Income Stocks and the Election

10/04/2012 10:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Most income investors are focusing on the wrong factors when it comes to the impact of this year's election, says Utility Forecaster's Roger Conrad.

How will the election affect income stocks? We’re here with Roger Conrad for him to explain.

Hi Gregg. Well, I think it is going to have an impact, but not in the way a lot of people think.

The real impact of elections is on the margins. It’s in things that people don’t hear about. It’s the chairman of the FCC this time around. Here’s the chairman of the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, who has these jobs who really affect directly regulatorily various industries.

Definitely each administration brings its own tenure to it. This one has been somewhat more regulatorily minded, so it’s been a little bit more difficult for companies to get things done, which has affected investors. Whether you believe the steps taken by the regulatory agencies are good or not, they have impacted returns.

So this time around, this is going to be where I’m going to be most focused. I think probably where this election matters the least is where people believe it matters the most, which is what sort of tax rates we’re going to have, what sort of budgetary overhaul and the federal government policy is going to be.

The reason is simply that our system of government isn’t set up for massive action. In order to really pass anything radical, you have the presidency, you have the majority in both houses of Congress, but also enough votes in the Senate to be able to invoke cloture. So that happened the first two years in the Obama administration. You see even then they were unable to really accomplish a fraction of what they wanted to.

There is the health-care bill which has come through, and that’s been talked about a lot. When it kicks in, it’s going to have unknown consequences. Obviously, it’s a massive thing. I doubt anybody has read the whole thing through, and it’s going to be litigated, you better believe it. On the other hand, what are the odds of repealing that? You’re going to have to be able to override a filibuster in the Senate pretty much.

I guess also it’s more testament also, that not only do you have to have the House and Congress, but even if you have those, even if you get something through, you still have the whole judicial system to go through.

The whole judicial system.

 Just like you did with the health-care bill.

Which may throw out the health care thing at some point anyway.

So again, I think there are some limitations. In fact, the budget deal they signed last year enforces some pretty draconian measures. 2% across the board spending cut may not sound like a lot in an abstract sense, but it’s a lot of dollars that won’t be spent. There is a trickle down to the state and local governments.

There’s also the matter of the taxes and so forth not going through. The deficit is under those rules. If the economy continues to grow, we’ll drop off a cliff. Of course, as we’ve seen in Europe, that was the best laid plans somewhat gone awry. Now you have almost a revolution in some of these countries. My opinion is that Germany is either going to bend or the euro is not going to survive in its current form.

I think these politicians see that, and I think they’re going to probably come up with some sort of a compromise, and it’s probably going to be pain felt on all sides.

Again, are the election results going to be that dramatically different depending on who gets in? Again, on the margins and definitely in these committees, but issues like that, it’s going to have to be resolved with a compromise just like pretty much everything that’s happened in the United States over the years ever has. Again, that’s just because the way our system of government is set up.

Related Reading:

The Election Won’t Change the Markets
While We Wait for the Flood
The Week Ahead: Will Earnings Fuel an Election Year Rally?

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