Political Intelligence for Investors
Hey all – I haven't posted here in awhile and for those of you who have lost a few brain cells to the “drink” since last year I was the Tech Sector leader in 2005/2006. I meant to do this earlier but usually a nap or cookie gets in the way - I come across quite a bit of interesting information/news at my job that if analyzed correctly could be invested on. I tried to list some companies at the end of each summary that may benefit/lose out based on the legislation/political happenings but keep in mind there may be other companies out there that I don’t mention that will benefit/lose out.
Korean FTA: Over the weekend the US signed a formal Free Trade Agreement with Korea – this is the largest Free Trade Agreement since NAFTA (valued at around $70 billion). Some winners out of this agreement would be the auto-industry (US automakers sold a very small 4,200 vehicles there last year), entertainment industry (there was a quota on American made movies and television shows), and some of the agriculture industry (citrus products). Some of the big losers are the beef industry who did not get any concessions on when they might be able to sell in the Korean market again (they have been shut out for awhile on fears that American beef may have mad-cow). The rice industry also did not get any concessions and will not be able to import into Korea (will hurt CA rice growers). That being said I give this deal a 50-50 shot of passing congress (given Congressional rules the deal has to be voted on before July 1st) – and if it does look for a side-letter on beef (i.e. concession on beef) by the Koreans before it passes.
Companies that may benefit:
General Motors
Ford
Disney
Sunkist
Planters (nut company)
Disney
Electronic Arts
Immigration Reform: A bill will be on the president’s desk to sign by the end of the year, the question is will he sign it. The president has said he supports "comprehensive immigration reform" which many immigration hard-liners take to mean amnesty for all illegal immigrants here. The hard-line immigration activists want illegal immigrants to leave the country and then apply for citizenship. The other plan (which the Dems and President support) would be to allow the illegal’s already here to pay a fine and be granted citizenship or some sort of permanent residency to work – essentially giving the illegal immigrants amnesty. My guess is the "amnesty" plan will win out – not sure on the details.
So what does that mean for you investors – most of the talk surrounding the Immigration Reform bill has been around what to do with the ~12 million illegal’s already here but there are other big concerns such as a proposed border fence and skilled worker reform. H-1B visas will be reformed (the quota for 2007 was filled in 1 day) which Bill Gates and many businesses want to see raised so they can hire skilled workers and bring them here to the US .
The other question is what will congress do to secure the border – and how much are they going to spend doing it? If we built a fence along the 2,219 mile border and manned it that would cost billions of dollars – mostly going to government contractors. Lockheed has already spent $15 million developing a "Secure Border Center" where they are "researching ways" to secure the border – they are essentially hoping to land the lucrative contract of building this fence. The other "cheaper answer" would be a virtual fence which would be a combination of aerial drones, sensors, satellites, cameras, and other newfangled technologies working in unison. The building of an actual wall will probably be awarded to a large defense contractor and be worth billions (i.e. a major news/stock price increase event when it is announced) for the company and if successful could lead to other business from countries like Israel. The second option of a “virtual fence” would probably be headed up by a large defense contractor but with lots of small sub-contracts to small defense and security companies who manufacture all of the drones, sensors, satellites, cameras, telecom equipment. When I say small sub-contractors small could mean a $10-$100 million contract to a publicly traded company with sales of $20-$50 mil so winning one of these contracts could be a huge win.
I would also note that if some sort of amnesty is not given to the 12 million immigrants and many of them are returned to their country of origin look for retail and restaurant outlets to see diminishing returns as many of them count on cheap labor to keep costs down. While there are people out there who would dispute this fact the National Restaurant Association has come out and said they need comprehensive immigration reform (i.e. some sort of amnesty to keep the workers here) to stay competitive – so if they say they need it I tend to believe them at least in this case.
Companies that may benefit:
Lockheed
Northrop Grumman
Boeing
Small “security firm” startups/defense contractors
Companies that may lose if a variation of “amnesty” is not granted:
McDonalds
Burger King
Taco Bell
Home Depot
Casinos – especially Harrah’s as they run many of the Indian casinos in the southwest
Hotels
War with Iran: Crude oil prices reacted strongly to the British hostage crisis and that is a good indicator to what might happen to energy prices if a war with Iran were to really happen – to be honest I don’t think many people realize how close we were to a war with Iran. While experts don’t agree on when Iran will actually have the capability to build a bomb most do agree that the time to strike is not after they get it but before. The Bush administration and the current Israeli government will not tolerate an Iranian bomb and will do something about it even despite the world uproar that might come if they decide to attack unilaterally. In my opinion it is not if the US or Israel (or both) decide to take out Iran's nuclear capability it is when. The only real question is how Iran will react to being attacked. Many believe they will respond by mining the strait of Hormuz (70% of all middle eastern oil travels through that strait) with the doomsday predictions of launching a dirty bomb at Israel which will certainly start a regional war with the US committing its forces that are already in the region. The companies that may benefit from a bombing/war with Iran are military contractors and energy companies. If we attack Iran then we will continue to burn billions of dollars a week on keeping a 130K+ man army and TWO carrier battle groups in the Middle East instead of drawing down our forces. What many people don’t realize is that despite partisan rhetoric the President is the President and congress does not really have the power (or the guts) to completely cut off funding to the Iraq war or a possible Iranian war.
