Issue #1:
Mountains of Debt
Barack Obama plans to return Washington to fiscal discipline. That means reinstituting the PAYGO rules with respect to budgeting and limiting pork barrel spending. He would also fight against corporate tax loopholes and put an end to tax haven abuse. His signature plan is to reverse the Bush tax cuts for the wealthy while providing tax breaks for the middle class.
Analysis: Balancing the budget is inherently positive for stocks. Reductions in debt will make the dollar stronger and keep interest rates low. More dollars in the pockets of consumers will stimulate the economy.
Net Stock Impact: Bullish
John McCain has long fought pork barrel spending and resisted Republican efforts to blow the budget. If elected, he states that he will balance the budget by 2013. Doing so will require spending controls and elimination of earmarks. He will institute a pause on spending and make the Bush tax cuts permanent.
Analysis: McCain’s plan has a much more bi-partisan feel as compared to Obama’s. He is also making a guarantee of results with his promise of balance by 2013. Given his bias to cut taxes, accompanied by a severe aversion to tax increases, his plan will require significant spending cuts. Such a state will be restrictive for the economy, but making the tax cuts permanent will be positive.
Net Stock Impact: Neutral
Issue #2:
Health Care: A Right or Privilege?
Quality, affordable and portable coverage for all according to Obama. He’s proposing to cover all Americans regardless of pre-existing conditions or economic condition with a plan similar to that available to members of Congress. Premiums would be affordable for all with subsidies for those who do not qualify for Medicaid. Employers will be incented to provide coverage with tax credits. He will require mandatory coverage for all children in the country.
Analysis: We as a country must decide if quality, affordable health care is a right or a privilege. If we decide that it is a right, then we must be willing to pay for it. Doing so will require higher taxes or cuts in spending elsewhere. Higher taxes are restrictive to economic growth.
Net Stock Impact: Negative
McCain believes the current system is adequate, but needs to be reformed. He will encourage the use of health savings accounts and promote competition in the industry to lower rates on insurance plans. His plan is heavy on reducing health care costs including the high price of drugs. He claims to cover those without prior group coverage or those denied coverage due to pre-existing conditions.
Analysis: McCain does not believe that health care is a right. He uses market forces to address the issues by promoting competition to reduce costs. To the extent he succeeds, the bill to the government will be significantly lower than Obama’s plan.
Net Stock Impact: Bullish
Issue #3:
A New Millennium Energy Crisis
Obama’s short-term energy plan offers American’s a $1,000 emergency energy rebate check paid for with a windfall profits tax on oil companies. He also intends to crack down on excessive speculation, and he is not averse to using strategic reserves to lower current prices. Over the long haul he plans to invest $150 billion over the next 10 years in securing a clean burning energy future.
Analysis: Obama’s plan is an example of strong government support of a nascent industry. By encouraging investment in alternative energy, he hopes to accelerate our independence from Middle East oil. In addition, dollars spent now will be dollars saved later to the extent we can minimize or reverse the damage of global warming.
Net Stock Impact: Bullish
First and foremost, McCain believes high oil prices are a function of low supply. At the center of his plan are more domestic drilling and exploration. Doing so will greatly reduce our dependence on foreign sources. In tandem with greater drilling, he will promote use of clean cars by offering $5,000 tax credits. He supports nuclear power, alternative energy and a free market cap and trade system for reducing green house gases.
Analysis: McCain’s plan emphasizes free markets and deregulation in support of creating more supply. He favors private over public efforts but does offer tax incentives to consumers who change behavior. His plan’s stated objective is energy independence by 2025, thus he is taking a more incremental approach to the crisis. His plan will be bullish for oil companies and utilities that will have greater freedom to use currently available technologies including nuclear and clean burning coal to increase power production.
Net Stock Impact: Bullish
Issue #4:
America’s Place on the World Stage
The days of pre-emptive foreign policy end with an Obama administration. He supports a plan to end the war in Iraq while aggressively pursuing those that wish us harm like Al Qaida. He believes in using all elements of U.S. power in dealing with the international community. That includes more diplomacy and less saber rattling. He is open to discussion without preconditions with current enemies like Iran. He will also work to keep America safe from terror attacks by promoting protection of chemical plants and nuclear facilities.
Analysis: The war in Iraq has been an incredible burden on this country in treasure lost and human lives sacrificed. While it is impossible to measure the value of good world standing, it’s clear what a lack thereof means for our economy. To the extent we can rebuild that standing, American corporations should benefit. Also, less spent on the war will help reduce our budget deficit.
Net Stock Impact: Bullish
Retreat means defeat according to McCain. He does not favor a reduction in troops in Iraq until its people can defend and support their own democratic institutions. No matter how long or how expensive the job, victory must be attained. From his speeches, it would appear that McCain would continue the forceful foreign policy of the current administration. He has the resolve to lead the country against those that would destroy us and is committed to a strong military at home and abroad.
Analysis: In order to fight the enemy, America must commit resources to McCain’s plan. Such spending does not bode well for our deficit and may further alienate a world already suspicious of our actions. As a result, we may face increasing borrowing costs to fund our effort and further weaken the economy. The impact overall will be negative in the short-term. Is that a price we are willing to pay?
Net Stock Impact: Bearish
Issue #5:
Education is Our Future
Believing that the no child left behind program was under funded, Obama believes in supporting the budgets of the school system. Doing so will go a long way to increasing test scores in key areas such as math and science. He will promote pre-school programs and day care offerings to ease the burden of working families. He will also support teachers, rewarding those that perform. With respect to higher education, the hallmark of his program will be affordability for all. He will do so by using tax credits and a simplified financial aid application process.
Analysis: Education is the single most important tool for productivity within a capitalist system. Unfortunately, America has fallen behind in this regard. Making education a priority will require financial commitment. And while such a burden will pay huge rewards in the long-term, it may cause pain in the short-run.
Net Stock Impact: Neutral
McCain is hugely in favor of free market solutions to our education crisis. He believes that parents must have a choice in the schooling of their children. Having this choice will promote competition, thereby improving performance across the spectrum. Those schools that perform will receive the dollars under McCain’s plan. He does not believe in increasing spending blindly across a system that is inherently built for mediocrity and failure.
Analysis: Under McCain’s plan, the burden on the Federal government is lessened. The long-term benefits will accrue due to increased competition for scarce resources. Because the budgetary impact will be negligible, the impact on the market will be positive in the short-run. We can hardly afford more spending at a time of record deficits.
Net Stock Impact: Bullish
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