The new man in the White House will certainly have his work cut out for him. Not since the Great Depression has the combined effect of market bulls and brigands led to such a sobering dose of economic reality: our country finds itself financially foundering in a financially troubled world. The grand fiction upon which the stock market and other indicators have allowed values to soar well beyond their real worth has come abruptly to an end, and now it will be up to the new administration to resuscitate the nation’s economy.
Obama’s team is ready for the challenge. Unlike most politicians, Obama does not think history began the day he was born. Like JFK during the Cuban missile crisis, our new President has a fine sense of the problem at hand and knows exactly how past leaders, specifically Franklin Roosevelt, approached the economic stagnation that crippled 1930s America.
Historically, when private enterprise tightened their purse strings, the federal government did just the opposite. The one single most effective measure to return the country to financial health is to put people to work, earning the money that powers our consumer-based economy. Obama’s tax incentives and cuts will have a good and lasting effect on those industries that are essential to maintaining the cash flow, generating sales of essential goods and , finally, those items that demand a more close and careful approach to credit, spending, and financial planning.
With the dramatic increase in energy prices, agricultural products and food in general have risen in cost more than 75% worldwide. While many measures will be aimed at lowering the burden of feeding a family, expect a sharp increase in the development and production of the machinery and technology that will enhance the growing crops and an equal rise in the process engineering effort to bring more food to market quickly and efficiently. Firms like Cargill (CRG XX) whose interests encompass the entire gamut of food production from farm to market will flourish under these new directives, and consumers will benefit from their efforts.
Watch the many smaller firms as well that manufacture everything from farm equipment to fertilizer. Those ready to meet the challenge will surface quickly under the competitive pressure to be better, faster, and cheaper. Expect the same from those bio-tech companies that specialize in genetic studies of feedstock and farm chemicals as well as the large producers of commercial feeds like Ralston Purina (RAL).
What will ultimately make these and certain other industries sound long term investments is their development of emerging technologies that will become industry standards for years to come. Watch for firms involved in the development of new energy sources. Bet on them to go big and last.
The same can be said of those manufacturers that must stay in business to sustain any serious recovery. Among these will be the Tier 1 OEM automotive suppliers that survive the aggressive model start-ups planned by General Motors and the cost cutting programs of the rest of the domestic automotive manufacturing base, including those headquartered overseas who rely heavily on domestic sources for essential components. Watch for many to fall by the wayside in the first two quarters, but those that make it through will prove a sound investment.
A few industries remain strong no matter how badly the economy is hurting. Health care in every aspect will continue to grow with the aging baby-boomers, and the industry will find a way to benefit from any changes made by the government to provide universal health coverage even as the private sector increasingly restricts benefits to save money.