It doesn’t matter what side of the political aisle you might favor. When it comes to the Nov. 2 election, what you need to focus on is your own net worth.
With politicians constantly at each other’s throats, joined by third parties and lobbyists getting out their opinions, it’s no wonder the markets are always worried at ballot time. There’s always been the hand of government in every facet of the markets — and depending on the industry and market, that hand can either be helping or hindering.
The one certainty is that whatever the intent, the hand of government is getting bigger. In the past decade alone, Uncle Sam’s contribution to the economy has soared by over 72%.
Over the past couple of years, the percentage of the U.S. GDP that’s attributed to government spending has grown by almost a third — to nearly 25 percent of everything that the nation produces and significantly above the 60-year average.
And let’s not forget our beloved hometown officials. Not to be outdone by Uncle Sam, his nieces and nephews on the state and local levels of government have joined the surge of spending with budgets about 50% bigger over the past decade — amounting to an average annual gain in spending of some 4.5%. That’s above long-term core inflation rate a few times over.
So how does that affect your strategy come election time?
Well first, forget debating whether this spending spree is right or wrong. You can’t afford to waste your time over the reality that government is too big and only getting bigger. Instead, you should focus on the areas of opportunity — namely pensions, muni bonds, health care and oil.
Politics Equals Pension Profits
Let’s start with my stealth favorite — pension management as an election opportunity.
There are currently nearly 3 million folks working directly for Uncle Sam and they’re all part of one of the most massive pension programs in the nation. Called the Federal Thrift Savings Plan (TSP), the plan isn’t actually run by the Federal Government, but instead is contracted out to one of the most plugged-in of asset managers.
BlackRock Inc. (NYSE: BLK) runs the core five funds that make up the TSP. And with both sides of the political aisle seeking to show job creation — and with contract employees bought fully on Uncle Sam’s payroll as the prime employment source — that could potentially add 10% or more to current pension rolls. And the more participants, the more assets and fees for BLK. In just the past year, BlackRock has seen asset growth continuing to soar by nearly 800% — thanks largely to government payrolls skyrocketing!
This play in BlackRock stock is not without some general market risk. The firm is also dealing with a stock overhang with an expected spin-off of shares held by its biggest holder — Bank of America, which came with its shotgun marriage to Merrill Lynch. But as Bank of America is dealing with ramping up core capital post Fin Reg and Basel III regulations, look for this liberation to only help BlackRock’s share performance.
With a total return of more than 105% over the past five challenging years compared with the anemic performance of the S&P 500 with its price loss of over 6%, BLK is a buy. Grab shares of BlackRock under $186.itigating Muni Risk
While Uncle Sam might have nearly unlimited funding capabilities (at least for the near term), many states have been struggling to make ends meet. This has resulted in some nasty reckonings and some concern by the bond markets.
The result is that the municipal bond market has sorely lagged the overhyped performance of U.S. Treasuries as traders ditched munis in fear of defaults.