We are coming to the end of what might be one of the worst presidential administrations in American history and while the outcome of the current election process is still too close to call it might be prudent to begin assessing the implications of an Obama administration with a special focus on the Big Emerging
Markets. Leaving the rhetoric aside McCain and Obama are surprising close on a number of key issues which include the following:

-          The Economy; we have experienced an unprecedented era of easy credit coupled with a lack of fiscal responsibility and regulatory oversight. The impact while long in coming was easy to predict. As a result Obama or for that matter McCain will be severely limited in the size and scope of any type of spending programs that they had originally envisioned. It is time for America to pay its debts and that will require bold cuts in various entitlements and discretionary spending to include the military. We are now in the early stages of a dramatic transformation from a consumption based economy to a more balanced savings based economy.

-          What will the implications be? The next administration will be forced to focus on projects and programs that pay for themselves and that create a long-term positive impact on the economy. One area of focus will be energy independence and the new administration will be willing and able to provide to provide low interest loans and tax incentives for energy independence infrastructure projects which will have a direct positive impact on the economy. And while we expect a brief dollar rally in the fourth quarter our longer term view is for a weak dollar which will be a net positive for US exports and job formation. Concurrently we expect an increase in consumption based taxes specifically on fossil fuels which we believe will be a net positive for the US economy.

-          Energy independence; both candidates are clearly committed to achieving energy independence within a ten year time frame. The key difference is that Obama’s plan is primarily focused on renewable energy and clean coal technology with a tepid embrace of nuclear energy. Additionally Obama would facilitate the creation of an oil consuming nations group that would share technology and other resources so that a common goal could be achieved he would also impose a windfall tax on oil companies to pay for his plan. McCain on the other hand would push for a holistic approach which would include the construction of forty additional nuclear reactors. Considering the fact that the entire world is going nuclear with India and China leading the charge it will be likely that nuclear energy will become a key component of either administration.

What will the implications be? We expect energy independence will become a reality for the US in a relatively short period of time and that it will become a rallying cry for the American voter. But energy independence is not something the US alone desires it is vital strategic element for China and India as well and as such the development and dissemination of alternative fuel technology will move rapidly. The losers will be traditional energy companies, oil exporters and crude oil itself. The winners will be the energy companies of tomorrow to include; wind, hydro, solar and clean coal.

-          Global warming; After eight years of denial and ossification by the Bush administration we will finally begin dealing with a global reality and the implications of that reality. The Obama camp is clearly more aggressive in their targets and approach but in our opinion they will not achieve those goals without incorporating the nuclear component.

What will the implications be? Going green will no longer be a slogan but will quickly become a major initiative worldwide. Aggressive carbon cap and trade programs will be put in place and environmental services companies will experience dramatic growth. Look for opportunities in recycling, waste water reclamation, environmental consulting, green architecture and carbon reduction technology

China, India, Brazil and the other Big emerging markets;As we have noted on more than one occasion the economic growth engines going forward will be the BEM’s. With GDP growth rates that will average anywhere from 5% to 10% a year for the next 10-20 years this is also where the greatest investment opportunities will reside. As the US begins to improve its savings base expect to see even greater capital outflows to those markets and with a rapidly increasing rate of global innovation expect to see the development of breakthrough technologies in these markets as well. We continue to be bullish on next wave verticals in these markets to include; renewable energy, environmental services, private education, private health-care, media & entertainment and distribution & logistics.  

It Was the Best of Times; It Was the Worst of Times! 9/22/08