Here's What President Obama's Win Means For Your Money

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Bitter, negative, expensive…I am hard pressed to find any positive adjectives describing this year's presidential campaign.

Evidently, the markets are struggling, too.

As was widely expected leading up to the election, all of the major averages got slammed in early trading on news of President Obama's victory. Just over an hour into yesterday's session, the Dow dropped 262.51, the S&P 500 tumbled 27.58 and the tech- laden Nasdaq fell 59.55. Oil tanked 2.95% and $2.62 per barrel to $86.08 while 10-year bonds saw yields plummet 6.20% to 1.63%.

O-bummer.

There is a bright side, though. Now that all the hoopla is over, investors can get down to business.

Here's what I'm expecting:

The $600 billion fiscal cliff we've warned you about has never gone away. It's been marginalized by the campaign, but it has never disappeared. It is, bar none, the single- biggest issue facing our country at the moment.

But President Obama's re-election means a lame duck president and a lame duck Congress. Rather than a grand solution, expect more grandstanding and another game of kick the can down the road.

Generally speaking, the markets are going to be very choppy in the near term. Fully half the traders on Wall Street woke up on the wrong side of the proverbial bed Wednesday and they're going to have to adjust their bets accordingly.

Time to Go "Glocal"

The most stable, defensive and, ironically, opportunistic choices will remain large, super cap stocks. I call them "glocals." These are companies like MCD, Procter and Gamble, General Electric, ABB, Raytheon and Vodaphone. All of them are global brands and have the experience needed to manage real growth despite challenging economic conditions around the world. Most typically pay high income that offsets the risk of ownership and are therefore far more stable than non-dividend paying alternatives.

Small cap stocks are just the opposite. Unless there is something especially compelling about them, like a truly unique patent or a new long- term government contract, the volatility will be more than most investors are prepared to accept. Most pay no income whatsoever so they're a crap shoot in today's environment.

And d on't forget to hedge your bets while you're at it. Inverse funds that offset market volatility are a viable alternative to simply hanging on and hoping for the best. Not only can you protect the value of your income and dividends by smoothing out the volatility, but specialized choices like the Rydex Inverse S&P 500 Fund (RYURX) can help investors stay in the game and generate gains that take the sting out of otherwise problematic losses.

I believe bonds will play out for just a bit longer. When this crisis started, I predicted yields would drop all the way to 1.5% on the 10-year note and people thought I was the exorcist. Now that Obama's reelected, I think we could see yields drop all the way to 1%. This means there is still, as hard as it is to believe, additional upside in bonds.

Obviously, this is going to be challenging in its own right given that interest rates are hovering at the extreme low end of the spectrum. The best advice here is to keep duration short. My research suggests that 3-5 years is best because that will help investors avoid much of the volatility associated with rising rates in longer dated instruments when they do ultimately come into the picture. Anything longer simply adds unnecessary risk .

Don't forget muni bonds. The same duration concept applies here. Keep things short. Every state in the union has budgetary problems and I think we're going to see a well-intentioned but completely flawed national policy level response no later than 24 months from now as many states begin to run out of money.

Opportunities in Gold, Oil, Defense Stocks and More.

As for gold and oil, those are both special topics.

Gold is in a league by itself. Following Obama's reelection, there's likely to be a knee-jerk reaction to higher prices as investors move to hedge their bets. That's good, but watch out for the inverse. In the short term there is a real risk that gold falls, not as a function of longer term hedging, but because traders who have used it to collateralize other investments will sell it to raise cash. As far as I am concerned, that's a buying opportunity. President Obama's first term policies created a lot of damage and his second term is likely to reinforce the need to preserve value even more. Investors, traders and central bankers around the world are all acutely aware of this and that bodes well for higher prices.

Oil is closely linked to economic expansion by most investors, so it's down on the assumption that President Obama's second term will lead to slower growth. That's a mistake. No matter what happens with the global economy, oil demand is actually escalating and fully 60%-80% of new demand is expected to come from Asia and specifically China. This makes stocks like CNOOC (CEO) especially appealing.

Defense stocks are widely expected to take a hit as Obama softens national priorities. That's a buying opportunity, too. The world is becoming a more complicated place by the minute and even if our own defense spending drops, that of our allies will rise. This is particularly true in the Asian Rim where China seems intent on rattling sabers and flexing its economic muscle.

As I noted on Tuesday, an Obama win also means the "greenies" will have a field day with continued emphasis on solar, wind and electric alternatives. Given the administration's widely publicized screw-ups in this area, use caution though and do not confuse subsidies with profit potential. It's still hard to find solid small-cap tech companies in a defensively oriented big cap market. Unless you've got a strong stomach for volatility or an extraordinarily compelling reason for investing under the circumstances, I'd stay away.

And finally, there's China. The 18th National Party Congress gets underway today and the world will bear witness to a once-in-a-decade power transition at a time when the Red Dragon is plagued by economic challenges and corruption on a scale that has boggled even the most jaded of insiders. I don't think Obama will be able to stand up against China's new leadership by the way. (I'll have more on that in a future story)

Still, the nation is growing and American companies are betting big there. Some, like Yum! Brands (NYSE: YUM), Coca-Cola (NYSE: KO), and McDonalds (NYSE: MCD) are obvious.

But some like MSD and Best Buy (NYSE: BBY) aren't. The former, which you may know better as Merck (NYSE: MRK) in the United States, expects 30% growth in China over the next 12 months alone and triple that in the next five years. That's why the company is hiring reps and building a $1.5 billion research facility in Beijing despite slash-and-burn expense reductions in the United States and Europe.

