Who's buying the next president?

Big money is flowing to the 2008 presidential candidates. Tracking the cash can yield valuable tips for investors . . . so check out the signals from the investment, legal, oil and drug industries.

By Jim Jubak

Everything's more expensive than it was four years ago, of course, but why is a president selling for a whopping 44% more than in 2004?

As of the end of March, Democratic and Republican candidates had raised $154 million, according to Federal Election Commission reports. The Center for Responsive Politics estimates that candidates of the two parties raised an additional $128 million in the second quarter alone. (Official reports for the quarter are due with the Federal Election Commission by July 15.)

There's a good chance that the eventual nominees will need to raise $500 million EACH for this election. That would be 44% more than in the 2004 election, when George W. Bush and John Kerry raised $367 million and $329 million, respectively.

All this cash comes with strings, of course. Donors expect some pro quo for their quid, and it often comes out of taxpayers' hides in the form of a tax break here, a government contract there. So we might as well see if, as investors, we can find any patterns in the giving that might help us make a little of that money back.
The early money counts
It's still 16 months to the November 2008 elections. But because the states are all jostling to hold their primaries while it still counts, the Republican and Democratic nominations for president are likely to be sewn up on Feb. 5, 2008, with primary balloting in an extraordinary 23 states, including such electoral powerhouses as California, Illinois, Michigan, New Jersey, Pennsylvania and Texas.

In a truncated race like this, early money counts more than ever. Candidates don't have a chance of using an early primary victory to build up fundraising momentum. If you don't have the cash in hand by the time New Hampshire votes on Jan. 22, you're not going to be competitive on superduper Tuesday two weeks later.

So where's all the dough coming from? From the industries, unions and lobbyists who will hope to turn a cash contribution now into access to a sitting president later.
The money trail
A quick read of who is giving money to whom has something for the prejudices of everyone, from the deepest of red to the darkest of blue.

So, for example, Democratic candidates Barack Obama and Hillary Clinton have taken in by far the most cash from education unions. That's a traditional source of funds for Democratic candidates. In the 2006 election cycle, 72% of education contributions went to Democrats, according to the Center for Responsive Politics. And you're probably not surprised that the three top recipients of money from lawyers and law firms are also Democrats, with John Edwards leading both Clinton and Obama by more than $2 million, as of the end of March.


Oil-and-gas-industry money doesn't have a Republican oilman to back for the White House this time around, but Republican candidates Rudolph Giuliani and Mitt Romney have garnered the most cash, despite their Eastern credentials. In the 2006 elections, 82% of oil-and-gas money went to Republican candidates.
View from industry sectors
Dig down another level or two, though, if you want to find ways to put these campaign money flows to use in your portfolio.

So, for example, while the oil industry's cash is still Republican, the industry itself isn't especially enthusiastic in its support. Giving $238,000 to Giuliani, the top candidate in either party in raising money from this industry, isn't exactly going all out, considering how rich the industry is.

The pharmaceutical industry doesn't seem deeply involved, either. Giving to Mitt Romney, the industry's favorite candidate, was just $157,000 through March 30. Hillary Clinton, whom you might think the industry hates, came in at No. 2 at $106,000.


Both oil and pharmaceutical giving is, in relative terms, peanuts. Meanwhile, the investment industry gave Giuliani $1.8 million through March 30, almost nine times as much cash as the oil industry gave him.

And Giuliani, the former New York City mayor, wasn't even the investment industry's favorite candidate. That honor went to former venture capitalist and buyout architect Romney, who raised $1.9 million from the industry.
How the numbers are talking
I think investors can draw some potentially profitable conclusions from these numbers. The oil-and-gas industry may be so ho-hum about the election to date because it really doesn't have very much at stake. Future industry profits will be huge because a persistent worry about oil supplies keeps oil prices high. Alternative fuels might be a threat somewhere down the road, but nothing that a White House of either party could push past the industry's stout defenders in the Senate is likely to dent profits anytime soon.


The pharmaceutical industry may be similarly indifferent because its problems aren't regulatory right now. Lapsing patents and empty product pipelines are the dangers. The industry handily beat back the last big threat, using its lobbying muscle to turn the government's plan to negotiate drug prices for seniors from a threat into a huge new market opportunity at very attractive prices.

In contrast, I sense a worry in the numbers from the investment industry. Usually, the industry very carefully hedges its bets, giving almost equal amounts to the two parties in the last two election cycles. So far, though, in this presidential cycle the industry's preference tilts Republican. Hillary Clinton, who represents New York in the U.S. Senate, should have a hometown Wall Street edge but comes in third in investment-industry contributions, trailing Romney by more than 10%. Democrats, led by Clinton's New York colleague Sen. Charles Schumer, have been relatively vocal about the need for some kind of reform in the mortgage industry as more and more overextended homeowners feel the pain. Democrats have been at the forefront of talk -- and so far, that's all it is -- about ending the tax breaks that now go to the partners in hedge funds.
Watch the law firms
If you follow this logic another step, you'd have to conclude from campaign giving patterns so far that, of all the sectors tracked to date by the Center for Responsive Politics, lawyers and law firms believe they have the most at stake in the 2008 election. It's not surprising that lawyers go heavily Democratic in their campaign giving, since Republicans have made the trial lawyers bar one of the major villains in recent campaigns. In the 2004 campaign, with former trial lawyer Edwards as the Democratic vice-presidential candidate, Republican rhetoric about overregulation, abusive class-action suits and ruinous jury judgments for plaintiffs rose to a new level.

