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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
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Get Four
|  | SEPTEMBER 28, 2004
One Vote for Kerry on Wall Street [Page 2 of 2] Q: What will be your top stock picks if Bush wins? And if Kerry does? And is there a way to hedge the bets? A: That I've actually put some thought into. I developed something called the WIC index -- the W Industrial Complex Index. The WIC index is an index of stocks in the coal, oil, natural gas, refining, broadcasting, and retailing industries that have done particularly well under the current Administration. The WIC index is up 52% since Jan. 19, 2001. The S&P 500-stock index is down 17%, and the Nasdaq lost two-thirds of its value. This is a really good way to look for opportunities to invest. If the incumbent is reelected, the stocks here will continue to do well. A few examples: Valero Energy (VLO ), which is one of the biggest refiners in the country. It's up 135%. Its revenues have been up 159%. Another one that has done very well is a coal company, Arch Coal (ACI ), gaining 147% since Jan. 19, 2001. Some other ones: Fox Entertainment Group (FOX ), up 27%, but they've done quite well under the current Administration and will continue to do so. Under Kerry, I have a hard time picking particular stocks, but I do believe an index of the S&P 500 will do very well. Under the current Administration, commodities have done well, stocks less so. Alternative energy, nanotech, and other science and tech stocks will probably do well under Kerry as well. And the other one, Fannie Mae (FNM ), the ultimate political stock, will also do well. Viacom (VIA ) is another. They're part of the culture wars, really, and if Kerry were elected, the political force being exerted on those two stocks would lessen, and they would end up doing better. Q: What about defense stocks? A: Defense stocks are definitely stocks that have done well in the current Administration, but not all of them have done equally well. The one that did the best here is United Defense Industries (UDI ). It's up 95% since January, 2001. It's 23%-owned by the Carlyle Group, and it has had a great run. It makes things like the Bradley Fighting Vehicle. The stock has been doing well and would probably be a top performer if the incumbent were reelected. If Kerry were elected, I still think defense would do well. Kerry is inclined to not cut back on defense, so I wouldn't immediately jump to the conclusion that he would be bad for defense. So as far as hedging bets, I think this might actually be a good place to stay. Q: Harking back to an early point you made: Why has the stock market performed better under Democratic Administrations than Republican ones? A: The short answer is that nobody really knows, but I do have a theory.... I believe that investors systematically underestimate what a Democrat will do to benefit the economy -- simply put, they believe Democrats will try to soak the rich and try to damage the market. When it turns out that Democrats do things that are helpful for the economy and market, [investors are] surprised. So an incoming Democrat often leads to sell-offs, but when the policies turn out to do more good than harm, people get back into stocks. I have to say, though, that I'm skeptical that either candidate can be pigeonholed due to party. I tend to look at candidates and their track records more than the party. Q: What do you think of the each of the candidate's campaigns so far? Seems like Bush can't stop talking about terrorism, and Kerry talks a lot about Iraq. A:I have to say that the candidates are both trying to do their best -- they both clearly care about the future of this country, and they're both trying to win the election as best they can. As we've discussed, though, I've never seen the country so divided, so emotional. This is not good -- it's supposed to be the United States of America, and it doesn't feel very united right now. There seem to be huge fissures between the red states and the blue states, and nothing in between. I'd like to see the candidates discuss the issues in ways that get more of the facts in, less name-calling and dirt-slinging. Q: Where would be the best place to put money for the short term -- secure? A: I've been keeping most of my money in a money-market fund. There might be places where you would earn higher returns, especially with rates going up, but I'm not confident in stocks, especially with rates going up. I think there has been a massive shift from stocks to commodities. And commodities go up and down very quickly. Another thing that has done well, but is reaching a bubble, is real estate. All this accumulation may lead to sell-offs, and with rates going up, debt so high, and the job-market struggles, people will eventually not be able to pay these prices, and prices will go down. Q: I was just going to ask about real estate. Would Bush or Kerry be better there? A: It's really hard to say what the difference would be on real estate, because I don't think the forces we've unleashed on real estate could be controlled by either person. By these forces, I mean the low interest rates. Rates were down at 40-year lows, and that was when this tremendous amount of money started going into housing. With rates going up, mortgage rates will go up, and they'll start squeezing people who aren't able to keep up. You'll have selected bubbles starting up in various parts of the country, and I don't think either President would be able to stop this process from happening. Q: So what's your advice for investors as the mudslinging continues? A: Try, as hard as it is, to keep rational, keep cool. Analyze the numbers, the factors that influence the economy and the stock market. And recognize that a lot of investors won't be able to do that, since they'll be caught up in the emotion. If you can keep your cool in this environment, you'll have the advantage.
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