HANOVER, N.H., Oct. 30 (UPI) -- Last week, "Bottom Line" focused on the opportunity to short U.S. stocks ahead of a possible regime crisis. A week later, the market is up, but the prospects of an extended U.S. agony are as strong or stronger. Often wrong, never in doubt, our macro advice is, "sell high, sell more higher."
But there's a more focused way to invest the Nov. 2 effect, one based on misperceptions of the meaning of either a Bush or Kerry victory.
--1. Short Halliburton.
Despite today's rally, the scandal surrounding Halliburton won't go away. In fact, according to reliable sources, it may take on an added aspect in the coming weeks in light of a series of unusual moves and trades in the stock's price starting in 2000, when now-vice-president Cheney left the company to run for office, and in recent months.
(By way of full disclosure, some EMG clients have been short the stock for months, and continue to be so today. As "bottom line" regulars know, we put our money where our mouth is -- which gives us not a conflict of interest, but certainly a vested interest in the positions outlined here.)
"Bottom line" is not aware of any pending action by the SEC -- but there is the potential basis for one, according to our sources on Wall Street. As well, the prospect of wrongdoing while Mr. Cheney was CEO, now under review at the FBI, will give Halliburton a fresh untouchability for Republicans.
The argument against shorting the company has been the idea that a Bush win will end the controversy over its operations. This is not likely.
If Kerry wins, of course, the firm will receive extra scrutiny, and is almost certain to lose the kind of highly lucrative business its enjoyed under both the Clinton and Bush administrations.
But a Bush win will still not block, at the least, a fair and competent investigation of the company by the FBI and possibly others. And there will be significant pressure on the administration to prove it's fair minded by taking the company down a notch, or, at the least, allowing a truly independent investigation.
Furthermore, Democrats, under the highly partisan atmosphere likely to follow a Bush win, will be fillibustering to produce a release of Cheney Energy Commission records, or a special prosecutor. (Did Clinton's re-election end the Whitewater probe? Hardly.) Republicans in Congress, no matter who's president, will be reluctant to stick their neck out by defending this poster child for special interestedness; the government-trough Enron.
Furthermore, no matter who wins, Halliburton is likely to suffer from a return to normalcy in the price of oil and other commodities, and a retrenchment in Iraq under either Bush or Kerry. This is a global company with a bull's eye painted straight on its balance sheet, a firm hated by most of the world in which it operates. Fairly or not, Halliburton is the tobacco-asbestos stock of the early 21st Century. Sell.
-- 2. Buy generic drug and stem-cell research stocks.
Generics have been driven down in sympathy with pharmaceuticals in general on the fear that a President Kerry will implement price controls, or allow re-importation to the U.S. Stem-cell companies and biotechs generally fear a Bush win will continue a strict ban on federal funding on embryonic stem-cell research.
In fact, no matter who wins, stem cell research restrictions will be loosened. And, no matter who wins, generics and biotechs will do well and re-importation will become a reality.
Not that Mr. Bush intends now to sell out the social issues right; but he will, selling out bible-belters in order to "secure his place in history" and reassuring them that he's fighting one issues like gay marriage (which he doesn't control).
And not that Mr. Kerry intends to promote a go-fast regulatory approach at the Food and Druge Administration -- but he will, in order to win support for expanded access to health insurance, just as Mr. Bush greased the palms of the pharmaceutical giants in order to create his prescription drug benefit last year.
In short, take advantage of the recent dip, and, to paraphrase George Carlin, "buy drugs."
--3. Sell big defense stocks, but little ones.
In the event of a Kerry win, such stocks as Lockheed and Raytheon will suffer an immediate policy hit. As president, he can veto proposed plans for a missle defense, however urgently it is needed in a world where nuclear and missile technology resides in such countries as Iran, North Korea, and Pakistan.
But a Bush win is likely to see the demise of missile defense as well. Democrats, such as 2008-minded Hillary Clinton, will propose measures to spend money on things like port security and nuclear weapons security abroad -- while cutting missile defense. Mr. Bush will find it hard to resist these pressures as moderate Republicans, who were never enthusiastic about missile defense to begin with, feel the heat to cut spending in ways that don't harm homeland security.
(Dick Cheney is a good predictor: As a member of Congress and Defense Secretary, he consistently opposed efforts to move actual deployment of missile defense onto the agenda. He's a research-it-to-death guy, as are most members of the uniformed military, and the military-congresional complex, and the defense contractors themselves.)
Republicans looking ahead will balance the prospect of having missile defense in 2009, or whenever the slothful Bush Pentagon would deploy it, against the prospect that any terror attack over the coming several years would lead to a GOP debacle in 2006 or 2008. Missile defense, RIP.
(Cutting missile defense would, in fact, be unwise -- but having created the over-emphasis on absurd measures like airport metal detectors and a Homeland Security agency, Mr. Bush will ultimately have to sacrifice this program. The alligator he nurtured and fed will demand greater sacrifice as it grows.)
President Bush has benefited from perhaps the most brilliant Secretary of Defense or War ever to serve in the post -- certainly the most impressive since World War II. The proof that "Bottom Line" is right about missile defense will be when he is the first Bush cabinet official to resign, to be replaced by Sam Nunn or Richard Holbrooke (if they will take a post less than State) -- or a suitable Democrat to be named later.
If we're wrong, you can cover your shorts quickly. In any case, if you're looking for defense stocks to buy, stay focused in the detection and light-arms areas. Either Bush or Kerry will wind up shifting their emphasis to these high-technology areas, no matter what they say now. This is not because they're insincere -- they're not -- but because they're politicians, and will respond predictably to predictable forces.
The Bottom Line
Here you have three ways to profit regardless of whether George Bush or John Kerry wins on Tuesday. This leaves out the prospects of an upset by Ralph Nader, but that's easy to discount: Sell all equities other than solar power producers, buy gold, and move to the Caymans.
Meantime, "Bottom Line" recommends one final investment: Get to the polls and vote. Companies do well when shareholders are active and informed. The same is true of countries, and hence, your stake in America.
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Gregory Fossedal manages international investment research for Emerging Markets Group. His clients may (and usually do) hold long and short positions in many of the investment securities and opportunities mentioned in his reports. "The bottom line" is compiled from sources we believe to be reliable, but no representation is made that they are necessarily accurate or complete. Investors should perform their own due diligence and consult their own professional advisor before buying or selling any securities. Mr. Fossedal's opinions are entirely his own, and are not necessarily those of UPI or EMG. Furthermore, they are subject to change without notice.
