| elections. investor outlook. Gallup. |
[Aug. 25th, 2004|09:01 pm] |
It appears American investors already discounted W's second term in office.
SOURCE: Gallup Poll News Service
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August 23, 2004
Will “Stealth” Issues Determine U.S. Investment Climate, Election?
Investor optimism declines for second straight month
by Dennis Jacobe
GALLUP NEWS SERVICE
PRINCETON, NJ -- Over the past several weeks, the news has been dominated by the presidential election, Iraq, and terrorism. Therefore, it is somewhat surprising that none of these issues is at the top of the list of factors "hurting the investment climate a lot," according to the August UBS/Gallup Index of Investor Optimism survey. Of course, the continued decline of the Index of Investor Optimism is also somewhat unexpected, given the widely held expectation that the economic expansion would soon regain its momentum following its recent "soft patch."
So, what do investors see as the most important factors currently hurting the investment climate? How likely are these issues to dissipate over the next few months? How do investors see the potential impact of the presidential election on the investment climate? The new Index of Investor Optimism survey provides some interesting insights.
Factors Hurting the Investment Climate a Lot
Currently, 62% of investors say the price of energy (including gas and oil) is hurting the current investment climate "a lot." This is the highest percentage attributed to any of the 11 factors offered to investors as possible sources of damage. The same percentage pointed in this direction in June, but more investors (70%) gave this negative evaluation of energy prices in May.
Fifty-five percent say the outsourcing of jobs to foreign countries is hurting the investment climate "a lot." This is up from 51% in June but also down from 60% in May.
Concerns about questionable accounting are next, at 51%, followed by the situation in Iraq at 49%, concerns about the federal budget deficit at 48%, and terror threats at 44%.
At significantly lower levels of concern, 25% of investors say the general condition of the economy as well as inflation are hurting the investment climate "a lot." Twenty-three percent point to uncertainty about the outcome of the presidential election and the Israeli-Palestinian conflict, followed by interest rates, at 16%.
Investor Optimism Declines
The Index of Investor Optimism declined for the second month in a row in August and now stands at 77 -- compared to 95 in June and 88 in July. The Index has fallen 18 points during the past two months and is now 31 points below its January level of 108.
The Personal Dimension fell 4 points in August to 62, and is currently 10 points below where it was in January. The Economic Dimension declined 7 points in August to 15, and is currently 21 points below where it was in January.
Will the "Stealth" Issues of 2004 Become More Visible?
The importance of energy prices to the future of the economy and the investment climate is hard to underestimate. Four in 10 investors say the increase in gasoline prices this past spring and early summer has caused them financial hardship. Three in four of these investors say gas prices have caused them "a great deal" or "a moderate amount" of hardship. Given this impact on investors, we can reasonably assume an even greater impact on low- and moderate-income households.
Even more significantly, just one in three investors expect energy prices to rise over the next six months. This means investors hold an amazingly conservative view of future energy prices given the way oil prices have been increasing -- now approaching $50 a barrel. As a result, one can only anticipate an increasing level of concern among investors if gas prices surge in the weeks ahead, as oil prices suggest they may do.
In this regard, it seems reasonable to think of energy prices, job outsourcing, and accounting issues as key "stealth" issues as the presidential election approaches. They appear to be off both the political and press radar screens right now, and seem likely to only increase in importance because there don't appear to be any effective efforts underway to deal with them. And, they seem likely to gain visibility in the months ahead if the economy continues to slow and today's international issues do not explode.
Why Aren't Investors More Concerned About the Presidential Election?
One of the more amazing findings of the August survey involves investor perceptions of the presidential election. Conventional wisdom suggests that investors would greatly favor keeping the current administration in power, if for no other reason than its Wall Street-friendly tax policies.
However, only one in four investors say that uncertainty about the election outcome is hurting the investment environment "a lot" -- tied for 9th among the 11 issues presented to investors. Even more surprisingly, investors are just about evenly split on whether a Bush victory (41%) or a Kerry victory (36%) would have a positive impact on the U.S. investment climate.
It just may be that investors are somewhat indifferent about who becomes president because they do not see either candidate effectively addressing the "stealth" issues affecting the business and investment climate. If and when this perception changes, it may play an important role in the performance of the economy -- and the course of the presidential election -- in the months ahead.
Survey Methods
Results for the Index of Investor Optimism -- U.S. are based on telephone interviews with a randomly selected U.S. sample of 804 adult investors, aged 18 and older, with at least $10,000 of investable assets, conducted Aug. 1-15, 2004. For results based on this sample, one can say with 95% confidence that the maximum error attributable to sampling and other random effects is ±4 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.
I wish I could get the raw data to see the correlations, factors, and cross-section analysis!
In any case, if Kerry is elected it would be a major short-term surprise to the market, probably on the negative side.
Long term we are looking into return of inflation, primarily because of the high energy costs and budget deficits. Which means the Fed will continue interest rates, which means slower, if any, economic growth, which means a fickle market.
Actually, we already have huge inflation in non-dollar terms, e.g. vs euro and yen.
Given that, and the continuing growth in Asia, it probably makes sense to invest in Japanese, and maybe even Chinese index funds.
action item: find them.
Most likely Europe will continue to stagnate.
US high-tech, esp. semi and software will probably rebound with the new version of Windows. 2006? Before that QQQ single-digit growth. Commodity technology manufacturers rule.
action item. check Samsung stock. |
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