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CNBC Guest Blog
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Barney Frank told us it was coming when he said there are a lot of rich people out there to tax. So higher taxes are coming and I think soon. The Bush tax cuts expire in 2010 but I think the Obama administration will try to move the increase to 2009 and early 2009 at that. The max rate on income will go to 39.5% and the tax on capital gains to 20 % from 15. Less clear is the tax on dividends. Could be the same as the capital gains but it could be 39.5% !
Accepted wisdom would lead you away from pharmaceutical stocks as renegotiation of drug pricing under Medicare/Medicaid rules will occur. Biotech's that are small and innovative and focus especially on stem cell research might well benefit from the Obama administration. Health insurers and hospital management companies will come under whatever the regulatory framework proves to be, but will see increasing patient flow with any kind of overall health care proposal and should see total profits grow.
Generic drug companies could see expanding multiples as the higher priced pharma companies find it hard to justify their high cost structure to a skeptical Congress.
Alternate energy will be a focus. Wind, solar, and ethanol have a new lease on life, but nuclear power doesn't. With oil prices down and no veto proof majority in the Senate there will be no stomach for a windfall profit tax. I would guess oil is in a trading range with $60 the low end of that range. That is more or less the cost of producing the last most expensive barrel of oil and commodities usually go to the marginal cost of production.
I think a stimulus package will be more focused on infrastructure needs and job creation so engineering and construction companies may prosper. Waste water treatment as well will be a focus. On a different tangent, since the infrastructure needs are so huge it might become a popular idea to try to privatize some of the projects and the small boutique investment banks might see some business. Underwriters on municipal industrial development bonds could see more business with the size of the dollars that need to be raised.
The financial industry is going to have to deal with the idea that everyone blames them for the crisis we are in. They haven't helped themselves by reserving $108 billion for bonuses when unemployment is going up. Expect more regulation and a much tougher business environment for them.
Tobacco excise taxes will go up. Defense spending will be squeezed, and homebuilders will try to resurrect the Operating Loss Carry forward debate that could save them a lot in taxes. Home ownership and mortgage foreclosure forgiveness will be a focus of the new administration and a revision to personal bankruptcy laws or tax benefits for first time home buyers might well be passed.
Technology stocks typically lead out of a down economy as they are viewed a part of the solution to lagging profitability.
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Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC. 
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