MORE RECENT THINKING ABOUT THE UP COMING U.S. ELECTION
I believe that it is close to certain that the Democrats will control the House of Representatives and a liberal member of their group will take over as Speaker and House Majority Leader. Consequently, I will not be surprised to see:
1. Calls for higher income taxes.
2. Legislation to create lower prices for prescription drugs.
3. Specific taxes on the corporate profits of larger companies like Exxon-Mobil and Wal-Mart.
4. More restrictive trade practices.
In 2008, the presidency is contested. As part of the Democrats desire to secure that position for their candidate, I predict that they will fill the airways with political proposals intended to gain the allegiance of specific groups and to garner votes.
I like to remind myself that many in the economic middle have not been benefited from the big rise in global economic growth in the past few years.
Certainly, those living in China, India and those living in developed countries who earn their livelihood in industries connected with finance, commodities and those businesses that benefit from outsourcing are satisfied (for the most part) with the status quo.
But those people whose jobs are being outsourced, and those without a background in technology or the above referenced industries have been increasingly left out. These people are likely to respond to the Democrats’ proposals to redistribute.
REDISTRIBUTION WILL NOT BE WELL ACCEPTED BY WALL STREET
The average investor will be dismayed at the potential increase of capital gains taxes and taxes on dividend income. The holders of the very large companies that politicians like to target for special taxes will be perturbed.
THE U.S. MARKET MAY NOT BE HUGELY AFFECTED, BUT…
I am suggesting that those who hold pharmaceutical companies and large companies like Exxon and Wal-Mart may find themselves in a much less friendly political environment for a few years to come.
OUR STRATEGY IS NOT CHANGING, BUT OUR TACTICS ARE
We have been holding a lot of U.S. stock indices and they have done well. We will gradually cut back on our U.S. positions and take some profits. We plan to continue to hold all of our energy, precious metals and base metals shares. We will also continue to hold all of our Indian and Chinese stocks and U.S. and foreign industrial stocks. We will be using most of the cash balances generated from the recent sales to buy stocks, which will benefit from a weaker dollar and stronger economic growth in the emerging world (mainly companies that earn their revenues and profits outside of the U.S). We will position ourselves in companies in industries where growth is visible and where it may remain visible for the next few years.
WHAT INDUSTRIES FILL THAT BILL?
Our old favorites: energy, precious metals, base metals and industrial capital goods manufacturers. (A few examples: transportation equipment manufacturers, mining equipment manufacturers, oilfield equipment manufacturers.)
Other favorites include those industries which are growing fast in the developing world. Some examples of attractive industries abroad are: computer software, employment services, business services, education, travel and finance. The newly acquired wealth is being spent by those in the growing economies.
Thanks for listening.