'The First 100 Days' Trade
The first 100 days of any new administration brings about considerable change. But this time around, well, hold your hats.
Of course, as every smart investor knows, with change comes opportunity.
"We believe that the 2008 presidential election and the potential political realignment in the Congress will prove more meaningful for investors than any since the Reagan revolution in 1980," said Andrew Parmentier, policy analyst at FBR Capital Markets, a Washington-based investment banking firm.
Considering the strong showing by Democrats across the nation, Parmentier expects that "Obama will enjoy a few months of effective unity with the Democratically controlled Congress in 2009 ... to push an aggressive agenda of increased regulation and consumer protection initiatives."
Here's a look at some possible outcomes for various segments of the economy:
A regulatory crackdown on markets for credit default swaps and mortgage-backed securities looks likely, along with a restructuring of agencies that regulate banks and Wall Street firms such as Goldman Sachs and Morgan Stanley.
Mortgage finance is sure to change fundamentally, depending on what happens to Fannie Mae and Freddie Mac. The next administration also inherits custody of the Bush administration's $700 billion financial bailout program. “But by the time we roll into January most of the bailout money will be spent,” says Parmentier. So that's one thing off Obama's plate.
The Trade: Earlier on CNBC, Oppenheimer's Meredith Whitney said she expects further weakness in bank stocks. "My estimates are 30- 70% below the Street and I think I’m still too high.” As a result she says banks stocks will likely trade lower and Citigroup could trade down to the single digits.
Drugmakers could face a rush of health-care changes due to big wins by Democrats who favor negotiating lower prices in Medicare's prescription drug program, allowing generic versions of expensive biotechnology drugs and expanding health benefits to uninsured Americans.
Any attempt to expand health coverage could affect prescription drug sales. Use of medications may grow, but companies could face pressure to lower prices.
The Trade: “If Democrats throw money at Medicaid companies such as UnitedHealth could benefit because they're growing their internal Medicaid strategy. And Dems fund research which stands to benefit life science tool companies including Affymetric , "says Parmentier.
Obama promised to spend $150 billion over ten years to promote bio-fuels, wind, solar, plug-in hybrids, clean-coal technology and other climate friendly measures. He also advocates a windfall profits tax on the largest oil companies and he opposes drilling in the Arctic National Wildlife Refuge.
The Trade: ”I don’t think oil will rally before the first of the year,” says Joe Terranova. But not because of Obama because “it was the toy of the hedge fund community and they’re out the sidelines. However I think you can find value in the resource sector on Obama's promise of infrastructure spending. If you want Obama trades look at Illinois Tool Works and Chicago Bridge ,” he counsels.
Obama has said he will take a hard look at runaway costs in defense programs. U.S. defense spending climbed more than 60 percent during the Bush administration, and will total at least $612.5 billion in fiscal 2009.
The U.S. armed services are maneuvering to defend big weapon programs as the economy softens and the government spends billions of dollars shoring up the financial system.
The Trade: "Defense spending will probably be down under Obama," says Parmentier. "I’d stay focused on army centric names in this space. because we probably will have trouble getting out of Iraq."
Although Parmentier didn't offer trades, in the past other guest have recommended Lockheed Martin, Boeing and Northrop Grumman under a Democratic administration.
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Trader disclosure: On Nov.5, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (BTU), (GS), (MSFT), (INTC), (NUE); Macke Owns (WMT), (MSFT), (DIS), (UUP), (SDS); Pete Najarian Owns (BNI) Puts: Pete Najarian Owns (CHK) Call Spread; Pete Najarian Owns (YHOO) And Is Short (YHOO) Calls; Finerman's Firm Owns (UFS), (MSFT); Finerman's Firm Owns (OIH) Puts; Finerman's Firm Is Short (WFC), (IYR), (IJR), (IWM), (SPY), (USO), (MDY), (GNK)
Joe Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (CLB), (DLR), (EPR), (EXR), (MAC), (SLB), (SKT), (UA), (IGE), (DBC), (DBV); Virtus Investment Partners Owns More Than 1% Of Corporate Office Properties Trust SBI MD; Virtus Investment Partners Owns More Than 1% Of Shares Of Corporate Office Properties Trust SBI MD; Virtus Investment Partners Owns More Than 1% Of Shares Of Essex Property Trust Inc.
Andrew Parmentier is a policy analyst at FBR Capital Markets
(RDN) Is A Client Of FBRC And Receives Non-Investment Banking, Securities Related Services
FBRC/s parent company, Friedman, Billings, Ramsey Group, Inc., is also the parent company of First NLC Financial Services, Inc. ("First NLC"). First NLC is a nonconforming residential mortgage originator that originates mortgages through both wholesale and retail channels. The company(ies) that is the subject of this report is also in the residential mortgage origination industry.:COF, SLM
Friedman Billings Ramsey & Co, Inc (FBRC) and its affiliates are engaged in the securities and investment advisory business. The company(ies) that is the subject of this report is also engaged in the securities and investment advisory business.