by C.S. Jefferson
When political commentators refer to an “October surprise” as the unquantifiable risk in gaming the election cycle, few could have predicted what the exact nature of the surprise would have been, even fewer could have anticipated the sustained pressure in the markets and underlying severity of the economy would ultimately be the reason to throw the election decisively in Barack Obama’s favor.
The effects were so dramatic that both candidates running for office were essentially, relegated and reassigned to the spectator seats as a political sideshow. In a time of unprecedented volatility and crisis in our economy, both candidates failed miserably to provide necessary leadership when the 3a.m. call rang. Surprisingly and to their credit, the bi-partisan Congress did more in response by finally showing they can work together outside of party ideology. Unfortunately, it took a situation directly effecting their own pocketbooks and not just their constituent’s concerns to forcibly mandate policy into action.
The true nexus of power that shapes our future as a nation was determined more by the policy makers in our banking and financial system, such as Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. It was an amazing display to witness the absolute impotence of the two party candidates unable to grasp the situation at hand, or even to orchestrate a legitimate policy and solution to avert imminent disaster.
The economy has been struggling for years if you ask the average middle class working person, it just mattered what part of the economy you were living in to accurately determine the definition of a recession. However, market volatility and the risk of complete credit default and asset deterioration made even staunch Republicans consider voting for Obama in the end.
I don’t know about “Joe six pack,” but I’m willing to bet there are more average “Joe six-kegs” with beer guts that are willing to break from traditional voting patterns. I’m half-surprised there hasn’t been larger coverage on the movement of “rednecks for Obama.”
It’s nice to belong to and have a party affiliation of your choice, but if there is no underlying economy to support such ideology and rhetoric, red and blue states become meaningless, color blind demarcation lines on a geographical map.
While it is increasingly unlikely that McCain can pull off the upset, nothing is final until the last vote is counted, misprinted, deleted or tossed out with a hanging chad. I care less if one particular candidate wins or not over the other; I care more that the election is legitimate, transparent, verifiable, and capable of being fully audited to reflect the will of the people.
And if the unthinkable upset did occur then Intrade, the legal betting venue on the elections, will probably pay out better than the ponies or this week’s football over and under spreads.
However, only one of the two candidates is running under the banner of the incumbent party and, therefore, the cost is severe in the mindset of most Americans as we seek to point the finger and blame those responsible for bad stewardship at the helm of our economy. By making career politicians pay with removal from office, maybe those that profess to serve the will of the people eventually get the message that origination of ideas by the founding fathers who believed in checks and balances didn’t, literally, mean legislating only for special interests or balancing their own own checkbooks by voting for pay raises and pork belly spending. Any career politician that receives taxpayer based salary is a bailout in my mind, and should be voluntarily serving the public trust without monetary compensation, let alone health care provisions that are denied to a growing population of Americans.
The mainstream media will record this election as historical in the context of both racial and gender barriers that were smashed and broken. And all of this is nice on a very superficial level, but fails to represent the true demographics of our nation that remain divided by the real chasm of class and privilege. Racial division has long been the misguided excuse for the disparity between prosperity and poverty.
Has political correctness simply gone too far during this election cycle? I hope that more qualified representatives of our democracy continue to step forward from all corners of our tribal heritage, not because they simply fulfill the role of being the first representative of a particular gender or culture, but because their political will and convictions serve the constituents of our nation as a whole.
VOTE YOUR CONSCIENCE, NOT YOUR PARTY
The argument that voting for Obama over McCain is a better choice may be inevitably true, but only because it’s the frustration by the “lack of choice” that we have in our current two party political system. It is perhaps the reason that the polls remained so close within the statistical margins of error, until the recent debacle in the credit and stock markets. I still contend that if Hillary Clinton had either won the primary or had been chosen as the V.P. running mate, the margins would be much wider with an overwhelming 60-80% popular vote in favor of change. It is the uncertainty and distrust that even makes it a horse race during this final lap around the track.
I support Barack Obama and the Democratic party in this year’s election not because I feel inspired by the individual, or believe in this myth that he is a candidate representative of substantive change, but only by the Republicans losing this election in a lopsided event will true Conservatives have a chance of reclaiming their party based on the core values, principles and legitimacy of not catering to a fringe wing any longer.
I am hardly a typical Barack Obama supporter and I am certainly not a member of the Democratic party, but I have come to the undeniable conclusion that some change must occur for the good of our country if we truly care about the future. It is our responsibility, it is our obligation.
