Election Speculation: Steaks and Strip Joints

Includes: RICK, RUTH, SDS
by: Michael Cohen

With the November election around the corner, all eyes will start to be glued on the polls and the likely winner. Many bears fear an Obama victory, coupled with continued democratic gains in the House and Senate, signals increased taxes, especially capital gains taxes, and doom and gloom for the market.

With Obama, Reid, and Pelosi running the country, I couldn’t help but feel bearish too. However, I highly doubt this will happen. While most think this race will be a toss-up, I think it will be a McCain blowout. As much as people may blame the economic slowdown on Bush, I just don’t think voters are going to vote for some wimpy-looking, inexperienced, snobbish guy named Barack Hussein Obama over a war hero and proven centrist.

McCain is already leading in the latest Gallup poll, and when you take into account the Bradley Effect, we may have another Bush-Dukakis type race on our hands. However, the market seems to still think that an Obama presidency is likely or at least this election is a coin-flip.

I’ve been starting to look into how to make investments based on the election. In general, I’m very bullish based on my McCain prediction, so I’m staying long and am shorting some of those ultra-short index funds (like a double short of the S&P 500 (NYSEARCA:SDS)), which is just basically a way to leverage and gain more long exposure to the general market.

One problem for me, personally, is that I’m not very knowledgeable in some of the sectors that are typically loved by the Republicans. I don’t buy that McCain is particularly a war hawk, so while investing in defense stocks might seem like a sort of McCain bet, this isn’t a road I’m tempted to take. Moreover, it’s not clear which defense stocks to take, so while a defense-related ETF may be the way to go, someone with more knowledge in the defense area could probably make a killing in this department.

The health care sector is another one that loves a Republican administration, and this is a sector I’m going to look into. Since I’m betting we won’t have an Obama-style health care rehaul anytime soon, stocks that may have been badly beaten due to these fears may become good buys.

An area that I’m also going to look at is high-priced, high margin services, basically companies that cater to those evil people who make $250k+ a year and whom Obama wants to tax to death. One group of companies that comes to mind quickly is strip clubs. Hey, if a $300k a year executive just saw his pay cut by 10-20%, he’ll likely decrease his strip club visits substantially. One stock in this sector I’m looking into is Rick’s Cabaret (NASDAQ:RICK), though I haven’t checked out much about this company besides its ticker symbol. High-priced steakhouses is another group I’m looking into, such as Ruth’s Chris (NASDAQ:RUTH), which is almost 70% off of its 52-week high.

Disclaimer: Author is short SDS