Companies that may benefit:
Exxon
BP
Yukos Oil
Citgo
Halliburton (market might have already priced this in – although stock price seems low)
Lockheed
Aramark
Any number of energy companies or smaller military contractors
If this kind of political information analyzed through a business lens is useful let me know and I will continue to post periodically as well as track the bills related to the topics above to see when they might pass congress and be signed by the President. If there is a specific piece of legislation you find interesting I can more information on that as well.
Korean FTA: Over the weekend the US signed a formal Free Trade Agreement with Korea – this is the largest Free Trade Agreement since NAFTA (valued at around $70 billion). Some winners out of this agreement would be the auto-industry (US automakers sold a very small 4,200 vehicles there last year), entertainment industry (there was a quota on American made movies and television shows), and some of the agriculture industry (citrus products). Some of the big losers are the beef industry who did not get any concessions on when they might be able to sell in the Korean market again (they have been shut out for awhile on fears that American beef may have mad-cow). The rice industry also did not get any concessions and will not be able to import into Korea (will hurt CA rice growers). That being said I give this deal a 50-50 shot of passing congress (given Congressional rules the deal has to be voted on before July 1st) – and if it does look for a side-letter on beef (i.e. concession on beef) by the Koreans before it passes.
Companies that may benefit:
General Motors
Ford
Disney
Sunkist
Planters (nut company)
Disney
Electronic Arts
Immigration Reform: A bill will be on the president’s desk to sign by the end of the year, the question is will he sign it. The president has said he supports "comprehensive immigration reform" which many immigration hard-liners take to mean amnesty for all illegal immigrants here. The hard-line immigration activists want illegal immigrants to leave the country and then apply for citizenship. The other plan (which the Dems and President support) would be to allow the illegal’s already here to pay a fine and be granted citizenship or some sort of permanent residency to work – essentially giving the illegal immigrants amnesty. My guess is the "amnesty" plan will win out – not sure on the details.
So what does that mean for you investors – most of the talk surrounding the Immigration Reform bill has been around what to do with the ~12 million illegal’s already here but there are other big concerns such as a proposed border fence and skilled worker reform. H-1B visas will be reformed (the quota for 2007 was filled in 1 day) which Bill Gates and many businesses want to see raised so they can hire skilled workers and bring them here to the US .
The other question is what will congress do to secure the border – and how much are they going to spend doing it? If we built a fence along the 2,219 mile border and manned it that would cost billions of dollars – mostly going to government contractors. Lockheed has already spent $15 million developing a "Secure Border Center" where they are "researching ways" to secure the border – they are essentially hoping to land the lucrative contract of building this fence. The other "cheaper answer" would be a virtual fence which would be a combination of aerial drones, sensors, satellites, cameras, and other newfangled technologies working in unison. The building of an actual wall will probably be awarded to a large defense contractor and be worth billions (i.e. a major news/stock price increase event when it is announced) for the company and if successful could lead to other business from countries like Israel. The second option of a “virtual fence” would probably be headed up by a large defense contractor but with lots of small sub-contracts to small defense and security companies who manufacture all of the drones, sensors, satellites, cameras, telecom equipment. When I say small sub-contractors small could mean a $10-$100 million contract to a publicly traded company with sales of $20-$50 mil so winning one of these contracts could be a huge win.
I would also note that if some sort of amnesty is not given to the 12 million immigrants and many of them are returned to their country of origin look for retail and restaurant outlets to see diminishing returns as many of them count on cheap labor to keep costs down. While there are people out there who would dispute this fact the National Restaurant Association has come out and said they need comprehensive immigration reform (i.e. some sort of amnesty to keep the workers here) to stay competitive – so if they say they need it I tend to believe them at least in this case.
Companies that may benefit:
Lockheed
Northrop Grumman
Boeing
Small “security firm” startups/defense contractors
Companies that may lose if a variation of “amnesty” is not granted:
McDonalds
Burger King
Taco Bell
Home Depot
Casinos – especially Harrah’s as they run many of the Indian casinos in the southwest
Hotels
War with Iran: Crude oil prices reacted strongly to the British hostage crisis and that is a good indicator to what might happen to energy prices if a war with Iran were to really happen – to be honest I don’t think many people realize how close we were to a war with Iran. While experts don’t agree on when Iran will actually have the capability to build a bomb most do agree that the time to strike is not after they get it but before. The Bush administration and the current Israeli government will not tolerate an Iranian bomb and will do something about it even despite the world uproar that might come if they decide to attack unilaterally. In my opinion it is not if the US or Israel (or both) decide to take out Iran's nuclear capability it is when. The only real question is how Iran will react to being attacked. Many believe they will respond by mining the strait of Hormuz (70% of all middle eastern oil travels through that strait) with the doomsday predictions of launching a dirty bomb at Israel which will certainly start a regional war with the US committing its forces that are already in the region. The companies that may benefit from a bombing/war with Iran are military contractors and energy companies. If we attack Iran then we will continue to burn billions of dollars a week on keeping a 130K+ man army and TWO carrier battle groups in the Middle East instead of drawing down our forces. What many people don’t realize is that despite partisan rhetoric the President is the President and congress does not really have the power (or the guts) to completely cut off funding to the Iraq war or a possible Iranian war.
Companies that may benefit:
Exxon
BP
Yukos Oil
Citgo
Halliburton (market might have already priced this in – although stock price seems low)
Lockheed
Aramark
Any number of energy companies or smaller military contractors
If this kind of political information analyzed through a business lens is useful let me know and I will continue to post periodically as well as track the bills related to the topics above to see when they might pass congress and be signed by the President. If there is a specific piece of legislation you find interesting I can more information on that as well.
posted by Scott Tranter at
1:14 AM
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