By Jennifer Yousfi
With Super Tuesday just hours away, the field has narrowed considerably from the last time Money Morning took a look at the Presidential candidates. With the recent end to the campaigns of John Edwards and Rudy Giuliani, what was a wide-open race at the start of the New Year has been whittled down to just four key candidates.
For the Democrats, Hillary Rodham Clinton is facing off against Barack Obama. Meanwhile, on the Republican ticket, John McCain and Mitt Romney are going head to head. [Although Mike Huckabee and Ron Paul are still technically in the running, neither has yet found any mainstream support].
Every election year, the day that the most primaries and caucuses occur gets to bear the Super Tuesday banner. For 2008, that day is tomorrow (Tuesday), when 24 states will decide how their delegates will vote at the upcoming Democratic and Republican National Conventions. In all, 2,656 delegates are up for grabs tomorrow – 52% of the Democratic and 41% of the Republican delegates will be awarded to a candidate based on tomorrow’s outcomes.
No wonder it’s called Super Tuesday.
The good news for investors is that – from a strictly financial perspective – some of the least-desirable candidates are no longer in the running, while some of the best are still fighting the good fight.
Money Morning Contributing Editor Martin Hutchinson picked Obama and McCain as the best candidates for investors. And if you live in one of the 24 states voting tomorrow, you still have a chance to mark one of them off on your ballot.
Why Barack is Good for the Country’s Bottom-Line
Barack Obama is campaigning to Hillary Clinton’s left when it comes to Iraq [he wants to get out more quickly], but he is more moderate when it comes to his economic policies.
Obama contends that economic growth since 2000 has gone almost entirely to the top 5% of the population, and therefore wants to direct tax cuts toward moderate-income earners. However, he is opposed to "class-warfare" rhetoric, or taxation. While he favors an end to the Bush Administration tax cuts for taxpayers with incomes in excess of $200,000, introducing Social Security contributions on high incomes and favoring the Rangel plan to replace the Alternative Minimum Tax (AMT), he recognizes that if all three changes are made, marginal tax rates would soar – meaning some compromise must be found.
Obama’s healthcare proposal is less expensive than Clinton’s because its "universal mandate" would extend only to children. Further, he recognizes the ability of market incentives to reduce costs, and wants to avoid federalizing U.S. healthcare. Like Clinton, he favors a "cap-and-trade" carbon-emissions-permit system, but he regards nuclear power as an important part of the solution to the problem of global warming. He regards bilateral trade treaties as corrupt, but favors multilateral treaties, albeit with strong protections for both labor and the environment.
McCain’s Money-Savvy Platform
John McCain is the "root canal" candidate. Indeed, his economic slogan might as well be: "Vote McCain – Enjoy the Pain!" He would keep most – but not all – of the Bush tax cuts, would attack pork barrel spending aggressively, would abolish ethanol subsidies, and would sharply reduce agriculture subsidies [and, yet, he actually does have some supporters in Iowa!]. McCain is a strong supporter of free trade, even when U.S. jobs are lost, and favors an aggressive approach to eliminating the future deficits posed by Social Security and Medicare. He would also introduce a "cap-and-trade" system of carbon-emissions permits, giving the government an additional source of revenue.
Romney, on the other hand, wants to eliminate capital gains taxes on incomes under $200,000. And not only does he want a line-item veto to restrain Congressional spending, Romney also wants the right to reduce any Congressional appropriation by up to 25% [this is probably unconstitutional] and to require a 60% vote in Congress to increase taxes. He would also hold appropriations growth to 1% below inflation by using the veto [a very tight limit when compared with the 3% to 4% real growth under current U.S. President George W. Bush]. Romney would increase military spending by 10%, putting another 100,000 troops in uniform.
However popular these ideas might be with the voters, they stand no chance whatsoever of passing through Congress, even with a large Republican majority, because several of these proposals are direct assaults on the legislative branch’s power – regardless of which party controls Congress.
So, if getting rid of the federal budget deficit and reducing the burden of debt on our grandchildren is your No. 1 priority, McCain is your man.
How to Profit from the Next Administration
Regardless of which candidates end up on the national ballot, there are some key considerations to keep in mind as you craft your investment moves between now and the presidential election next November.
And these are the moves we believe are key:
- Defense stocks would probably do well under Clinton, McCain and Romney, but not under Obama.
- The pharmaceutical, healthcare and financial-services sectors would be damaged by a Democratic victory, but would probably thrive under a Republican administration. So if you believe a Republican will be elected, you should look for investments in these three sectors.
- Low-end retailers and manufacturers of low-end domestic automobiles and consumer goods would probably be substantial beneficiaries with a Democratic regime in the White House.
- Domestic oil companies and oil-services firms would likely thrive with a Republican in the Oval Office. Investors who believe a Republican will take the White House should look at stocks in these sectors, since the Republicans seek to encourage domestic oil exploration.
- Utilities with large nuclear operations would benefit under both McCain and Obama.
- Treasury bond prices would suffer under Clinton, and Romney is also likely to run into deficit problems. McCain, with his plan to balance the budget, and Obama, with his less-expensive healthcare plan and foreign policy would both be good for Treasuries.
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