Power And Dollar

Obama is touring outside of America to audition for the job while the jury is sitting before the TV box.  Media attention is drawn to foreign policies of the candidates.  This is the opportune time to compare the central themes of both McCain and Obama’s foreign policy platform and how it relates an ordinary voter.

This is only looking at the effect of the foreign policy.  A candidate may have other items on the platform that work against the effect of foreign policy to an industry. 

McCain holds a set of values that forms the basis of the relationship between America and individual countries: A democratic country has a much warmer relationship with America and vice versa.

Obama keeps the interests of America in minds more than a set of values.  Dictatorship or human rights abuse are not as important as the interests of America. 

Relationships with Iran, Cuba and North Korea may finally get a breakthrough under Obama, if Bush will not rush to the glories before the end of his term first.  Relationship with China may become more manageable under Obama since Obama is more interested at interest exchange than McCain.  Resources for Europe will be under stress since resources will have to be diverted to other geographies.  Moreover, as Obama diverts attention to other geographies, Obama may expect more from EU to those interests.

Since McCain is more value driven, more state actions will require military strength to back up.  Therefore, defense and surveillance (Stanley Associates, NSYE: SXE) industries will fare better, although not as good as the Bush 2 years.  This of course will bring up the fiscal expenses.  Therefore, bonds will do well (i.e. Lehman Brothers).  Credits may become more expensive in the multi-year time frame.  Government domestic spending and domestic demand will continue to be stressed.  Since political risk in the Middle East will stay more less the same level, the profit at oil exploration companies and commodity speculators will continue to stay high.  

Since Obama is more interest driven, international trade and industries that have long been shut with Iran and Cuba (say oil and sugar) will benefit.  High tech with China will benefit.  The support to Taiwan may become weaker.  Military sale to Taiwan may become smaller in both amount and scale.  Obama is more interested at international carbon emission trade.  Therefore Merrill Lynch’s involvement in carbon trading will continue to benefit.   The short term effect on oil companies by political risk will ease.  However, the political risk on oil exploration companies rests on the source of energy, i.e. regulatory risks, rather than geopolitical risks.  Of course, a lower geopolitical risk opens up more oil fields to supply oil to the world market instead of being shut out by embargos.   A lower spending on military may ease up the fiscal pressure, reversing the dollar free fall trend.  Consequently, the inflation pressure may become lower or even more predictable.  The direct beneficiary will be Walmart since a stronger dollar will bring the importing prices to Walmart lower.  A more predictable credit will help the banks, especially banks that are both above $200B capitalization and mostly domestic operating.  For that reason, companies like Home Depot, Lowe, Toll Brother (NYSE: TOL), Lennar (NYSE: LEN), KB Home (KBH), Ryland Group (NYSE: RYL) will get a better opportunity to unload some of their inventories.  

A lot of industries will get into a better shape just because the Bush 2 administration will end.  And there are companies that are well hedged against political risk, such as Goldman Sachs.  A case in point: Treasury Secretary Paulson is from Goldman Sachs (NYSE: GS), so is former Treasury Secretary Rubin under Clinton administration.  Of all the international financial institutions, political risk originating from America will have the least impact on HSBC since its operation is the much more diversified than most of its competitors, especially the ones from America.