Investment Opportunities Created by an Obama Presidency

When looking at macroeconomic factors in 2009, one factor seems particularly important: Barack Obama.

Here's my take on what Obama means to the global economy:

1. Deficit Spending. Obama has explicitly stated that deficit spending should not be a concern over the past two years. Obama's words:

The consensus is this, that we have to do whatever it takes to get this economy moving again, that we have to -- we're going to have to spend money now to stimulate the economy. And (consensus is) that we shouldn't worry about the deficit next year or even the year after; that short term, the most important thing is that we avoid a deepening recession.

As I have noted previously here on SeekingAlpha, deficit spending could prove to be particularly dangerous in a market where credit is scarce, and where the appetite for additional debt is questionable. Increasing debt increases the likelihood of either (1) an increase in interest rates to make debt more appealing or (2) monetization of that debt by simply printing more money. Should we see this scenario arise, we may find an opportunity in shorting US Treasury bonds. And of course, debt monetization would be inflationary, and likely would result in US dollar devaluation.

2. Tariffs. Obama, coupled with a Democratic US Congress, increases the likelihood of tariffs and protectionist policies. This may lead to supply issues in the US economy, and thus rising consumer prices (though not necessarily a weaker US dollar).

3. Foreign Policy. Foreign policy is, in my opinion, a key issue that will prove to be difficult to predict. The geopolitical climate is particularly tense at the moment, as war with Russia and/or Iran still linger, as well as Obama's commitment to the war in Afghanistan. In our current environment, war is not only about soldiers; it's also about economics. Iran can cut off oil supply lines from the Middle East to the United States, thus sending oil prices higher. Alternatively, countries holding US dollars or Treasury bonds can wage economic warfare by selling them, thus making it more difficult for the US government to secure debt at a time when its expenses are rising.

Thoughts on Trading the Obamanomics

1. Watch interest rates and debt monetization; with deficit spending being embraced in a time when the US government debt is at record levels and the global appetite for US Treasury bonds may be waning, something will have to give. I personally view debt monetization and corresponding currency devaluation to be the greater concerns.
2. Protectionist policies will adversely affect import-dependent industries, as well as foreign companies dependent upon exports to the United States.
3. Obama has pledged to stimulate alternative energy development, which could prove to be bullish for alternative energy ETFs. Much of this effect, however, may already be priced into the market.

What's your take on trading the Obama presidency?

Comments

[One Jest:]

With solar, wind and biofuels we'll all make money and be able to sleep at night.

2008 Nov 19 06:37 AM

[prairiedog555:]

It would seem to me that with the US and the rest of the worlds currency printing presses working overtime hyper inflation would be unavoidable.
Spending is the only way to get out of a recession/depression, so what investments benefit from inflation?

Hard assets
Negative fixed income

What else?

2008 Nov 19 07:22 AM

[Davmors:]

Pelosi will reestablish the off-shore drilling ban as soon as Congress returns. That will reduce the potential oil supply. Opec meets on 11-29 to cut production again.
Bet on oil, especially Canadian oil as the U.S. Dollar is over-bought.

2008 Nov 19 09:01 AM

[Econ 101:]

Could the term Pelosi-Reed rival Smoot-Hawley one day? I find it hard to believe even NP is that stupid, but you could be right. If so then energy is the right place to be. Did you hear about the lichen they found in South America that creates deisel fuel as a waste product?

Yeah, I didnt believe it either.

2008 Nov 19 03:29 PM

[D. McHattie:]

I have been thinking about alternative energy all week after reading Eric Janzen's article about the next bubble.

Listening to Obama's 60 Minutes interview and some of the testimony of auto execs before Congress, alternative energy is already becoming pumped up as a panacea. Science-fiction is being discussed as though it was science.

Introducing and supporting alternative energy programs will be an easy way to curry the favour of an electorate that has become increasingly liberal as they have become increasingly unrealistic. Congress and the White House are looking for excuses to spend tax dollars and alt energy will be a very popular excuse indeed.

I agree, alternative energy etfs, or a selection of alternative energy companies, are a great way to trade on the Obama presidency.

2008 Nov 19 08:11 PM

[Hmm?!:]

Solar and wind are by far the most expensive options in existence.

But I guess we will just have to shut America down on the cloudy days.

2008 Nov 20 01:58 AM