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Are we ready for Obamanomics?

Yes, we're all waiting to hear about Obamanomics. Barack Obama's election is providing some stability during unprecedented financial turbulence. At least now we know that some of the uncertainty has been removed. Based on Obama's campaign, we expect the following to take place:

One of his first steps will be to address the financial crisis.The subprime mortgage crisis and frozen credit markets are the main factors that led to the economic slowdown in the US and, in turn, the world. The new guy can only do so much to fix those problems quickly. As Bill Clinton declared, "It's the economy, stupid." But Obama has made the economy a key focus.

"Until the market decides if Obama is good or bad for stocks,and to what degree, volatility will continue."

His politics should be the polar opposite of George W. Bush's. So we could see a complete reversal of the last eight years. Consequently, there is a good chance that we will not see a commodities market for the next four years.

Effects on different sectors
Nevertheless, among investors, perception often trumps reality: Obama's victory has already boosted some healthcare plays, because his insurance proposals should increase demand for generic drugs and companies that manage drug benefits.

We have also seen that the mere anticipation of his victory triggered declines in the securities of coal companies, because Obama hinted he is against increased use of the dirty fuel until there's a proven clean-coal technology.

Governments alone can't prevent a recession; however, Obama's promise of a stimulus package for America's struggling manufacturing industry, which may include a bailout for the auto industry and plans to invest heavily in infrastructure, could give the economy a much-needed boost.

The Obama presidency could also negatively influence the oil industry, as the president-elect has said he will fight America's "addiction" to dirty oil, (which could include crude fromAlberta's oil sands). This greening is his JFK "Man on the Moon" speech. And just as Americans put a man on the moon, they will probably succeed in decreasing their demand for global oil. The US is the largest consumer of oil in the world, so consider what this means to those asking for a return to high oil prices.

Other winners and losers under Obama

The Market
Although Obama's prospects sparked the biggest Election Day rally ever, the gains were more than erased the very next day in the face of bleak economic news.Get ready for more seesawing. Until the market decides if Obama is good or bad for stocks, and to what degree, volatility will continue.

We'll see Obama trying to shift to more peace talks and discussions with dissenting nations. The peace premium will mean lower prices for oil and gold.

What else can the new president do? With economies around the world under siege, it could be at least a year before any of his fiscal policies dramatically affect stock prices.

You can expect hedge funds and their managers to experience higher taxes.Taxes have to be increased in the US to fund some of the proposed changes, and this will probably continue.

Financial Services
The stocks of banks, brokerages, and other financial concerns can anticipate stricter regulations that may well crimp returns but result in a greater consumer confidence in them.

Financial stocks are becoming so cheap that they will soon be hard to resist.The Standard & Poor's financial index is down about 51 percent so far this year, trading at 11.3 times '09 earnings, versus a 36.6 percent drop for the S&P 500. Financials may well be among the most attractive sectors when the smoke clears, all things being equal.

Infrastructure
Obama has made it clear that he wants to bolster crumbling roadways, bridges, schools, and sewer systems, and for that reason municipal bonds are gaining interest (they'll have to raise the cash to do the building).The Obama administration will likely send increased amounts of grant money to the states, improving their cash flows and allowing them to complete old projects and start new ones-all of which should energize the US municipal bond market.

"Obama's promise to create a green-energy industry to reduce the nation's dependence on foreign oil has placed alternative energy in everyone's winner's circle."

This infrastructure building will create jobs in the US-jobs that can't be outsourced to some call centre in India or China.

Defence
Democrats have been threatening to whack the defence budget. House Financial Services chairman Barney Frank made headlines when he said the defence budget should be cut by 25 percent.

Green Energy
Obama's promise to create a green-energy industry to reduce the nation's dependence on foreign oil has placed alternative energy in everyone's winner's circle.

You can expect the oil nations to be severely impacted, as they were under Clinton. Saudi Arabia was in deep trouble and, if you remember, so was Alberta! And they didn't recover until eight years later.

Already Obama is talking about people getting credits for buying cleaner burning cars.

Auto Makers
Both Obama and the Democratic Congress have committed to rescuing the US auto industry. However, he has been quoted as predicting that the bailouts will fail because Detroit's production costs are too high, and the world auto market has excess capacity. So we are not sure which direction this will take.

Healthcare
Another Obama play is healthcare, which is likely to be a priority. The result? Drug companies may get the shaft. Drug makers fear losses in revenue as Democrats push to negotiate lower drug prices under Medicare.

But there may be some winners in healthcare. The generic drug makers could benefit from any assault on drug pricing. And managed-care companies could benefit by bringing technology systems and other efficiencies to the insurance market and pharmacy-benefits services.

The Bottom Line
We may see the reverse of the Bush era,much like the Clinton era was the reverse of that of the previous Bush.

What could it mean for our clients?

• You will still need bonds for a portion of portfolios.
  
• Our managers are still seeking companiewith good balance sheets and dividends that make sense.
  
• We are ensuring that our clients have the appropriate allocation to weather the storm.

Over the next four years we will eventually emerge from this chaos and become stronger. Obama will be planning for re-election in three years, so he really has three years to clean things up. Events may take place more quickly than most expect, including us, but we need to be prudent in our planning.

If you would like to review your current portfolio based on the new Obama economics, please contact our

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