A Historic Day for the U.S.

Robert Hsu, January 20, 2009

It's no secret that the theme of the past few months has been "change." And there's a big change that happened today–Barack Obama was sworn in as the 44th president of the United States. With every new president and administration, there are always big changes in policy, and after experiencing the worst year for the economy since the Great Depression, there may be some big things happening in the coming months.

This is a critical time for the economy, so let's put our political views aside so that I can tell you my expectations for the new administration and how it will affect the economy and our investments.

A New Administration

Last week in my China Strategy service, I discussed with my subscribers the recent action in the stock market. Over the holidays, the market had a nice rally, giving investors a bit of a breather after weeks of volatile trading. But last week, the rally seemed to be over, as the stock market traded down once again, led by U.S. bank shares. So what sent those shares in a sharp decline again? It was becoming apparent that the Obama administration's stance on bank bailouts is not as shareholder-friendly as previous administrations.

Specifically, according to Obama's policy, financial institutions receiving TARP money must now put the interest of the Treasury ahead of management and common stockholders. For instance, banks that want TARP money will have to cut dividends to shareholders. So it is increasingly likely that in government bail-outs, owners of common stocks will be significantly diluted or even wiped out completely.

Looking forward, there are high expectations about Obama's possible economic moves. As any seasoned investor knows, the U.S. economic picture will likely grow worse before it gets better. In fact, I expect that we'll see more layoffs in low-paying, entry-level service jobs in 2009. This will mostly impact young people seeking work. And as people become angry about the economic situation in the U.S., there will be a rising socialist tide throughout America and Europe.

Right now, Obama and the Democratic Party are putting together a stimulus plan to shore up the economy. Although the plan is not yet finalized, Obama's new and larger ($500 billion to $700 billion) economic-stimulus package follows in the footsteps of China -- its main focus is on infrastructure, which will in turn create more jobs. I expect this will improve much of our existing infrastructure -- power grids, airports, roads and bridges – that needs to be updated and expanded. And as we've discussed before, the only way the U.S. is going to overcome the current economic slowdown is to grow its way out -- and one way to do this is through the creation of more jobs. And I look for this stimulus plan to play a big part in that.

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