According to the Center for Responsive Politics, lawyers and law firms came in No. 2 that year among all contributing sectors, trailing only retirement organizations -- and 66% of those contributions went to Democratic candidate John Kerry.


So far in 2008, the slant toward Democratic candidates for the nomination is even more extreme. Through March 30, 77% of contributions by lawyers and law firms have gone to Democratic candidates Edwards, Clinton and Obama.
A message for investors
It's not hard to see why lawyers are so motivated and so Democratically inclined right now. Recent Supreme Court decisions restricting the scope of class-action lawsuits and raising the bar for deciding who has standing to bring a lawsuit have made it clear that the Bush administration has finally managed to put together a court that will deliver on its promise to discourage "frivolous" lawsuits. Reversing that trend would be hard enough with a Democrat in the White House. Another four or eight years of Republican control would harden current restrictions into stone.

One person's "frivolous" lawsuit is another's "only deterrent to corporate misconduct," but whatever side of this divide you come down on, the level of contributions from lawyers and investment companies carries a larger message to investors.


The government's role in the economy cycles between periods of more and less regulation. We are now in the midst of a period of very restrained regulation. Whether that's a good or bad thing, I leave to you. But it is clearly a very profitable period for business. Inspections for workplace safety and environmental violations are down. After a brief flirtation with the rhetoric of shareholder "justice," securities regulation again is moving toward limiting the legal recourse of investors. An understaffed Food and Drug Administration leaves food safety largely in the hands of food producers.
Regulation's a key issue
I think the swing toward the less-regulated end of the spectrum is one reason for strong corporate profits and for the historically high share of the national income going to corporate profits.

The cycle can still move further toward less regulation. Or it could start to reverse, but not overnight. If it did, the reversal would impose higher costs on many businesses and industries -- while aiding others that are already cleaner, safer and more consumer friendly than regulations require. Investors might have to judge companies on their ability to keep down costs for worker injuries, for environmental pollution and for consumer protection as well as on their ability to cut jobs and move work to lower-wage platforms, eh, excuse me, I mean countries.

The question of whether we should continue down the current path or reverse the trend is one of the key issues in the 2008 election. Even though they are on different sides in the debate, the investment industry and lawyers both understand that there is a debate going on, their contributions to the 2008 primary campaigns say.

I wonder if a truncated primary season followed by a cash-heavy general election will give regular voters a chance to weigh in on one side or the other before the hoopla is over for another four years.


New developments on past columns
"10 stocks for financial Armageddon": I'd call this strike two. And I'm beginning to wonder if I was wrong when, in my March 13 column, I named American International Group (AIG, news, msgs) as one of my 10 stocks for financial Armageddon because its balance sheet was so strong that, in my opinion, it would be able to ride out any debt market storm. So far the giant insurer -- a company that I love for its long-term potential in developing markets in Asia -- hasn't been rocked too badly by the storm in the subprime mortgage market that has seen the riskiest bonds in the sector fall to 50 cents on the dollar. But the company is definitely catching some of the spray.

In my update on June 29, I wrote that after "studying the company's March quarter 10Q financial statements, and adding up all the figures that could represent potentially troubled loans, mortgages and derivatives, I get a total that, at most, adds up to 12% of the company's total assets." That's strike one. Strike two is an agreement between American International Group subsidiary AIG Federal Savings Bank and the Office of Thrift Supervision that requires the AIG subsidiary to set up a $130 million fund to refinance the loans of borrowers who were either charged overly large broker and lender fees or who were given incorrect credit ratings. Again, the sum is relatively small, but it certainly doesn't raise my comfort level on the stock to hear that a subsidiary was playing games with mortgage credit ratings.


As of July 13, I'm keeping the shares in Jubak's Picks because I think the company is still likely to weather this storm, but I'm taking my "buy" off the shares in my more conservative 50 Best Stocks in the World portfolio. I think long-term investors should wait until the situation is clearer before starting a position in the stock. (Full disclosure: I own shares of American International Group in my personal portfolio.)

"A safe-money bet? Think Canada": On July 10, Thompson Creek Metals (TCMRF, news, msgs) upped its estimates of the reserves at its Endako molybdenum mine in British Columbia. The new estimates, part of a redesign of the mine, increase proven reserves to 112 million tonnes from 22 million and probable reserves to 164 million tonnes from 52 million. The estimated life of the mine goes to 27 years from the prior six. I added Thompson Creek Metals to Jubak's Picks on June 26. The company, until recently named Blue Pearl Mining, is the second-largest publicly traded producer of molybdenum in the world. During the first quarter of 2007, the company produced 3.8 million pounds of molybdenum at a cost of $5.63 a pound. Molybdenum, which in the high-purity form produced by Thompson Creek is mainly used as a lubricant in the oil and gas industry, at that time sold for a realized price of $25.74 a pound.


What I like about Thompson Creek -- even more than that spread -- is the plan to increase production by designing a mill, increasing mining activity at its existing mines and opening the new Davidson project to mining in late 2008. All these steps would increase production to 29 million pounds in 2009 from a projected 21 million pounds in 2007. As of July 13, I'm raising my target price for Thompson Creek Metals to Jubak's Picks to $25 a share by December 2007 from the prior target of $20.20. (Full disclosure: I own shares of Thompson Creek Metals in my personal portfolio.)
Meet Jim Jubak at the Money Shows
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