The election now has four players and when Wall Streeters come back from the beach they will begin handicapping the race and what happens if Obama wins and what happens if Romney wins. In order to save you time over the coming months, let me tell you what is going to happen and how to invest around the election’s outcome.
Obama is going to win; actually, he is going to win big. He is a better campaigner, has a much better campaign staff and ground game to get out the vote and has the power of incumbency. Tea Party types, in addition to incumbent Tea Party types,will take some seats in the House, and overall Democrats will take back some seats in the house, and the Democratic lead in the Senate will narrow but Democrats will retain a majority.
I write this up front because none of it really matters. Why?
- If Romney wins, if the Republicans take the Senate, if the Republicans retain control of the House, nothing changes as the Dems will still be able to copy Republican antics and filibuster everything with just 40 votes in the Senate. We will have four more years of gridlock and kicking the can down the road.
- If Obama wins, it will a replay of the last four years when Republican leaders said, publicly, all their actions are designed to get Obama out of office. This time they will substitute the word Democrat for Obama.
- As long as the Tea Party types vote as a block against any increase in revenue, and Speaker of the House tolerates this, we will kick the fiscal mess down the road until things get really bad, Tea Party types lose power within the Republican caucus or John Boehner begins to exercise his power as Speaker in order to seek structural solutions to the deficit and debt that include taxes.
Norm Ornstein – a lifelong moderate Republican who works at a conservative think tank, the American Enterprise Institute, wrote a great book, “It’s Even Worse Than it Looks.” In it, he discusses the dangers of the Tea Party and the Republicans practicing parliamentary style politics in our political system, a system built on an assumption of political compromise between the states as represented on Congress, between the branches of government and between the federal government and the states.
He laid the blame for gridlock at the feet of the Republicans – squarely – not because he disagrees with their policies but demonstrates how their current political maneuvering can produce no changes or policies, just gridlock. I am not endorsing his criticism of the Republicans, but I am assuming he is right that gridlock will continue – the fiscal mess will continue – as long as a small minority in Congress (the Tea Party represents one-fifth of one-half of one-third of the government or 3.33% of the government) continues to block any increases in revenue.
Think cash, think income
Let’s bring this back to you, the investor. What should you do? Watch football on your iPad (AAPL) and eat healthy, high-quality food (WFM). And focus on monthly or quarterly cash and income. How to do that?
If the market turns down, income-generating stocks will outperform the market. Last week I pointed you toward my favorite energy plays, Calumet (CLMT) and Enerplus (ERF). This week I a suggesting you look at stocks immune from Washington that you can write calls against every week or month. If you do so, these will generate returns between 12% and 25% per year. Yes, 25%, not 2.5%. Look at Apple (AAPL) – if you sell weekly calls every Friday afternoon two hours before they expire you can probably do 10% a year. And look at Whole Foods Market (WFM) – no weeklies but nice premiums on their calls every month.