This week we play a specific sector of the Obama agenda

November 7, 2008

By Oxford Club

The Shadow Stock Trader
Friday, November 07, 2008
By Horacio Marquez

Email – #30

** This week we play a specific sector of the Obama agenda

With the Obama victory, we saw some encouraging quick and strong first steps:

A rush by Obama to the center in order to mend fences and call to unity. This is very positive if we are to set petty politicking aside (aren’t you glad to see the campaigns over?) and tackle the real, massive problems ahead. I have seen how political unity and civility is critical for the success of policies that deal with these types of financials crashes.

A honeymoon with Congress, much of the country and the international community as he gathers his governing team. Very positive: he intends to include Republicans

As I anticipated, a huge fiscal stimulus package is brewing, possibly as big as 4% of GDP or another $600 billion. While this will be short-term “steroids,” no country indebts its way into prosperity. So, unless the long-term structural issues are tackled seriously and promptly (social security, health care and pork barrel spending), this will be just burning money.

As disgusting as it is, the decades-long inefficient car industry, which I dubbed “technically bankrupt” when I looked at it in 2000, and which keeps squandering its money and future with unreasonably high compensation and benefit packages will very probably get bailed out once more by a sympathetic majority in Congress. Also, the pressure to keep Fed Funds rates low for a prolonged period of time got us into this mess in the first place. Isn’t it time to tell the free-riders to share our pain? But bankruptcy, we are reminded by one of their CEOs today, could be “worse than Lehman” for the economy. I am sick!

On the negative side, the market sold off 10% in two days in anticipation of a “doomsday” employment number. As bad as the 240,000 jobs lost in October that we saw this morning, the market had priced in much worse and covered some shorts on the news. But remember, unemployment peaks AFTER the recession ends, so don’t expect any good news on this front for many months. The market, followed by the economy, will turn well in advance of the unemployment peak, which might reach as high as 8%.

And do not expect miracles from a “Bretton Woods II” new financial order. Most likely all that’s going to come out is an evolution from the current system, with more regulation concerning a standardization of leverage requirements across the world, including banks, the shadow banking system (non-bank financials) and hedge funds.

But one of the major issues in the Obama agenda is health care. It’s providing an opportunity for strong profits. Let me explain. It is undeniable that progress with biotech drugs has been dramatic and is attacking illnesses in new, more effective ways than ever before. And the Obama agenda includes major funding for this sector, including stem cell research. We have seen where scientists recently produced brain cells. In anticipation of this strong funding increase in this key technological area, we already have seen some notorious rallies in some of these stocks in the last few days. This happened in large ones and even in the very small ones, which have outperformed the health care general index.

Even highly speculative stocks, like, for example the research firm Stem Cells Inc. (Nasdaq: STEM), have seen strong rallies with a marked pick-up in volume. But playing this sector is difficult on a stock-by-stock basis, since you never know which firm is going to land the big discovery or new patent and FDA approvals. The perfect vehicle is the exchange traded fund. So we jumped on Biotech Holders Trust (AMEX: BBH), now at lower levels than earlier in the week.

Enjoy and Profit,

Horacio Marquez

Portfolio:

Name: Biotech Holders Trust (AMEX: BBH)
Current Price: New
Comments: Buy

Name: S&P DEP RECEIPTS (AMEX: SPY)
Current Price: $91.95
Comments: Buy

Name: Powershares DB Agriculture Fund (AMEX: DBA)
Current Price: $25.23
Comments: Buy

Name: Oil Services HOLDRs (AMEX: OIH)
Current Price: $91.84
Comments: Buy

Name: Materials Select Sector SPDR (AMEX: XLB)
Current Price: $24.53
Comments: Buy

Name: HealthShares Enabling Technologies (NYSE: HHV)
Current Price: $23.91
Comments: Buy

Name: Market Vectors Agribusiness (AMEX: MOO)
Current Price: $26.84
Comments: Buy

Name: Energy Select Sector SPDR (AMEX: XLE)
Current Price: $48.71
Comments: Buy

Name: Vanguard Financials ETF (NYSE: VFH)
Current Price: $27.83
Comments: Buy

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