Implications of Scott Brown's Victory on Obama’s Economic Policy

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Includes: ANTM, HUM, IYF, OIL, UNH, USO, XLF, XLV
by: Jacob Wolinsky

Today all eyes will be on the polls in Massachusetts. According to the latest figures, it appears that Scott Brown is going to pull off one of the most amazing political comebacks in history. Martha Coakley was leading by 35% two months ago, and is now trailing 9% in one of the bluest states.

The political pundits are debating what the significance of a Scott Brown victory will be on the future direction of the United States. I think the election will have a huge impact on economic policy in three different areas that will affect all Americans, and investors in particular.

I am trying to look at the matter in a perspective that relates to economic and financial issues and not the political ones. While I strongly favor one candidate, it is not an appropriate forum on a financial website.

Health Care

The only topic the media has paid attention to is in regards to the health care debate. Scott Brown has declared that he will be the 41st vote against the current health care bill passed by the Senate and currently being debated in the house. A win by Brown would end the super-majority the Democrats currently have in the Senate and could derail the entire legislation.

Jim Cramer stated that a Brown Victory could cause a huge spike in health care stocks. He believes that the HMOs, drug makers and medical device makers stocks could see a large spike if Brown wins. He stated that as provisions that were most damaging were removed from the legislation in the past several months, stocks like UNH, WLP have gone on to post impressive gains.

I disagree with Cramer on this point. Once the public option was removed from the table, any bill passed by congress would affect health care stocks. All the bills aim to provide more coverage to Americans that currently do not have health insurance; this would provide large revenues to health insurance companies. If Scott Brown is elected and the bill is not passed this could have a negative impact on healthcare stocks since they will lose tens of millions of potential customers.

There are two other topics that the media seems to be ignoring, where Brown’s vote will be crucial to filibuster a democratic legislation on the matter.

Financial Reform

There are currently various proposals for sweeping new regulation of the financial industry. Scott Brown stated that he wants no new regulation on the financial markets. He also said that the private enterprise “should get us out of this mess”.

While the Republicans have released a plan for financial reform it is likely far different than the one the Democrats are planning. A Scott Brown victory will force the Democrats to come to a bipartisan agreement on the issue, or face a filibuster in the Senate.

While the outcome of financial reform is unclear, it will likely have a large impact on banks, insurance companies, and mortgage lenders.

Cap and Trade

Obama’s original Cap and Trade Bill looks like it will have to be scaled back. Many democrats from coal producing states in the Mid West are opposed to the bill due to their fear it will inhibit industries such as coal mining. It already appears that the bill is dying, but a Brown victory would be a nail in the coffin.

Scott Brown has not stated an opinion on the bill but undoubtedly he is opposed to it. The democrats may be forced to seek a bi-partisan agreement on a new energy policy for America. Many oil companies who stated that the tax would lead to increases in the price of gasoline will likely breathe a sigh of relief. Any significant change in energy policy will have a large impact on oil companies, power plants, and companies researching more environmental friendly energies.

Disclosure: Long WLP