I am retired and take educated guesses on all things financial.

May 07, 2008

May 7, 2008: Obama-nation, How To Invest Efficiently and Wisely

Barack Obama has an economic agenda. And investor's had better be prepared for it before 2009. Barack Obama's own "Economic Agenda" provides clues (, economy, pdf file "read the plan"). Here are a few major points, which will be followed by some investment recommendations. Importantly, the reader needs to think ahead and formulate a portfolio strategy for what may well be the most profound changes in American economic policies since F.D Roosevelt.

Mr. Obama denounces NAFTA at every turn. He recently spoke of "entire cities that have been devastated as a consequence of trade agreements that were not adequately structured to make sure that U.S. workers had a fair deal." As President, he has vowed to re-negotiate NAFTA and penalize American companies for outsourcing jobs from the country (and reward those for creating jobs in the U.S.). Obama will out argue John McCain, a strong but inarticulate free-trader, and nudge global opinion in the U.S. in a depressingly protectionist direction.

Obama's chief economic advisor is Austan Goolsbee of the University of Chicago. Goolsbee is a sensible and pragmatic fellow by all accounts. His plan to save millions of Americans from struggling to fill out their tax returns is commendable. Anyone who earns only a salary and bank interest, both of which are reported automatically to the IRS, will be sent a tax form that is already filled in, which the individual can accept or reject. Countless headaches would be averted. Goolsbee also was the architect of Mr. Obama's homeowner bailout program and had a hand in his health care plan - both more modest in scope than Hillary Clinton's sweeping freebie panoramas. Obama loves clean energy, water and infrastructure improvements.

Barack Obama has a keen intellect that has been evident on some economic plans. However, he sometimes lets his far left politics trump his good sense, and that is troublesome. Last year, for example, hoping for support from Sen. Tom Harkin of Iowa,he co-sponsored the Fair Pay Act, which would have obliged firms to pay men and women the same wages, not for the same work, but for work the government deemed "equivalent". Obama also supported the Patriot Employers Act,a bill for rewarding American companies for not expanding overseas that contained some economically toxic components.

Based upon his voting record in Illinois and in Congress, Barack Obama rarely saw a tax he didn't like. This is a major concern to investors. Tax hikes for the rich, who now pay virtually all the income taxes in America, would have to be so high to pay for Obama's so-called middle class tax cuts, health care and infrastructure improvements that the economy would likely suffer. Those with money always find a place to hide it. It is my belief that a tax hike would actually bring fewer dollars into government tax coffers. Obana has floated the idea of letting the payroll tax apply to high incomes and add another 12.4% to be extorted from employee and employer. The Bush tax cuts would be eliminated, capital gains taxes included. And based upon Obama's words and deeds, more taxes in the spirit of class warfare would likely be conjured up.

Investors may want to consider the following basic steps re-aligning their portfolios:

Maximize individual stocks in tax-advantaged accounts.If you qualify for a 529 Plan, obtain one in a friendly tax state, such as Alaska.

Sell individual stocks in trading accounts and purchase tax efficient ETFs and low-load mutual funds.

Avoid health care and pharma stocks,fossil fuel companies headquartered in the US and multi-national companies headquartered in the US with large subsidiaries overseas.

Avoid any company NAFTA-dependent.

Avoid mortgage and loan companies.

Avoid foreign stocks, funds and ETfs that are dependent upon significant trading of goods and services to the U.S.

With higher taxes and historically less revenue as a result, plan on inflation in the 6% range as the government prints paper assets to cover increased social spending largess.

Assume that company headquarters and financial transactions will move offshore to more friendly environs.

ETF ideas:

PowerShares Water Resource Fund (PHO)
iShares S&P Global Infrastructure Fund (IGF)
Vanguard Dividend Appreciation Fund (VIG)
iShares Global Technology Sector Index (IXN)
iShares Lehman 1-3 Years Treasury Bond Fund(SHY)
iShares Dow Jones US Home Construction Index (ITB)
Alternative Energy is a choice, but I cannot recommend any ETFs in that sector now.
iShares Switzerland Index Fund (EWL)
iShares Singapore Index Fund (EWS)
Svensk Exportkredit - Jim Rogers Commodity Index (RJI)


Teppco (TPP)
Enbridge Energy Partners (EEP)
Kinder Morgen Energy Partners (KMP)

Mutual Fund:

Fidelity Strategic Income Fund (FSICX)

A small list list using a broad brush. The key is to plan ahead and execute your plan for your best financial interest.

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