The Smart Money is Signaling An Obama Victory
by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, August 22, 2012: Issue #1844
Four more years…
For some people, that’s terrific news. For others, the idea makes their blood pressure spike.
But it looks like President Obama is headed for re-election.
At least that’s what the smart money on Wall Street is saying.
I’m not talking about with words. Most of the players on Wall Street will tell you they would rather see Mitt Romney in the White House come January. But more important than the words coming out of their mouths, is what they’re saying with their money.
Don’t get me wrong, they’re still donating to Romney like crazy.
According to The Daily Beast, Wall Street employees have donated $56 million to Republican candidates versus $35 million for Democrats – a sharp reversal from 2008, when 75% of Wall Street employees’ money went to the Democrats.
On Monday, health insurer Aetna (NYSE: AET) announced it would acquire Coventry Health (NYSE: CVH) for $5.7 billion in cash. It’s essentially a $6-billion bet on Obamacare being upheld.
By acquiring Coventry Health, Aetna “substantially increases its Medicaid footprint creating more opportunity to participate in the expansion of Medicaid and to pursue high acuity positions as they move into managed care,” according to the company’s press release.
The Affordable Care Act (Obamacare) expands the number of patients eligible for Medicaid.
Other deals have taken place in the sector, giving the acquirers more exposure to the expanding Medicaid base. In July, Wellpoint (NYSE: WLP) announced it will buy Amerigroup (NYSE: AGP) for $4.9 billion and in January, Cigna (NYSE: CI) completed its $3.8-billion purchase of HealthSpring.
While these deals might make sense regardless of whether Obamacare remains in place, the timing of it is surely interesting. You’d think that a Romney victory in November would lower the price of a deal, as the Medicaid patients wouldn’t be quite as valuable to an acquiring company. So the fact that Aetna and Wellpoint are acting now suggests that they think healthcare reform is here to stay and they want to get ahead of the curve.
They’re not the only ones talking with their money.
Outspoken hedge fund manager Dan Loeb, one of the smartest and most successful investors around, is a former supporter of the President, but now is a harsh critic.
That didn’t stop him from placing bets on companies poised to grow under Obama’s watch. Loeb, along with David Einhorn, another very talented investor, both bought shares of health insurers Aetna, Cigna, Humana (NYSE: HUM) and UnitedHealth Group (NYSE: UNH) in the past quarter – companies that should all do well under the new healthcare regulations.
Listen to What the Market is Saying
The stock market is a leading indicator. In early 2009, we were smack dab in the middle of the financial crisis. A President was elected who opponents said had no business experience. His harshest critics called him a Marxist. Yet the market bottomed and went on to more than double in two years. Over the past year, the S&P 500 is up nearly 27% and year to date, the market has climbed 12.8%.
That doesn’t mean that the market necessarily sees a sharp rebound in the economy or a return to the golden days of the late 90s, but the action, particularly in 2009, did signal that we were not going to go over the cliff as so many had feared.
Similarly in early 2000, as dot com companies were hiring Kiss, The Who and James Brown to play at parties celebrating new funding, stocks started to slide, indicating the good times were over. Many dot coms didn’t start imploding for another year, but the market knew what many clueless CEOs apparently didn’t.
You can go back and look throughout history at many examples of the market climbing ahead of economic recovery or falling before economic weakness.
Looking at Presidential election years going back to 1980, when markets were weak, the incumbent party was voted out of office. The one exception was 2004 when George W. Bush narrowly defeated John Kerry. When the markets were strong, other than 1980, when Ronald Reagan won, the incumbent party was re-elected.
| Year | S&P Performance | Incumbent Party Re-elected? |
| 1980 | 27.57% | N |
| 1984 | 8.03% | Y |
| 1988 | 10.92% | Y |
| 1992 | 3.14% | N |
| 1996 | 17.21% | Y |
| 2000 | -0.67% | N |
| 2004 | 3.4% | Y |
| 2008 | -29.27% | N |
| 2012 | 12.76% YTD | ? |
Average return when incumbent party was re-elected: 9.89%.