It is important to recognize that Obama is the beneficiary of circumstance and as traders in the markets know, timing is everything. Standing at the right place, at the right moment in history may be much more determinate of legacy than the individual that rises up to the occasion.
My heart would prefer to vote for someone like Ron Paul, Bob Barr or even, yes, Ralph Nader because at least I believe they believe what they are saying based on their convictions and principles, as opposed to simply pacifying the sheep by continuing to promise empty campaign slogans time after time.
In fact, contrary to what the misleading mainstream media would like us to believe, Barack Obama and Sarah Palin are not the only ones making history by definition of race and gender barriers soon to be broken.
Did you know that there are two other prominent black political candidates running for the same office? Alan Keyes for one and Cynthia McKinney, who is running at the top of the ticket for the Green Party. The irony is that unlike Barack Obama who ran on the platform that he had the foresight and wisdom to vote against the war, even though he was an Illinois state senator and not a Congressional Senator–a requirement to actually have your vote count–Ms. McKinney actually did vote on record against a war resolution more than once and it counted.
I hope this turns out to be the most lopsided election in years just to validate that the Republican party must reform itself for the good of the nation. Extreme idealism on either side of the aisle in both parties is not good for the legitimacy of a democracy. We must have a system of checks and balances that weighs equally on the side of justice, transparency, and truth.
Ideological enclaves of free markets and deregulation can only exist in a vacuum, unaffected by the intrinsic nature of greed and corruption. Without transparent accountability to adhere, the path of least resistance will always be the guidance for those that have the capability to exploit others.
For those of us that lean more Conservative, this is not the year to pledge false and blind allegiance to a Republican ticket. We don’t need to renew the cynicism that our nation has incurred over recent years. Hope may not be a reassurance, but it is the beginning mechanism and formulation to develop real change.
If the Paulson bailout was about restoring confidence in our financial system, then the election of Obama would go even further to restoring the trust in our political system after two very contested and questionable election results.
I guarantee if Obama wins the election, there are many people that will feel celebratory and this will help consumer confidence and spending in America. People will feel, perhaps, foolishly optimistic again and, as such, it just may be enough to pull off the same magician’s trick once more to boost a buying spree in all asset classes.
I am not naive enough to believe that things will change greatly because the underpinning of our economy is suffering through risks of systemic deleveraging. Obama may very well go in with good intentions, but end up as a victim of circumstances well beyond his control such as Jimmy Carter did during his one term in office. This looming recession may be more difficult to reinflate our way out of than past recessions and, if so, could make reelection impossible four years down the road.
But let’s remember, there are some major Wall Street players of significant and important influence that have moved away from their Republican roots to support a Democratic administration. John Mack of Morgan Stanley, Jamie Dimon of J.P. Morgan Chase, and, of course, Warren Buffett. Not to forget former Fed Chairman, Paul Volcker along with other unmentioned prominent figures of Wall Street, all who add credibility and moderation to an Obama administration.
I have to believe with so many Republicans and conservatives advising Obama’s campaign with regard to economic policy, prudence and pragmatism may win over his platform stump speech on raising capital gains taxes. I believe that the current economic conditions are enough to allow Obama a back door escape from bad policy implementation during a time of crisis.
It would seem plausible that behind the scenes, there must be a wink and nod to the business community because with so many global liquidity infusions into the marketplace, everything would be wasted and all for nothing if Obama stifled investment when our economy needs it most.
THE BET I WILL BE HAPPY TO LOSE
I’ve had a running lunch bet with someone since the Democratic primary season that if Obama were the nominee, the Democratic party would risk losing the most winnable election in the history of politics and Republicans would prevail. I still contend that this election was far closer than it ever should have been, had it not been for the weakness in the candidate of the Democratic party.
But this is one bet I am happy to pay up on for being wrong. Our country, our nation cannot afford to continue the same course of failed policy unabated.
Despite liking Senator McCain overall, there is absolutely no way I could vote for him morally by rewarding continued bad policy that has cost average Americans greatly. Yet, throughout this election season since the primaries, I have had continual struggles to find reasons to vote for Obama.
However, the reality is what it is and while I truly feel that both candidates are not up to the task at hand, a decision has to be made, like it or not. While I am probably more skeptical about “change we can believe,” I do hope that an Obama administration is successful.
Let me be clear, this is not about Obama as much as it is about the future direction of our country, there are larger issues much greater than the man as an individual or the myth. I don’t think Obama is experienced enough and many issues don’t sit well, but whether you personally like or dislike him, this is about pragmatism and reality that a choice must be made.
