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 Has
there ever been a period of time historically in which a concoction of
such heavy social strife, yet "turn-the-page" optimism, existed
at once?
As Barack Obama's Inauguration Ceremony comes and goes, a new page
will have officially turned in history. Regretfully, the slate we'll
be starting from is far from clean, and we're the only ones that
can apply the much needed elbow grease. But despite the seemingly endless
challenges ahead, new opportunities  will present themselves.
In
our original piece on the Obama Administration, penned shortly after
Election Day, we focused on some of the key priorities that President Obama
and his Administration would be concentrating on as they came into office.
Since then, much has changed -- and in the following paragraphs, we'll
look to provide you with an updated snapshot of exactly what's going
on and how to potentially position your portfolio as we formally enter
the Obama Era.
The Balancing Act
Many will agree that the enormity of this economic crisis requires a policy
response that matches it in size, scope, and speed of implementation.
The most recent estimate of the Obama Economic Recovery Plan comes in
at around $825 billion, occurring over the course of multiple years,
and taking many different forms of disbursement.
Obama's pending stimulus plan will focus on a number of issues,
specifically; dealing with shoring up the foundation of our nation's
financial markets, tax relief targeted to the middle class, assistance
to homeowners, and providing unemployment training.
The following is an analysis of some of the potentially actionable tenets
of the proposed plan, which is expected to be debated and passed by Congress
in mid-February:
- Job Creation
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An emphasis will be placed on the creation of manufacturing, "green," and
environmental technology jobs.
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A $150 billion investment over ten years in next generation biofuel, fuel
infrastructure, acceleration of commercially viable plug-in hybrid, commercial
scale renewable energy, and beginning the transition to a new digital electricity
grid. The Obama Administration's estimated number of jobs created
from these various projects totals five million.
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Specific sectors of focus for these projects and training programs will
be in the following areas:
- Clean Technology
- Renewable Energy
- Next-Generation Broadband
- Science and Technology
- Our Take:
- There is still a level of uncertainty surrounding the specifics of these
projects and how quickly they will make a positive economic impact -- estimates
range from almost immediately to years.
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It's not unlikely that, just between 2008 and 2009, the US Economy
will lose five million jobs (2.6 million were lost in 2008). The five million
in additional jobs from these plans, which will occur over ten years, may
not actually have a significant impact. Especially when factoring in population
and immigration growth.
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It appears that the obvious beneficiary of these programs are the large,
well established alternative energy and infrastructure companies that will
provide the research, manpower, and oversight for many of these projects.
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With Obama vowing to spark a "clean green revolution," it's
increasingly evident that alternative and clean energy will not just be
a passing fad, but will become a staple of our nation's strategic
landscape.
- Infrastructure Investment
- As mentioned in our prior piece, Obama will look to create a National Infrastructure
Reinvestment Bank, which will directly invest $60 billion over ten years
in transportation infrastructure projects across the nation. The administration
estimates that these projects will create two million jobs and stimulate
approximately $35 billion per year in new economic activity.
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Obama's plan also calls for heavy infrastructure reinvestments in
schools, libraries, and government buildings.
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Additionally, Obama has stated that he would like to embark on a national
effort to upgrade the infrastructure of our nation's medical record
keeping system, creating a digital database where our records can be stored
and referenced -- a project which has the potential to help drive
down healthcare costs.
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Our Take:
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As with the rest of the market, many of the pure-play infrastructure companies
have dramatically sold off in recent months helping to bring in their valuations
to more reasonable levels.
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Be aware of volatility in this space as the market begins to price in the
potential impact of Obama's infrastructure investment plans into
these stocks. Also be cautious of chasing these stocks if the market really
gets behind them.
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Though these companies deserve to sell at a premium to the market, be valuation
conscious when taking positions in this area.
Inspiring Confidence & Managing Expectations
While most are focused on the nuts and bolts of Obama's economic
plan and stimulus package, it may be worth paying attention to how it is
perceived by the American people and the markets. Obama ran, and was elected
to office, in large part due to his ability to connect, motivate and inspire
the American people -- he must maintain this connection, as well as
a high level of inspiration through the remainder of this crisis.
His ability to convince the American people to trust the decisions made
by him and his administration, to make necessary sacrifices, and to maintain
a healthy degree of optimism is just as vital as the actual policy actions
being decided on this very minute in Washington, DC.
Another item to watch is how Obama manages expectations. In the weeks
before the Inauguration Ceremony, the Obama Administration laid out a very
dejected and gloomy outlook for the economy -- estimating a $1.4 trillion
deficit, comparing the current economy to the Depression, stating that
its going to "take some time to fix it," etc.
This is smart. Beat down expectations while the economy is still officially
under the watch of the previous administration and before you take office
and implement your policies. Thereafter, you should be able to exceed those
lowered expectations and credit the steps that your own administration
took that "reignited" the economy. I believe UPOD (under promise,
over deliver) is the proper acronym.
The Super Bowl Commercial Corollary
As we approach the big game, and await the one time of the year when we
as a nation hold a high collective level of anticipation for over-the-top,
over-priced, and over-hyped television commercials, you can't help
but wonder if we're also doing something similar in our anticipation
of what the Obama Administration will do for our economy. While there
is a strong probability that President Obama will successfully manage
expectations about the economy, will it be possible for him to actually
fulfill the expectations that the public has for him?
Politics and political power in Washington is only one piece of an even
larger puzzle that helps to construct an investment outlook. To say that
it is unwise to entirely shape one's investment portfolio around
the outcome and expectations of elections and political activities would
be an understatement. It is, after all, fundamentals such as earnings and
valuations that ultimately move stock prices over longer periods of time.
As we continue to navigate and define our current "crisis" -
each day adding an additional layer of anecdote or factoid for use in the
next generation's case study material or to be devoured and analyzed
by future historians - we struggle to balance an appreciation of the unprecedented
moment we live in, all the while surviving it.
For many, the effort to merely stay on top of breaking news is often greater
than understanding their implications. Our challenge remains the balance
of taking advantage of future opportunities, all the while staying on top
of current events.
Survival is key, and the opportunities that will come from the current
turmoil will be bountiful, but you must be positioned -- both in knowledge
and capital -- to take full advantage.
-- Rusty Vanneman, Chief Investment Officer
-- Bryan Keller, Research Analyst
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