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Presidential Election PDF Print E-mail
Written by Edward P. Sabelawski CFS, BCAA   
Tuesday, 11 November 2008

Whichever candidate you supported in the presidential campaign, you can't doubt that the United States has taken a historic step by electing Barack Obama as the 44th president. While acknowledging this milestone set with this election, every long-term investor now needs to consider five practical questions that we have heard from the Obama
presidential campaign:

1.  How will the markets generally respond?

Though the market has closed down sharply so far this year, I still believe that the election decision itself will likely act as a boost for asset values.  Investors during these difficult economic and financial times welcome the energy and leadership of the new president elect and will almostcertainly bring some resolution to this crisis. The positive behavior of the equity and credit markets during the week leading up to the elections speak for itself on the effect, but certainly there are many influences acting on the markets as well.

2. What is the likely direction for taxes?

With the Obama victory, the markets will lose any hope they had for a John McCain proposed corporate tax cut.  Given how the polls were leading up to the election, I believe the markets have already long since given up on this prospect, leaving investors now no need to make any additional adjustments. On other tax issues, the market will not likely welcome Obama's proposal to allow the top tax bracket to return to the former levels of 39.5% and to raise the capital gains taxes on higher income families from 15% to 20%.

3. What of Federal spending initiatives?

President-elect Obama has gone on record supporting a second fiscal stimulus package that would allow foreclosure relief and a $1,000 cash rebate to lower income families. He has also proposed spending initiatives to rebuild the nation's infrastructure and will seek green energy alternatives to imported oil. The stimulus plan may get debated even before the inauguration, but whether or not it goes forward will of course depend on the state of the economy when President-elect Obama does indeed become President.

4. How will health care fair?

Since the new team recognizes that the economy faces a severe burden from the effects of runaway health care costs, and since Obama, in particular,campaigned on a major health care plan, prospects in this area will be particularly important when the new administration takes office.  Obama's proposed government-sponsored health care plan could cause considerable market reevaluation in many market sectors.  It promises, for instance, to increase the flow of monies
into the sector and to enlarge the federal deficit considerably.  But, even as investors begin to digest the details of the Obama plan, they know they have time to react, since these proposals will take a long time to pass through Congress, and will likely undergo considerable modification before they become law.

5. What is the outlook for trade? 

This is the most problematic area to assess.  Obama has said that he supports trade, but he wants to place caveats about seeking labor and  environmental rules from American trading partners.  He has also spoken against the free trade pact with Columbia, and has talked about fixing the North American Free Trade Agreement with Canada and Mexico. Chances are that he will soften his positions, as most presidents do once they take off.

While recognizing the importance of all of these policy prospects, investors also need to remember that the markets and the economy respond to much more than the changes in Washington. Here, the underlining situation remains dominant. The market, especially with its October sell off, has discounted a much worse fundamental economic and financial situation than we will likely experience. Though the markets are indeed fragile and the economy is definitely weak, the disaster implicit in today's market pricing is not at all likely. Once the fact becomes apparent, the markets should see an upward adjustment.

All Securities through MoneyConcepts Capital Corp. Member FINRA/SIPC 11440
North Jog Road, Palm Beach Gardens, FL. 33418 Tel: (561) 472-2000

Edward P. Sabelawski CFS, BCAA
48 Federal Street
Greenfield, Ma. 01301

Phone: 413-774-2753 * Fax 413-828-0455

www.moneyconcepts.com/esabelawski
www.greenfieldoptimist.com

Providers of Financial Services Since 1979

All Securities through Money Concepts Capital Corp. Member FINRA/SIPCMoney Concepts Advisory Service is a Registered Investment Advisor with the SEC. All Non Securities and Non Advisory Products through Money Concepts International,Inc. 11440 North Jog Road, Palm Beach Gardens, FL 33418

 
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