There are many reasons that I don’t feel the same vibe that others do about Obama. Celebrity endorsements and the Oprah effect were a complete and utter turn off to me and many others. Close personal friends, even some involved in the black community have argued on Obama’s behalf in heated conversations with me. Sure, if I close my eyes and pretend that facts don’t exist there is a certain charm to his demeanor. But overall, his speeches didn’t impress me because they failed to extend beyond the surface of empty rhetoric.
Seriously, what track record is there as a policy maker or citizen of our nation that makes him the most qualified? Political correctness and a mainstream media that refused to ask questions? It’s not that Obama is a new senator that lacks a track record, it is the fact that he spent the majority of his term in office running a campaign rather than actually serving his obligations to his constituents.
New York Governor David Paterson who is both black and blind is far more qualified as a candidate on the economy and, contrary to other politicians, he does not share the luxury of reading from teleprompters to recite scripted lines. When the crisis was unfolding with the CDS (Credit Default Swap) market, I was impressed to hear Paterson speak astutely on the issue at hand as he tried to remedy the AIG situation by reducing capital requirements. But, most importantly, it’s not his race or disability that make Governor David Paterson qualified to lead New York, it is ability alone that deserves measure.
I was also bothered by Obama’s awkward strategic point attempting to appear more tough than McCain in the debates with his continual insistence of catching a six foot six inch boogeyman strapped to a dialysis machine in the mountains of Pakistan. Rather ironic that a man that based his entire primary season campaign on being the “anti-war” candidate, has now resorted to displays of inauthentic toughness against a real American hero such as McCain.
Mr. Obama, people from both liberal and conservative leanings supported you based on the hope that you are diplomatic and the era of cowboy diplomacy or pre-emptive doctrines are a thing of the past. If toughness or military experience were the only prerequisites for obtaining the highest office in power then, for example, Senator Inouye from Hawaii, recipient of the Congressional Medal of Honor for service in World War II, is far more qualified on merit alone.
But the importance of serving the office of President is more about diplomacy and delegating authority to a team of qualified cabinet members that can manage and facilitate handling all events as they unfold.
We don’t need a “tough guy attitude” in office, we need someone that is intelligent, reasonable and willing to compromise by bridging the gap toward peace and economic prosperity. Let military commanders be tough because it is their job. As an elected representative of a free nation, you need to broker peace through the strength of forging allies and restoring America as the respected leader of the world.
Obama is winning not because he hit the home run out of the park or scored a late game breaking touchdown in the end zone; no, Obama’s campaign is winning because they are essentially stalling the ball in the last remaining minutes of the fourth quarter, putting their knee down to artificially draw down the clock because the McCain campaign has run out of time before the game is finally over.
And while many political promises remain empty campaign slogans, if Obama achieves nothing else other than fulfilling the long overdue obligation of providing health care he will be a success. The one thing that I think is more important than any other promise is heath care and access to medical coverage for all Americans. While I am skeptical if the political will is there to solve this crisis, nothing could be more important. This would also be a big bounce for corporate America by reducing their exposure to legacy costs of providing insurance for employees.
Despite the global nature of the sell off in the stock market, one thing you can be sure of is that our European counterpart economies may have seen similar retirement savings and investment accounts depreciate by comparable amounts, but at least no one was worried about losing their health insurance which still remains the number one reason for bankruptcy filings in America.
WHAT WENT WRONG IN THE MCCAIN STRATEGY?
As much as the economy has actually been the true choreographer for Obama’s victory dance, it is difficult to deny the missteps by the tale of two McCains. It is hard to imagine that McCain, who I believe to be a good man, has distanced himself so greatly from the persona that made him likable for years. McCain is a good Senator, but as a candidate running in very serious times, he has seemed completely out of touch with reality.
It’s almost a shame that his better one on one personality has failed to show during this campaign. I’ve seen him in many sit down interviews and he seems very charming when he lets his guard down and discusses issues outside of the scripted framework we hear repeated during stump speeches.
He does have a sense of humor and, to his credit, I respect him more for not following down the path of continuing to personally assault Obama’s patriotism. When he stood up to offensive audiences that made deplorable comments about Obama, it made me respect him more as a good man struggling to please discord within his own party. While it would have clearly been a better political strategy and expedient to go after Obama’s character, lack of experience and affiliation with Reverend Wright, it wasn’t the honorable path. It seems clear that McCain was only willing to go so far over the line, even if his surrogates didn’t respect the same rules.
