My partner Keith McCullough recently coined the phrase “earnings before Obama” or EBO. With a supportive congress, President Obama is likely to follow through on Candidate Obama’s populist rhetoric. I see four areas where Obama’s policies could drive EAO below EBO.
• Taxes – Corporate income taxes may or may not rise but personal income and capital gains taxes are certainly headed higher. “Hidden” taxes and fees on corporations would likely increase.
• Interest rates – In another post today I addressed the likely EPS hit from bank line refinancing. This was before even considering macro level interest rates which are likely to rise under an Obama administration advised by Paul Volcker. Attacking inflation could certainly benefit the long term economy but near term profits would suffer.
• Regulation – We’ve had a de-regulating trend in this country for nearly 30 years. Obama would likely reverse that positive trend and with it force up compliance costs.
• Labor – This is a biggie for my companies. Obama favors the “Employee Free Choice Act” which I’ve discussed in previous posts. Despite opposition from liberal stalwart George McGovern in Friday’s WSJ, this democratic congress favors the union initiative to oust the secret ballot in union elections. An open petition or “card check” will certainly result in more union victories. Higher wage costs, reduced labor flexibility, and lower productivity should follow.
I do not write a political blog and Research Edge is not a political firm. Like most firms we have diverse individual views but we do share at least one important value: objectivity. So while I’m not expressing a political opinion on whether an Obama presidency is good for America, I am trying to make an economic call that Obama will not be good for consumer stocks.
• Taxes – Corporate income taxes may or may not rise but personal income and capital gains taxes are certainly headed higher. “Hidden” taxes and fees on corporations would likely increase.
• Interest rates – In another post today I addressed the likely EPS hit from bank line refinancing. This was before even considering macro level interest rates which are likely to rise under an Obama administration advised by Paul Volcker. Attacking inflation could certainly benefit the long term economy but near term profits would suffer.
• Regulation – We’ve had a de-regulating trend in this country for nearly 30 years. Obama would likely reverse that positive trend and with it force up compliance costs.
• Labor – This is a biggie for my companies. Obama favors the “Employee Free Choice Act” which I’ve discussed in previous posts. Despite opposition from liberal stalwart George McGovern in Friday’s WSJ, this democratic congress favors the union initiative to oust the secret ballot in union elections. An open petition or “card check” will certainly result in more union victories. Higher wage costs, reduced labor flexibility, and lower productivity should follow.
I do not write a political blog and Research Edge is not a political firm. Like most firms we have diverse individual views but we do share at least one important value: objectivity. So while I’m not expressing a political opinion on whether an Obama presidency is good for America, I am trying to make an economic call that Obama will not be good for consumer stocks.
