Two Investment Areas That Could Benefit from an Obama Presidency

According to the bettors at Intrade, Barack Obama has about a 65% chance of being the next president. I have started to look into different investment areas that could benefit.

Two conservative investments that look interesting now are REITs and municipal bonds. Of course, I also will look into closed end funds that invest in these areas.

Here are the reasons I like these two areas:

1. REITs: Obama is planning to raise the 15% tax rate on dividends and long term capital gains. Currently, REITs are not eligible for the 15% tax rate. When the 15% tax rate was originally passed, many income-oriented investors (or their financial advisors) sold their REITs to buy dividend paying stocks that were eligible for the 15% rate. If the legislation passes, this will reverse and money will flow into REITs. What goes around comes around.
2. Obama will be raising the marginal income tax bracket on the wealthiest 1% of taxpayers. This group are big buyers of municipal bonds,and the relative benefit of munis to them wll be increased. This is especially true, since the 15% dividend rate is also going away.

There is also another short term reason why muni bonds are attractive now. The bond insurer MBIA (MBI) recently unloaded about $4 billion in securities in the second quarter. There are also rumors that Ambac (ABK) will also be unloading large amounts of muni bonds. The reason for this is simple - both companies have been declaring huge losses and have large tax loss carryforwards. So their marginal tax rates going forward is essentially zero. They have no need for municipal bonds which provide tax exempt income.

Comments

[syjcca:]

If Obama becomes the prez, the market will probably drop 20% within two months. I'll definitely dump all my equities a couple of months ahead of Nov if polls indicate he will win. Then after the shock and awe, I will pick up whatever good scraps are available. If McCain is elected, the market will go northward by 10% at the minimum.

2008 Jul 01 09:28 AM

[selene:]

Why would any U.S. market go up with a McCain victory? He is going to continue all the same great policies that got us where we are now.

2008 Jul 01 09:34 AM

[John Lounsbury:]

Historically, the best market returns have been realized with a Dem president and a Republican congress, followed closely by a Democratic president and a Dem congress. Then average returns drop to lower levels for a Republican president and a Democratic congress. The lowest average returns have been realized with a Republican prersident and a Republican congress.

Of course, there will be data points at the extremes of the distribution. That could happen this time.

Of course, one can argue that there will be reversion to the mean. That would tend to produce results for the next 100 years that would be the opposite of results for the past 100.

Also, it is possible that the policies of political parties and how they effect the economy have changed over time and historical results can not be reliably projected forward.

I don't have a clue if history should be a guide or if any of the above arguments will prove to be true. I plan to invest based on current information and my best estimates of trends.

2008 Jul 01 09:45 AM

[SA2:]

Question:

If MBIA and Ambac are going to be selling large amounts of Muni bonds why is that "another short term reason why muni bonds are attractive"?

2008 Jul 01 09:49 PM