But there is more to it than that and the debates that occurred were embarrassingly formulaic, polluted with rhetoric and sound bites. And the last one topped them all with more references to a political plant and fictitious plumber than I could could count.
The SNL parodies were very effective throughout the primary season and Tina Fey hit a gold mine with her sketch on Governor Palin, you couldn’t tell who was parodying who. Was it Tina Fey that was parodying Palin; or was it, ultimately, that Governor Palin ended up being a parody of herself?
When McCain first announced Palin as his running mate, I was excited initially because it really exposed an arrogant political miscalculation by the Obama campaign to disenfranchise Hillary Clinton supporters. But it really wasn’t McCain that picked Palin as much as it was Barack Obama choosing Biden. There was a moment of lost opportunity due to the jilted Clinton supporters, and choosing the first woman V.P. candidate since Geraldine Ferraro was long overdue. But the excitement began to wear thin after I heard canned rhetoric, no different than anyone else and expectations were dwindling back to Earth.
When Governor Palin said she wanted to “send a shout out” in the debates it wasn’t cute. Can you imagine if Barack Obama said he wanted to send a shout out to all his homies? You would have never have heard the end of the stereotypes. When white people from the suburbs use urban colloquialisms like “dissed,” “shout out,” and “wassup,” it’s not hip, cool or authentic, in fact, it’s downright offensive and completely inappropriate for representing the highest office of America.
Unfortunately for McCain, he was never a very popular candidate within the circles of the Republican party and will probably be used as the scapegoat for losing this election. And, further to the point, Palin will probably pass unscathed even as there continues to be some grand illusion that she is next in line for the ticket in 2012.
I would expect a very sincere and gracious concession speech by McCain, and I have no doubt that McCain would be proud to serve as a Congressional Senator under an Obama administration.
HOW TO TRADE THE ELECTION
Okay, I had my rant and I apologize for venting, but if you made it this far it is time to bring this conversation home on strategy and how to trade the markets post-election. While the very remote possibility exists for an upset, I would feel comfortable with these same recommendations in the belief that markets would rally even more in an unlikely McCain win, simply on the reassurance that capital gains won’t increase.
Prior to the last two months of volatility and decline in the markets, I would have told you it was a sure bet to see a major sell off in a post-Obama win. The most obvious risk would have been the impending capital gains tax increase which would have guaranteed funds selling into the close of 2008.
I can’t predict what direction markets will trade on any given day and remains the reason I am a proponent of portfolio hedging; however, there has been such a dramatic decline accelerated through hedge fund and mutual fund redemptions, it seems less likely that this same risk of tax selling remains a major factor. I really don’t know the statistics to back this up, but I would have to imagine that a lot of the risk of tax selling has been forcibly done by involuntary liquidations.
This positions the market in a very interesting and contrarian setup. While the indices have rallied since mid-October lows, individual sectors still remain oversold with respect to energy, metals and commodities. Emerging markets are still well below record highs and pockets within financials are screaming bargains.
Perhaps, more than anything, the markets will be relieved once the election results are finally determined and the unknown doesn’t hang over everyone’s head anymore because it is easier to deal with the known quantifiable risks already priced in the market. And history is worth repeating when you consider that some of the most prosperous times in our economy have come under a Democratic administration.
No matter how much “free market radicals” like to protest the mere mention of possible government intervention, real change is needed in the form of infrastructure renewal that will spur legitimate job growth, wage creation and boost consumer spending power in our economy. Seriously, after a $750 plus billion dollar bailout on top of everything else, is there any legitimacy to denying help to American citizens?
The markets need a reason to rise based on returning consumer confidence. Most Americans might find at least a temporary rise in optimism restored simply by the belief that international diplomacy is back on the table and the prospect of global stability is on the horizon.
Let’s be honest here, a recession is already priced into the markets and then some. Not a sustained recession of retreating earnings for a period of years, but a mild one with expectation of recovery. The markets will do whatever they want in the short term, but over time things revert to the mean and fundamentals will prevail.
The other possibility is that Obama, or any elected candidate for that matter, is not a king and, therefore, power is delegated to appropriate authority when necessary. There are very competent advisors within the Obama administration and there is the distinct possibility that if the economy continues to struggle, raising capital gains will be deferred because he is a pragmatist and if for no other reason than ego alone, who would want to be the one responsible for tanking the economy into a depression? Especially, if Obama intends to win a reelection.
