Sunday, November 9, 2008

What Obama's Spending Plans Mean for Your Portfolio

By Alyce Lomax and Dayana Yochim
The Motley Fool
November 7, 2008

You know things are dire when the National Debt Clock can't keep up with government spending. But that's what happened in October, when the counter on the corner of 44th Street and Sixth Avenue near Times Square maxed out at $10 trillion.

Welcome to office, President-elect Obama! Hope you don't mind picking up the tab!
Maxed-out America is due for a debt diet At least part of the problem will be remedied in 2009: A new debt clock will be installed -- one with a counter that can tally dollar amounts up to one quadrillion -- that's a one with 15 zeros.

As for dealing with the hangover from the spending that got us here, well, that's now in the hands of newly elected Barack Obama. And man oh man, does he have his work cut out for him.
Here's a look at some of the ideas Sen. Obama discussed during his campaign in the area of government spending, fiscal policies, and the national debt -- and what we see as potential implications for investors.

The plan for growth and restraint Paying down the monstrous national debt while funding new and existing projects will require a deft balancing act. Obama has said he will handle the give-and-take by adhering to budget rules that demand new spending be paid for in one of two ways: through cuts to other programs, or with new revenue -- "new revenue" being a less hot-button way of saying "taxes."

One major spending initiative under an Obama administration focuses on getting businesses back into hiring mode. According to his campaign platform, we could see:
A $3,000 tax credit for each employee hired in 2009 and 2010.

Sweeteners for small businesses, such as allowing small businesses to expense as much as $250,000 until the end of 2009.

Capital gains tax cuts on small-business investments.

Obama has also said he favors infrastructure projects -- roads, bridges, schools, and such -- to create work in an economy that is rapidly bleeding jobs. For investors, that bodes well for companies that have some relationship to infrastructure, such as construction and project-management companies like Fluor (NYSE: FLR) and KBR (NYSE: KBR).

Another major spending plan is a $25 billion "Jobs and Growth Fund." In addition, Obama has proposed a 90-day moratorium on foreclosures for "homeowners acting in good faith," as well as a $25 billion stimulus package for state governments -- to give them less reason to raise property taxes. States are also suffering from the housing crisis, since plunging home values translate into falling tax revenues; California recently admitted it was facing a big cash crunch and asked for federal assistance.

To free up cash for spending proposals, Obama has suggested reducing the number of troops in Iraq, raising taxes on high-income filers, doing away with corporate loopholes, and carefully vetting earmarks -- as well as demanding more transparency for them to begin with.

How Obama's policies might play out in your portfolio So far, there are indications that some stock sectors may do well under Obama's spending proposals. In addition to infrastructure, alternative energy is certainly another area that may benefit from Obama's being in office. Companies like solar concerns First Solar (Nasdaq: FSLR) and SunPower (Nasdaq: SPWRA) could benefit from government funding of alternative-energy research.

A Democratic presidency is typically good for unions, and that means automakers such as General Motors (NYSE: GM), Chrysler, and Ford may luck out despite their recent dire straits. The Big Three are instrumental to Detroit, are heavily unionized, and represent a huge chunk of jobs -- in other words, voters -- with health-care benefits. The chances of getting some financial love from the government look good -- although expecting that to translate to long-term stock performance certainly isn't a given.

The flip side, of course, is that businesses heavily targeted by unions may not fare as well in the next four years. Sorry, Wal-Mart, Whole Foods Market (Nasdaq: WFMI), and Starbucks (Nasdaq: SBUX) -- your attempts to avoid unionization may become increasingly difficult.
Of course, as history tells us, it will be interesting to see how campaign promises translate into policy reality, and how that will affect investors' strategies. However, the Fool will be here tracking the environment and gauging the best ways investors can make money in their portfolios.

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