I just dropped in to see what condition my condition was in.
Tonight is our annual update on the State of Our Union, otherwise known as "What condition my condition is in." To be truthful, most of these annual updates have very little to do with our current state, and have much more to do with where our President would like us to be heading. With a sitting President running for reelection, we can expect to hear about a few successes (very few), but mostly we will hear about how much better the future State will be if he's just given four more years. We'll probably hear something like, "We've made progress, the State of our Union is strong, but we still have work to do."
Heading into his second term, President Obama has a 44% approval rating, which is higher than Jimmy Carters 37%, and just a bit below Reagan's 47%. Unemployment is falling from lofty levels, and in spite of government ineptitude the economy is improving ever so slightly. Intrade has the odds of an Obama victory this November at about 55%.
As an investor, here are some of things I'll be listening for:
1) Class Warfare - This will be a big part of the presidents campaign. He is putting Warren Buffett's secretary next to Michele in order to emphasize the injustice in our tax code that has a lowly secretary paying more (as a percentage) in taxes than her billionaire boss. This is also a nice way to jab at Romney's 14% tax bill. Now most investors know that dividends and long-term capital gains are taxed at a lower rate of 15% versus 35% for short-term gains, and higher wages. What many fail to realize is that these dividend payments have already been taxed once at the corporate level, and are now being taxed a second time at the personal level. Also, many wealthy help subsidize their local schools, hospitals, and other state endeavors by purchasing tax-free bonds. This allows these organizations to borrow at below market rates. A strong case can be made for encouraging long-term capital investment through attractive tax rates.
Clearly our President believes that his voters would like a "fairer" tax where the wealthy are not encouraged to invest. It will be interesting to see how strong his rhetoric is when it comes to the tax treatment of dividends, capital gains, and municipal income.
2) The Housing Crisis - Housing has been a major drag on the economy for the last several years and is finally showing some signs of stabilization. Listen for any major promises on mortgage relief or foreclosure relief. Depending on the size of the promises this could lead to another down leg in bank profitability and share prices.
3) Energy Independence - This should be interesting after recently shooting down the Keystone pipeline, and the failure of Solara Solar. Don't expect much if you're an energy bull.
4) Manufacturing - While US exports have been growing, they are still growing at a slower pace than US imports, hence a growing trade deficit. Last year the President promise to double our exports by 2014, they were up 11% last year. See if he sticks to his double by 2014 pledge. This should be mostly lip service, nothing major from an investing perspective.
5) Spending - Oops - Investing - The President is a pure Keynesian, he believes that increased "investing" (he won't use the word spending), by a knowledgeable leader, will get our economy growing at a more rapid pace. If $3 trillion got us 2% GDP growth than $6 trillion should get us 4%. Don't expect to hear anything substantive in the way of spending cuts. If we did hear anything about reducing spending that could be perceived as positive for the markets.
Now I realize that some of you might struggle through the address. One popular method of making the SOTUA more enjoyable is to make it into a drinking game. Whenever you hear the President say one of the following, take a shot.
- "Fairness" or "fair share"
- "Income inequality"
-"Investing in..."
- "Middle class"
- If you hear "debt" or "deficit" borrow a drink from your neighbor
Be careful, and enjoy.
Candidate Match Game:
If you're curious to see which candidate agrees with your views of the issues follow the attached link to the USA Today Candidate Match Game: (Remember to slide the scale next to issues to adjust to what you value most)