Despite the commodity collapse and fall in petroleum prices, Obama’s win will be good for alternative energy. No question, the time for true energy independence has finally found the political will to back it up into policy. You have to have solar exposure in your portfolio.
Solar was a heavily traded sector and ridiculously overbought during the crude manipulation of several months past and, certainly, fund redemptions have absolutely contributed to selling pressure in this sector and knocked valuations down to more reasonable levels.
Despite some early anticipation of this trade and bounce off recent bottoms, select solar companies still remain below tradable expectations. It’s not too late but there is no reason to rush out and chase, only buy based on company specific selection because there are too many that seem less competitive going forward.
Energy Conversion (ENER) is probably one of the best plays out there. This is no start up company that lacks a credible track record like some other fly by night solar companies. Headquartered in Michigan, this diverse company structure not only leads with some of the premier innovation in thin film solar, but it’s ovonic battery division is well positioned for integration with the very next generation of hybrid, fuel cell and emission free cars.
Suntech Power (STP) is probably one of the better solar companies in China along with LDK solar (LDK). First Solar (FSLR) is heavily traded but the beta in this stock makes it too risky for the average investor, in my opinion. I would prefer to recommend ENER and STP over this choice. Additionally, the solar ETF (TAN) is also one among many solar ETF’s to hit the market as a broad based play.
Natural gas is a domestic winner and the T. Boone Pickens plan is a viable conversation starter to get politicians committed to energy independence as a matter of urgent political will. Clean Energy (CLNE) is, interestingly enough, a bargain with Pelosi, the Speaker of the House, having personal investments that make it likely she has a committed bias toward this company in particular.
Chesapeake Energy (CHK) is cheap enough to buy, either with development of liquified natural gas as a viable transportation energy source, or as part of a buyout and consolidation in this industry. And don’t forget wind power makes even General Electric (GE) look compelling as a conglomerate, especially if you consider it pays a hefty dividend yield.
General Motors (GM) is difficult to recommend because it’s like a lottery ticket, but there is no way under a Democratic administration will GM be allowed to go under. It is disingenuous for some people to argue there is not similar systemic risk to the economy as we faced with the bailout of the financial industry. Too many suppliers are tied to the success and failure of the automotive industry and, thus, middle class jobs in the real economy.
In addition, GM has already positioned itself to remove many of the legacy costs by allowing unions to manage their own health care. However, we are in a transition period of a difficult economy and the ability to bring next generation vehicles off the assembly line makes short term risk appreciable.
One of the interesting winners that may seem less obvious is Boeing (BA), remember it was McCain that was influential enough to actually turn the bidding contract upside down and push the award toward Airbus a while back. You can laud his attempt to weed out any conflict of interest or corruption, but to punish the entire company and successful program because of a few bad weeds is not correct–especially when it comes to the sacrifice of American jobs.
Despite the recent call by Goldman Sachs to add BA to its conviction sell list, I strongly disagree with this analyst call. It is all but guaranteed that under an Obama administration, BA will pick up the tanker refueling contract. In addition, under a Democratic administration, the struggling airline industry will probably receive some bailout package or favorable financing that allows them to participate in the next generation of Dreamliners off the assembly line.
Regardless, BA’s strength, along with Lockheed Martin (LMT) continues to be international demand combined with domestic tier one supply and the fears of military spending declining is way over done. I am quite sure that an Obama administration will look favorably on hometown favorite BA as well as the idea that any government contracts should be obligated to look to domestic companies first.
I don’t like the idea of trade protectionism and I agree that any private or publicly traded company has the right to seek the best price points for labor and outsourcing, however, any taxpayer funded government programs should be obligated to support the U.S. domestic job market and economy.
In closing, if you do nothing else, take advantage of lowered implied volatility in equity option premiums. Add defensive put protection to existing shares in your portfolio. The VIX is still historically high, but as markets rise and volatility comes down, the cost to insure your portfolio will become more reasonable. You will always give up some gains by implementing hedging to your portfolio, but staying in the game should be the first survival instinct.
For those that don’t utilize options, please, reduce or eliminate any existing debt or margin. I don’t think it is the time to be in cash on the sidelines. I think you have to be invested, but with the reassurance of not being pegged to volatility risks of dreaded margin calls.
Lastly, seek dividend paying stocks to anchor your portfolio diversity and pay you for the time it takes to wait until markets recover. Best to all…
DISCLOSURE: Author holds long positions in LMT, BA and ENER
