also, if Obama gets elected as I expect, I will shy away from defense sector unless any wars break out. I still won’t get into any financial/brokerage or real estate related investments. Any rally I believe is a short-term dead cat bounce. At best, they will rise along with the markets, but with a subdued performance (not counting any initial reactionary big rise).
And for certain, there will be more government regulations to come going forward.
In any case, let’s hope that deflation will be averted, and inflation comes back. Inflation is always easier to deal with economically speaking. The only problem is that government as one of the participant in the capitalism always over-do it, and you end up a lot more inflation than it is desired.