The rhetoric is way too heated. If you didn't know any better you would think the entire Republic is on the line.
I'm talking about the vote to repeal Obamacare on its seventh anniversary and replace it with a Republican-written program.
First, let me set the scene of where we are at this moment and then I will go into the real risks and rewards so we all know what's really on the line, not what you heard is on the line.
Now we know, first of all, that something has to be done with the Affordable Care Act as the big insurance companies are or will be prepared to pull out of the exchanges that were supposed to drive prices down because the companies are losing too much money. Remember my view comes not from the White House or from the Democrats but from following the companies involved and they really don't want anything to do with the program anymore. That, per se, doesn't necessarily doom Obamacare instantly, but you could see a world where premiums spike to levels that most people involved in the program cannot afford without extreme hardship. That would turn Obamacare into a political nightmare for anyone who still stands for it or wants to block any reform of it.
You want to keep that point in mind for when I go over the various scenarios as it is crucial for the longer-term vision that you must have in order to get through this moment with your portfolio intact and not panic like I expect so many others to do if the so-called "wrong" vote occurs.
So what are the options? First, the house could pass the bill. Implications? Given that President Trump supports the bill it would be a boon for his presidency. It would most likely indicate that he will now have success going for tax reform, which means lower taxes for corporations, repatriation overseas corporate assets and perhaps a very large infrastructure bill.
The result? Stocks rally and interest rates go higher. Best stocks to buy? The banks because they have been headed down for some time on lower interest rates. They need higher rates. JPMorgan Chase (JPM) and Cramer fave Citigroup (C) would be logical buys.
Secondarily on the buy wish list? The industrials and techs, as they benefit from an expanded economy. My favorites? I would go for Martin Marietta (MLM) and U.S. Concrete (USCR) to play the "wall" and any infrastructure initiative and I would buy Alphabet (GOOGL) , Apple (AAPL) , Amgen (AMGN) , Cisco CSCO for repatriation and 3M (MMM) , United Technologies (UTX) , Cummins (CMI) and Dow Chemical (DOW) for worldwide growth. The transports should rally and I would go for FedEx (FDX) because it just reported.
Worst stocks to own in that case? Utilities and real estate investment trusts, especially those connected with retail, and other stocks that are considered bond market equivalents, like the higher-yielding consumer product goods companies. Think, Kellogg (K) , Campbell Soup (CPB) and the like.
Second scenario, the bill fails, stocks go down and interest rates go down. This is the so-called disaster scenario that you hear means the end of Trump's clout and a major setback, if not the end, for the entire agenda.
Here's where the rhetoric gets too heated but I will use a worst-case scenario for you to be ready. Back during the horrendous days of the Great Recession, when banks were failing left and right, President Bush asked the House to approve the Troubled Asset Relief Program, or TARP. Initially, the House rejected the bill and on Sept. 29, 2008, the stock market had its worst one-day loss in history, falling 777 Dow points, or 7%. Mind you, that was a worse point loss than on 9/11.
A few days later the House approved TARP and the market bounced back although it still had a rocky time of it until it ultimately bottomed in March of the following year.
To listen to some of the jeremiads today you would think that we could have a repeat of the decline after the rejection of TARP.
If we do, you have to buy the heck out of the market right into the downturn because the times are so different. Back then the entire economy was in systemic risk mode. It was entirely possible that we would have to nationalize the banking system. We were talking about ATMs not working and checks not being able to be cashed.
Now companies are strong and profitable. The financial system is in about as good a shape as you can get. Stocks are expensive historically so they can fall but I think it would be an opportunity for three reasons.
One is that, like TARP, there could be a second vote shortly after, that goes the president's way and you would have sold for nothing. That's a distinct possibility because of what I asked you to remember, which is the unraveling of Obamacare over time as the big insurers don't want to write policies and the remaining companies just don't have enough heft to compete adequately, something that is needed to lower premiums.
It's too politically risky for nothing to occur.
You would feel like a real dope if you sold, and you would be sitting pretty if you bought.
Two, it is possible that rather than think it is the end of Trump as we know him, Congress just moves on to the rest of the agenda, which, while complicated, is less likely to fail because it involves tax reform not health care. That will drive stocks higher.
Three, even if health-care reform fails and there is no repeal-and-replace resurrection as in scenario one and tax reform is stillborn, defeating scenario two, there will be many companies with stocks that have been hammered to the point that you can buy them at a discount to where you would have thought you could get them.
Now, there will be plenty of people who believe that if we get the worst case and stocks and interest rates go down that we will be headed for a very big slowdown. In a slowdown you buy three different kinds of stocks, the higher-yielding stocks, like the utilities, the consumer packaged goods stocks that can do well even in a weak economy, and the drug and health cares which will thrive in a slowdown. Here's your higher-yielding buy list in that scenario: American Electric Power (AEP) , Con Ed (ED) , Dominion (D) , Clorox (CLX) , PepsiCo (PEP) and Procter & Gamble (PG) . Drug stocks? You want to go for Eli Lilly (LLY) , Merck (MRK) or Allergan (AGN) , all of which I think will have good years regardless of Washington.
You can also buy the highest growth stocks, which don't need a strong economy. We like to buy the ones we know are doing well right now. Let's start with Adobe (ADBE) and Oracle (ORCL) which just put up very good numbers. Then consider Alphabet/Google, where the advertising worries are a tempest in a teapot and Amazon (AMZN) , which is the ultimate stay-at-home stock. In fact, you can buy all of FANG, Facebook (FB) , Amazon, Netflix (NFLX) and Google, without a problem.
Now I know there's a third Washington scenario, that the whole shootin' match is postponed until a later date. I think any vote postponement will produce a similarly large selloff as a failure to pass legislation and you should use the same game plan I just outlined.
Now just to be sure, when I use the TARP example I am laying out a case that I do not think will happen no matter what. That said, though, I am so sick of hearing about how badly this failure to pass this legislation will hurt Trump and the stock market that I picked the worst case so anything less than that will not cause people to panic because remember no one ever made a dime panicking.
So get your plan in place. Be ready for all considerations, but most important, understand that the Republic is not in jeopardy, there is no systemic risk and there are so many companies that are doing so well regardless of Washington that it could be just the break you need to get in the market or augment your portfolio with the buying of more of your favorite stocks.
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