Obamanomics 101

By Charles Delvalle

Dear Reader,

Over the past few weeks, I’ve been picking apart each presidential candidate’s potential effect on the economy.  Since Barack Obama looks increasingly likely to get the nod from the Democrats, I’ll be covering him today.

As I take a look at Barack’s website, the first thing I notice is that he’s in favor of a “make work pay” tax credit of $500 to $1,000 for workers.  In essence, this would eliminate payroll taxes for about 10 million people.

So long as he’s paying for these tax cuts somehow, then it sounds good so far.  However, I would rather see tax cuts that encourage savings instead.

Obama is also a proponent of fair trade.  One thing he wants to do is make better labor standards when big trade agreements are made.  Let’s say we do make trade agreements under these new labor standards - how would we enforce them?  I feel this is something that would slow down the number of free trade agreements made, at least under his presidency.

Another thing Obama wants to do is eliminate the tax break that companies get when they send jobs offshore.  I’ve always thought this tax was ridiculous.  Why would we encourage jobs to leave the U.S.?

The benefits for a company to move offshore should be very clear, without the tax break.

Obama also wants to improve transition assistance for those who lose their jobs because of free trade.  This is something that should be worked on.  After all, it would help workers get retrained and into better paying industries.  Of course, the devil is in the details.  How does Obama plan on paying for all of this?

Well, his big thing is that he wants to pull the U.S. out of Iraq as soon as he gets into office.  Whether he would be able to do this is a completely different story.  My feeling is that if we pull out too quickly, we could sabotage the progress made there.

I have a feeling that once Obama speaks to the military commanders and gets a better view as to what’s happening there, he’ll fully understand what’s at stake.  That will probably let him do a very slow withdrawal.

But the point here is that the $120 billion or so we spend every year on Iraq won’t immediately be there to help offset any tax cuts or government programs.  So another thing Barack wants to do is eliminate the tax breaks Bush gave to the rich.

Here’s why I don’t think this is a bad idea.  The difference between rich and poor has been growing quickly ever since the 90s.  While the poor can do more now than they could years ago, the rich can do way, way more.

Anything that helps shrink that gap is a good thing.

The only thing I disagree with is eliminating tax cuts on dividends and capital gains.  Why?  Because these encouraging saving.

Some of Barack’s better ideas are:

• Create a credit card rating system to improve disclosure
• Establish a credit card bill of rights
• Cap outlandish interest rates and mandate accurate loan disclosure
• Create new job training for clean energy

Some of his more questionable ideas are:

• Create a fund to help homeowners avoid foreclosure
• Protect social security by raising payroll taxes
• Tying minimum wage to inflation

My biggest issue with Obama is one I had with McCain, actually.  How does Obama plan on paying for all of these?  Not only that, but what are the details on how all of these programs would work?  Without knowing specifics, it’s hard to say how good these ideas really are.

And one thing is for sure - with government deficits creeping higher and entitlement spending set to increase, it’s going to be hard to pass a lot of these ideas through Congress.

Well, this ends my analysis of the candidates.  I plan on covering more of their proposals and how they could affect the economy in future issues.

But one thing is for sure.  Right now we’re entering some trying times.  And politicians will say a lot of things to get elected.  But once they’re elected, will they be able to do even a third of the things they proposed?  Probably not.

So whatever you do, don’t get too sucked into the promises that these politicians make.  Instead, base your decision on who you think could lead our country the best.  Make the choice based on who you think will represent America the best on the world stage and who’s most likely to make America a better place for our kids.

To your success,

Charles Delvalle

P.S. I just started up a new blog and would love for you to check it out.  Just go to http://stockcharlie.blogspot.com/.  I’ll be giving you my unrestricted opinion on economic developments and the effect politics can have on the markets.  Make sure to comment and let me know what you think!

P.P.S. Just this week, readers of IDE’s Global Profits Hotline were able to capture 35 percent in just one day on a Toyota put.  And that doesn’t include the other gains we’ve made this year of 98 percent and 88 percent.  To find out how you can take part in these gains, click here ]

Market Watch

Ride or Slide:
Companhia Vale do Rio Doce (RIO)

By Charles Delvalle

In markets like the one we’re in now, the number one rule to remember is that the trend is your friend.  And the trend for commodity companies looks really freaking attractive.  Maybe that’s why Stan C. wrote in asking if I thought Companhia Vale do Rio Doce (RIO) was a stock to ride or slide.

Well, RIO operates out of Brazil and they produce and export iron ore to the steel industry.  But that’s not all.  They also produce platinum, silver, and a ton of other metals.  When I first looked at them, my initial thought was, “Iron ore?  Hmmm, during a global slowdown, this might not fare too well.”

But they are diverse.  And platinum is undergoing a huge supply crunch right now.  So they’ll make some good money there.  And they’ll make good money on all the platinum group metals, gold, and silver.

Fundamentally, this is a cheap company.  They are going for a P/E of 11 and a PEG ratio of 0.54.  When it comes to PEG, anything under one is great.  They also have an awesome operating margin of 45 percent and return on equity of 39 percent.

Technically, they’ve been on a solid uptrend for a few years.  Over the past few months, they dropped from 38 down to 24, but have since climbed up to 34.

Since they are in a good market, are growing, and bounced off their 200-day moving average, RIO looks like a pretty good way to play the commodities market.  My take is let RIO ride on up.  You could easily end up selling them for $100 a share.

Charles

P.S. Want to see me cover a stock?  Send an e-mail to feedback@investorsdailyedge.com

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