Obama will win: false optimism and great inflation
Posted by Frugal on October 9th, 2008
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.
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October 9th, 2008 at 6:32 am
I think it is likely Obama will win but I wouldn’t make any guarantees on it just yet. The polls are in his favor but not as much as one would expect given how unpopular the Bush administration is and how bad the economy is. The fact is there are still a lot of people in America who aren’t comfortable voting for a black person, especially one with a name like Obama. That is why the McCain camp is trying to paint him as foreign, it is a strategy that can work. Remember, a lot of Americans have repeatedly proven they will vote against their own self-interest. The fact that so many low and middle income people in the south and midwest vote for Republicans whose economic policies have always proven not to work for anyone but the rich, is proof enough of how ridiculous cultural issues can drive elections. Bush would have never been re-elected if it wasn’t for the issue of gay marriage and the mobilization of millions of additional evangelicals.
October 9th, 2008 at 10:29 am
A agree with the overall points (Obama win, sector trends, etc.) but had to point out a few assertions that completely contradict recent history and common sense:
1) People become rich because they are competitive, disciplined, and motivated (and a bit of luck here and there). They do not simply become couch-potato jag-offs because their tax rates go up. The wealthy do phenomenally well under both Democratic and Replublican administrations. It is the middle and lower classes that get screwed by Republicans. Just take this example – overall, which will create more goods and services?:
- a CEO who’s taxes are cut by $700,000
- 100 lower/middle-class families who’s taxes are cut by $7,000
The incentives to spend (and thus earn) are *much* higher for the lower/middle-class families. The families would most likely buy a car, add on to their homes, buy nicer clothes, get dental surgery, etc, etc, etc. The CEO would likely invest most of the money – certainly not spend every cent in 100 different ways throughout the sectors of our economy. How many gold-plated clocks can your yacht have?
Also, were money/capital flows that much worse under Clinton than Bush, adjusting for sub-prime derivatives and CDOs? Just asking, again, facts matter.
2) “[Democrats] tendency is to spend more” This is simply untrue. http://www.libertyunbound.com/archive/2004_11/bradford-spending.html and 100s of other fact-based studies contradict the myth of Democratic spending at the federal AND state levels (best for low spending is Democrat in executive, Republicans in legislative). Democrats tax more because they actually think deficits and debt matter. I don’t want to leave my children with a huge debt, I don’t want my government to either. Evidently, Republicans do (remember Cheney said “Deficits don’t matter”?)
Anyway, I just hate to see these right-wing memes spread in otherwise thoughtful circles. Keep up the good work!
October 9th, 2008 at 5:30 pm
Here is an interesting link:
http://justsaynodeal.com/index2.html
October 9th, 2008 at 7:23 pm
I see DOW 4000 if the next support does not hold.
October 9th, 2008 at 7:24 pm
Unfortunately, I see DOW 4000 if the next support is blown through.
October 11th, 2008 at 8:53 pm
Also, don’t forget the Avon lady just aint passin’ the smell test.
October 11th, 2008 at 11:06 pm
I definitely agree with you on Obama taking this election. McCain is failing to make any significant progress, while Obama is gaining more and more ground. McCain folds in Michigan, and he’s barely holding in some very tight races. And of course, the main point of the post: it is much more difficult for the incumbent party to win an election during an economic downturn.
As far as alternate energy, the stocks will see a significant rise in value during Obama’s presidency (i.m.o. inevitable). I am planning on increasing my position in pbw within the next weeks while it is trading very low. I would say increasing your positions in alternate energy could be one of the safest plays when Obama takes office.
After saying all this, I do not support Obama, and I am not a democrat. I am just agreeing with the post that I would also be shocked to see the election turn any other way.
Nice post, lots of good stuff here.
My site – David Carlson Politics
October 12th, 2008 at 2:07 pm
let’s have a competition to see who is going to be right on the market bottom. Rules, you can only vote once, and the Frugal pays the winner $100. That sounds fair. lol
7000 bottom
October 13th, 2008 at 9:44 am
I have grown very fond of Barack Obama. I don’t think that we can guarantee a win for the following reasons:
1. The most obvious reason is that Barack Obama is the first black presidential candidate. The fact America has had some harsh racial issues in its past is enough to prove that this election is anything but predictable, despite the polls, or political issues that “should” put a Democrat in office.
2. America did vote George Bush into office for a second term. The woes and worries that we are experiencing now were predicted four years ago, but despite the rather obvious future this president would bring upon us, he had a very strong supporting cast.
3. There really isn’t any control at the polls. Our votes are extremely important, but how many of our votes really count. We saw what effect poll stations have on our votes in Florida, during Gore’s stunt for president.
But, despite it all, I will trek to my poll station and cast my vote anyway. So should everyone. It is the system that I believe in and am apart of. Regardless, our country will get what it deserves, whether good or bad.
Caleb
http://www.mefinanciallyfree.blogspot.com
October 30th, 2008 at 6:30 am
Yea Obama should have no problem winning. McCain’s vice presidential choice (Palin) wasn’t exactly the best pick. I guess time will tell. Go OBAMA!
November 4th, 2008 at 4:56 pm
AMSC and ZOLT are two great Obama Wind plays for investing and making money with Obama win