Whether Obama's in office or actually "in" office is moot. Try your best to dismiss the rhetoric and the posturing that's already started.

There are still plenty of opportunities ahead to be had if you know where to look and how to protect your money in the meantime.

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. philip davies | November 8, 2012

    I consider the biggest danger to the US is Europe the combined GDP matches the US. Specifically France that is heading for a train crash with Germany. Germany will never agree to a QE print money solution and their elections are only a few months away. France is quickly running out of options and is now the Trojan Horse of the EU.

  2. Dimi Chakalov | November 8, 2012

    Keith, contrary to your forecast, traders who have used gold to collateralize investments will *not* sell it to raise cash, because they are not stupid. Wanna bet? I'm all yours,

    http://tinyurl.com/dollar-ratio

    Dimi

    • Jeff Pluim | November 8, 2012

      Dimi, I'll take that bet. I can see the markets falling even as I write this. The big traders, such as hedgefunds, will be getting margin calls as the markets fall. Just where do you think they will be getting the cash to cover those margin calls. The easiest and probably only way, is to sell off their gold. That will create a fall in gold for the balance of this month.

  3. charles porter | November 8, 2012

    Can you please give some indication of how low the USD gold pice could fall to and over what period? Thanks

  4. Bill | November 8, 2012

    Well, assuming Joe Biden keeps his job, even he must realize he will not be elected the next President of the U.S. So without the next President sitting in the Whitehouse, perhaps we do not have to do our best to make him look bad, and really work with him for the betterment of our economy and the citizens in general. The elction is over, let the mud slinging stop and the work begin.

  5. Jeannie LaRocco | November 8, 2012

    Can you name a country whose currency offers some value as a "parking place" for US dollars without the downside risk inherent with gold?

  6. Jim Warrington | November 8, 2012

    Can you comment about what may happen to estate taxes. I've been sitting on the fence regarding having my mother gift 3m of her 4m estate. Thanks….

  7. robert | November 8, 2012

    It's a good thing that your investing sense overrode your political sense or you would have been out of the market for the last four years; and missed the whole bull market.
    Your present advice seems to be to avoid the coming bull market, for political reasons. Sad.

  8. Ragnar | November 8, 2012

    So where is a good place to stash some cash if you want it to grow and what are the Best stocks to invest in specifically or at lesst sector.

    What about Gold and Silver coin. Do you sell on the next big up side or will it continue to rise or is it another setup before the dollar crashes again taking any past gains before they replace our current currency with the Amero at a new exchange rate to replace the dying Greenback.

    What other investments might best weather the coming storm of the next four to eight years.

    The standard places to invest of the past are being raided for all value. What will or has the best chance of incrrasing in valur that can be liquidated if needed because they will change the rules to the game again and again.

    As I recall, The One Big Question – Then President Clinton said was "How do we get at it and get it back in the market" He was talking about the Greatest amount of saved wealth in the Country – The elderly and the retired. It looks like they are finding ways.

    I want to avoid the games and find real options.

  9. H. Craig Bradley | November 8, 2012

    GOOD AS GOLD?

    Gold available to buy is largely on the margin. According to Royal Bank of Scotland, the scrap gold has largely been sold off. New annual production from mines globally is said to be about 2,000 metric tons (if that). In contrast, gross purchases by central banks (estimated), jewlers, and others is about 3,000 metric tons per year. Obviously, there is a big discrepancy. Where is it?

    One possibility is "bullion banks". Central banks don't sell their gold any more. Since 2009, they all have been net buyers. Instead, central banks lease their gold out to another bank or to a "bullion bank", who may turn around and do the same. The net result is leverage. Instead of "who's my daddy?" its " who owns the physical bullion, Bank A, B, or C ? "

    This phenomena does not include counterfit gold bullion coins like Kugerrands and American Eagle coins. Today's counterfitters are much more sophisticated than was once the case 30 years ago. They spend $400/ coin to carefully craft a counterfit gold coin. The demensions are only off by a .5mm and details in the coin are very close to the real ones.

    China has plenty of counterfiters too. Sometimes its legal if the seller labels the coin as a "repleca coin". Gold bars of 1 Kg or more must first be assayed to determine purity before sale. In contrast, gold coins have no such protections except the reputation of the gold dealer. Buyer beware.

    • H. Craig Bradley | November 9, 2012

      THE S.S. AND YOUR GOLD COINS

      According to one local businessman (owner of a local bakery) the Secret Service is not interested in counterfit coins- as they only consider paper currency to be "money". He reported a shister trying to pedal counterfit silver coins and when caught at it, he called the Secret Service to report it. He told me the S.S. had no interest in his complaint whatsoever.

  10. Tarzan Leather-Chaps | November 8, 2012

    Keith, do you see the Chinese stocks (CNOOC in $HKD in particular) heading downward in the near term? Also, for those of us holding RMB and SGD currencies, do you see any danger?

    Thanks

  11. noname | November 9, 2012

    "who's my daddy?"
    I laughed at the parody but it does remind me a serious issue:
    we should all get our children to do DNA tests when meeting at the courts,
    I am getting some speculation that some 50% of them have the wrong daddy to ask money from.

  12. EdInvests | November 9, 2012

    By the definition, Obama is not a lame duck president. Congress is because some of the new members will not be in office until next year. Of course, Congress is a lame duck regardless of what time frame you choose to pick.

    The cliff that is so feared will never happen and need not even be addressed until early next year. It seems that slightly less than half of the people are so much in shock that they lost the election, that they are like Chicken Little and see nothing but gloom and doom.

    Emotional panic has never solved anything.

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