Let me start by writing a bit about the upcoming debates and the election. The media, political analysts, political operatives and a handful of others are lathering up for the first Presidential debate scheduled for this Wednesday. Here are paraphrases of comments of note to investors:
- “This is Romney’s last opportunity to turn the election around”
- “Romney must come up big on Wednesday night”
- “This is the last possible game changer for Romney”
You will notice a common theme here – that the debate means something and if Romney is to win the winning effort begins on Wednesday. My take? For investors, what matters is Romney is not going to change the dynamics of the campaign and Obama will be re-elected. That is already priced into the market. What matters to investors is why Obama will be re-elected and why the debates do not matter.
I am a short term (1-2 year) bear on the economy but for many in battleground states stung badly by the recession, the economy is turning around in very fundamental ways. Last week I heard Cathy Woods of Alliance Bernstein describe the situation in a former battleground state now considered safe for Obama, Pennsylvania. Again I paraphrase.
The coal industry, which has been hit hard in Pennsylvania, generates $7 billion in economic activity in the state. Fracking is generating $20 billion.
Pretty much says it all – jobs in fracking are not one offs or temporary and pay reasonably well compared to working checkout at the Dollar General in the empty strip mall in your dying industrial town in Ohio or Pennsylvania or Wisconsin or wherever. And while everyone in the press knows about the delay in the decision about the Keystone pipeline, people looking for work in Pennsylvania, Michigan, Wisconsin, Minnesota, Ohio and southern New York know fracking has actually been encouraged by the Obama administration and is creating real economic activity, not repairs to highways that did not need repairing.
The point? A wave of industrialization, what some are mistakenly calling the “re-industrialization” of America is beginning due to fracking, Cheap gas means the building of new core industrial facilities – smelters, chemical plants, refineries, mills and so on. When they get up and running, factories and other industrial fabrication facilities pop up to proximity and cost of supply. And so on.
And whomever wins the debates and the election is going to encourage fracking – Obama has already stated his economic priority in the next four years is core manufacturing and the jobs that go with it. He will approve the Keystone pipeline about ten nanoseconds after the election. I have no idea what Romney plans or hopes to do except get elected – that is not a political statement, I simply do not know.
So ignore the debates. If you are a trader, trade an Obama win and fights over the fiscal cliff for about nine months. If you are an investor, invest, now, in that misnamed re-industrialization of America. My favorite name that is benefiting from fracking – and Wall Street has yet to catch on – is Calumet Specialty (CLMT) products, a specialty refiner of hydrocarbons sitting in the Midwest where a lot of dirty fracked oil they know how to clean is coming through in ever increasing amounts. CLMT dominates the aviation lubricant market, your or your wife’s lipstick uses wax made by them, they have a great balance of diesel and gasoline coming out of their refineries, they are growing and expanding and they have a near 7.5% dividend yield.
So when you begin to nod off during the debates, pull out a magazine or your iPad, and when you see an ad with lipstick or an airplane, perhaps a diesel truck or car, think about fracking and Calumet. It might make the debate more palatable.
Disclosure: I do not own CLMT at this time and will not buy it within a 48 hour window of this column being published.