Average return when incumbent party is voted out: 0.19%.
If you agree with the smart money, you can follow them into health insurance stocks like the ones mentioned above. Wellpoint might be the best positioned to take advantage of the expansion of Medicaid, as it will be the top private manager of Medicaid benefits.
Master Limited Partnerships
Income investors should also consider master limited partnerships (MLPs). These are stocks that have a high yield, where most of the cash distribution is tax deferred. If the President is re-elected and the Bush tax cuts are allowed to expire on December 31, dividend income will be taxed at ordinary income rates, so a tax-deferred strategy might be even more attractive.
However, be sure to speak with your accountant before investing in MLPs, because there are significant tax considerations when investing in MLPs and you want to make sure the costs and risks are worth it.
Some examples of MLPs include Enterprise Product Partners (NYSE: EPD) and Energy Transfer Partners (NYSE: ETP).
Investors love to track where the smart money is investing. So although the two Presidential candidates are pretty much tied according to the latest polls, you can see some of the smartest money on Wall Street are placing their bets on Obama and stocks that will do well if he remains in the White House.
Good Investing,
Marc
The Smart Money is Signaling An Obama Victory,Any investment contains risk. Please see our disclaimer.
17 Responses to “The Smart Money is Signaling An Obama Victory”
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Marc is a senior analyst at Investment U. His investment career started out at the trading desk of Carlin Equities in San Francisco, CA, where he executed dozens of trades each day for his clients.
Money may be on Obama but it’s not smart to
put yourself in a hole. If Obama wins, get set
for a roller coster ride with a train coming at you. the end.
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I disagree with the article. When I consider these investments and political contributions I see smart money forecasting the following: Romney elected and market expansion of medical services to handle the baby boomer generation. No matter what plan is in place, the boomers will need medical care.
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Will unsubscribe now!!!
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You support Mitt Romney? How can I take your advice seriously if you support Mitt Romney for President? I find the prospect of a Romney frightening, and I am a Canadian.
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Romney is frightening? Wow, I guess it’s true, things are very different and warped in Cananda, eh?
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I think there might be some additional interpretation that might be done as regards the motivations for the purchases of Amerigroup, etc.
Regardless of which party wins the election, baby boomers will be retiring and turning 65 in record numbers — so either way, companies with exposure to medicare will benefit, and the companies cited each have programs for not only Medicaid but also Medicare (supplements or as “third party administrators”).
Sheer demographics could be the motivation for these purchases — a win for the purchasing companies, regardless of who wins the political battle in November, and not due to any potential prediction or belief it is due to Obamacare.
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I do not agree with your data. Also, do not understand why you would advocate an outcome that can only harm you and our country in the long run. To call yourself a capitolist and slant data to support a socialist gives me only one alternative. Un-subscribe me now!
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President Obama is positively not a socialist. There is not one shred of credible evidence to support this absurd claim. Mitt Romney on the other hand is an unscrupulous businessman. Look into how he funded BAIN in the early days.
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It really doesn’t matter who is elected this fall. Personally I’d vote for Romney but even he I doubt will be able to stop the steep slide in both the US$ and U.S. equities that appears inevitable to me within the next 6-9 months. Interesting times ahead for sure.
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Some have eyes and cannot see,ears and cannot hear, brain DEAD. Scary – they walk among us and vote. We have a Radical Islamic Muslim Illegal Alien occupying the White House who arrived in Hawaii days after being born in Kenya. Then uninformed stupid individuals spread his BullS–t has a Conneticut Social Security card and never lived there and the list goes on and on and on. UNSUBSCRIBE NOW
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President Obama does not practice the muslim faith. He was born in the state of Hawaii as has been proved. I thought I might find a higher level of banter here, just more racist sickness and stunted thinking. It’s time for FOX Richard, better turn off Rush. Don’t forget to close the blinds, the black helicopters will soon be circling your house.
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Half the comments accuse Marc of being pro-Obama and half the comments accuse Marc of being pro-Romney.
