For Investors, Certainty Is the Winning Ticket

 | Jan 04, 2012 | 12:41 PM EST  | Comments
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Let's see, Romney, Santorum, Obama, who is best for stocks, who can move the market higher?

The answer, I think, is a little less complicated. We just want certainty. Even if it means that the GOP is a certain loser in November because employment has picked up and business is better.

We've had multiple problems with this economy both from before Obama and once he came in. So many things were in shambles at the time of Obama's inauguration that it was reasonable to think that we would be in a permanent stock market funk. That turned out not to be the case.

We rallied in part because we had nowhere to go but up, and in part because we spent a ton of money and had the support of the Federal Reserve. Obama will never admit that the stimulus plan didn't really affect unemployment, and he will never admit that he put the focus first on Obamacare and then on financial reform, instead of a consistent thrust on addressing the economy, and this actually hurt employment. That's not his style.

It did, though.

We are beginning to come back. That's good. But for stocks to keep going higher, what we need is certainty. My old partner Larry Kudlow talked to me this morning about Romney being pro-business, which he definitely is. The real positive of this primary last night for the stock market is that Romney didn't blow it. If he wins New Hampshire, maybe he gets some real momentum going and can catch up, even a little bit, to the incredible amount of money Obama has raised, something Obama is tremendous at.

That would be the first uncertainty that can be conquered. As it is, we have no idea what Paul, Santorum or even Newt Gingrich know about the economy or business. Romney is known.

But the second thing we need to know is who is going to win. If we see employment pick up and the economy get better than we know, barring something really stupid that Obama does, he's got a second term.

That's certainty. Again, the market likes certainty. If we see the economy faltering, perhaps because of a European cataclysm, or we see joblessness growing, we can be assured Romney wins. That's fine, too.

That's fine, because we can make judgments if we know who we are dealing with. You think Obama's going to win? Get the heck out of the banks. The second term could be a term where the big banks get broken up or are so penalized that they will have no earnings to speak of. Sell health care, because even if the Supreme Court overturns Obamacare, the president is passionate about it, and he will come right back and figure out a way to reinstate it. The HMOs have been strong in part because of employment growth but also because of a belief that Obamacare will fail in front of the Supremes. I wouldn't take my chances at this point.

Be careful of fossil fuels, because a second-term will mean an EPA that's even tougher on them. I am very concerned that the EPA gets re-energized and bans fracking. That's what they want to do. Don't tell me otherwise. That's naïve.

As someone who likes the stock market as a place to invest, that's all fine. We will find the bull market somewhere. Even if Obama sends up the dividend tax rate 5% to 10% percent -- I have not heard higher than that -- we can still buy the stocks that have good yields. We can continue to bet on the dollar stores and companies like Ross Stores (ROST) and TJX (TJX), because we should not expect anything that changes the pattern of the expanding gulf between rich and poor. Fact of life.

You have to like gold under Obama, because he is perceived as someone who can't build a consensus around radical budget-cutting, and that means we will come closer and closer to our own liquidity problems. That will really serve to boost gold, as I suspect that the bond vigilantes will come here after they have tortured Europe.

Again, certainty.

There's no doubt, though, if you think that Romney's going to win, there will be a wider selection of companies to buy. You can really feast on oil and gas, because I am entirely confident that Romney will embrace natural gas as a vehicle fuel. You can own the banks, because, like it or not, he will defang Dodd-Frank.

You would probably want to get a little more cyclical, because the GDP growth under Romney would probably be greater unless he cuts back severely on government stimulus.

But if he actually can rein in entitlements, you want to buy everything. That would be the ultimate P/E-expanding event and cause the market to trade at 12-13x earnings rather than the pathetic 11x earnings.

The important thing I keep coming back to, though, is the need to be able to plan a portfolio, just like being able to have a business plan. We know who is going to get the GOP nomination, that's a good start.

When we know who is going to win the White House, that's golden. The sooner we find out, the better, because there will still be plenty of stocks to buy under Obama, just not nearly as many as under Romney.

Certainty.

That's the only real element that needs to come out of this election.

And somehow I think we will have it well before November. That could be the best thing for portfolios regardless of the winner. Until then, we are going to be buying stocks and selling them on the basis of every poll, the worst possible scenario. Certainty puts an end to that. We will then be in shape to pick the stocks that will go higher, no matter what, and the places where the bull market will live will be readily evident.

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