The Obama Play

Well. It’s official folks. We have a government who has officially stated that they will do everything in their power to keep banks from dying, credit from smashing, unemployment from rising and IN ADDITION, keep US automakers from bankruptcy. If we are really going to prevent companies from going bankrupt, why do we have such a restructuring tool? In any case, this has nothing to do with my usual rants about the new administration’s economic directions. I want you (out there) to be able to take advantage of it.

So, let’s start. Banking. Okay, the private-public, TARP/TALP project that Geithner has proposed will benefit (a) banks with a lot of sub-prime mortgages left on their balance sheets (b) credit companies. That one was easy. The market has already priced it in to a certain extent but as banks like C, BAC, and JPM get these toxic assets off their balance sheets, you should see a rise in the short / intermediate term. The same with credit companies like COF, AXP etc.
The problem might lie in the long-term because the extent to which these banks will need to be funded by the government will reflect in the amount of preferred (soon to be common shares) that the government owns and eventually will need to be “returned” to the public. In the long term, this could definitely cause a plateau or bow out of the sector.

The next thing to talk about is oil and commodities. At this point, I would definitely invest in emerging market oil AND alternative energy. With interest rate hikes and the huge drop in oil demand, it has caused an unusual drop in production. The problem is that most of these oil companies still have to pay for their rigs and machinery. Look for one of 2 things…if oil maintains a $30-50 price level (somehow a price ceiling gets inserted), we might just see a big meltdown in the oil industry where oil companies go out of business or massively downsize, iron rigs turn brass colored from uselessness, US refineries die, octane cars left at the wayside and the entire public goes retroactive to the 70s. This will prove Obama’s theory the world being too dependent upon oil and everyone will hail his alternative energy spew…with one exception…the intermediate term will bring back diesel fuel, coal and natural gas. However, this scenario is highly unlikely (except that coal and natural gas are still formidable sources of energy)…Thus, on any drop of oil back into the $40s (I think we’ll see another drop into the $30s personally cuz I don’t think we get out of the next wave of sub-prime catastrophe in Fall 2009 so we’ll get a market-wide drop), I would start buying. The sub-prime wave of 2010 will be smaller than 2008 and 2009 and I think by March 2010, oil will be rolling at $100+ due to refinery capacity issues and the supply crunch. On top of that, Obama’s intent is to keep oil above $75 because that’s the price target for which his most formidable alternative energy (solar) becomes a viable competitor to take out some parts of the energy sector. My picks for oil: PBR, SU, RIG, TSO, COP. My picks for alternative energy: FSLR, ENER, DSTI (speculative).

The next thing on my list is education. Obama’s been pushing this one really hard. The problem with education is the fact that it’s an investment in people and that type of capital does less in the short-run and more in the long-run. My biggest concern is the timing. Usually, as a company (or country), you improve your skill and technological basis during times of prosperity and not in times of recession. However, this reverse execution combined with the lack of job opportunities brings forth some interesting new investments in schooling and school services. Stocks like APOL, BBBB, DV have been looking really good. As the times get worse, look to invest in these companies especially around the summer 2009 as tuitions start rolling in for the Fall Semester. On top of that, summer education services are usually in expansion during the summer too.

Another thing is US domestic alternative energy companies (besides piece parts like PCP or aluminum companies like AA) who would be affected by the possibility of the US automaker bailout, restructuring and expansion into alternative fuel cars. Keep an eye out for companies like MGA and LG Chem as the majority of the subsidies that we poured into the US automakers will be directed at these companies to make a better fuel efficient (electric) car.

Another big push by Obama is healthcare. In general, universal healthcare definitely hurts doctors, pharmacy / drug companies, medical insurance etc and decreases the R&D that occurs. However, look to companies like GERN, BTRN, STEM, CCEL who focus on stem cell research. A portion of the health care stimulus will be focused on stem cell research. Another thing to think about is that with the baby boomers losing out on half their life savings, look out for long-term care facilities KND and NHC who will be gaining income for housing these boomers. Also, look to companies like ATHN who provide services for organizing and re-structuring health information and other health care service groups that originally receive special attention from this new healthcare bill.

Finally, I would look to play emerging market currency spreads (compared to the US) and emerging markets ETFs. China looks to sell US treasuries completely de-bunking themselves from our currency and as the oil and commodity craze comes back and interest rates in these countries begin to increase, the value of their currency should start to decrease. Look to these countries to try to keep their currency value down and mitigate inflation by subsequently increasing their interest rates and thus keep a trade surplus, expand their infrastructure and become a bigger powerhouse in the world. ETFs to invest in are EWZ, CAF/FXI, INP/FNI, EWT, EWC.

These are my Obama plays. I still say that in the long-run…say…3 years or so from now, we’ll be in worse shape than we are now. I think that this is a contractionary period back to the mean (average) and that we have been completely over-running ourselves. If we try to pseudo-boost this economy, in the long-run, we will be back here again…but only this time, the government will be $8 trillion more in debt AND we might not be in such good (financial) graces with the rest of the world. If you don’t believe me…look at England. We followed their execution with this TALF / TARP plan and they’ve already shown signs of continuous implosion and decay…

However, at this point, if the government’s willing to play God and jump-start this economy…who am I to say no?? I’ve played devil’s advocate for way too long…