Oh internet…
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The RNC stupidly supports mandatory motherhood, e.g. if a woman gets pregnant the govt says SHE MUST HAVE THE BABY. IT IS MANDATORY MOTHERHOOD.
Women want the freedom of choice. With the RNC against that, women will not vote for Romney. How many Blacks will?
So, it will be B.O. in a landslide.
When I was a kid the RNC was friendly and my whole family voted for them. Today, they are locked in their own little world and the people of the USA do not follow them. THEY DESERVE TO LOSE.
Too bad for the citizens of the USA that we do not have govt. that represents the feelings of the people. We have UN-necessary wars, we have bad laws, we have govt. induced financial failure and unemployment and the people are helpless to change it. If you can, move away. Find another country.
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As for the presidency, neither candidate shows much hope for us, a choice between continued wasted military spending and more of the same, a refusal to bring back the banking regulations we previously enjoyed, a compromised regulatory system giving the OK to produce GMO food,fluoride water, mercury tooth fillings, High Fructose Corn Syrup foods, Hydrogenated Oils, and the resultant obesity and health disorders from these, and the Constitutionally illegal Federal Reserve System : these are the real issues which we refuse to discuss which are doing us in, we hoped Obama had the will to confront such issues, but we seem to have more of the same from George W., but the last thing we need is a full blown return to the trickle down philosophy which only skyrocketed the national debt. The parties seem to be playing a game of “chicken” where each one wants to go as far as they can towards front end collision to see which one will veer away. What we need is something you don’t see..true statesmanship, non-partisan. Even Bush 1 and Reagan saw the need to raise taxes, while they were against doing so.
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I see from the previous comments you have stirred some emotions regarding the Presidential election. I will stay neutral on that topic. I agree with the earlier comment about baby boomer demographics will benefit companies in the Medicaid reimbursement business regardless who is elected President. But the reality of Obamacare being overturned through the legistaive process is very unlikely. That’s what the smart money realizes more the Obame being re-elected.
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The title of this piece suggests insightful information based on some detailed analysis, but the article itself is falls far from the notion suggested in the title. The writer uses a number of premises to support his conclusions that are either “iffy”, or downright wrong. For instance, in the section “Listen to What the Market is Saying”, he quotes the meteoric rise of a stock market starting on March 2009. It has been amply discussed by the real “smart money” that we are in a bubble created by round after round of one sort of stimulus or another from the Federal Reserve, and that the current situation is untenable. Whenever the Fed can no longer be the ‘buyer of last resort’ for treasuries (which may be in the horizon), with oil prices approaching $100 a barrel (WTI) again, with unemployment actually INCREASING again, and without a real recovery of the housing industry in sight, stocks are simply riding a big bubble that is bound to explode, regardless of who’s elected president in November. While some people mistakenly refer to them interchangeably, the securities markets and the US economy are two different things. You can pump the price of stocks to high heaven (and we have), but if you do it artificially, hoping that ad infinitum cheerleading alone will solve all the problems, you’ll pay the price at the other end of things. I don’t know who’s going to be elected president in November, buy I know that the economy IS NOT getting better and the current administration, the Fed, et al have actually moved us closer to another big financial crisis. Let’s hope that is it not bigger than the previous one.
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What “smart money” is saying we’re in a bubble created by stimulus? Inflation is below 2%!
Corporations are actually sitting on record levels of cash – not pouring it in to the stock market. And if you look at a graph of corporate earnings vs. stock prices, you’ll actually see we are in the opposite of a stock price bubble!
Around 2000 stock prices soared well above earnings and eventually fell back to earth. Currently earnings are well above the stock prices because of the flight of retail investors since 2008-09.
And Yes, the economy IS getting better – as exhibited by countless economic indicators that have been improving for months now. I don’t get wrapped up in politics, but you sir should stop listening to propaganda and start following the REAL smart money – guys like Warren Buffett who are INCREASING exposure to aggressive stocks. I’d put my money on his knowledge of the financial universe over yours any day of the week.
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