Bush victory seen as boon to many industries

Posted: Thursday, November 04, 2004

NEW YORK President Bush's victory in Tuesday's election is shaping up as a potential bonanza for Wall Street, where firms are salivating about the possibility that he will follow through on his pledge to allow private investment of Social Security funds.

A second term for the Republican president also makes it likely drug makers can head off government-mandated price controls for now. The defense industry also looks like a winner, more regulatory victories may be in store for the Baby Bells, and look for a new push for oil drilling in the Alaska wilderness.

While the privatization of Social Security has taken a back seat in this current election, experts predict the president will work with congressional Republicans, who boosted their majority in both houses, on what would be the most dramatic changes in the government retirement program's 69-year history. In addition, the president has gone on record as supporting an increase in medical savings accounts for individuals.

Banks, investment firms, mutual fund companies and insurers, of course, would offer to help individuals manage these new private retirement investments, which could lead to billions of dollars in new funds under their control and higher profits if legislation clears Congress.

''The Bush administration is more oriented toward what they call the ''ownership society,'' said Ken McCarthy, chief economist for Finance Investments Inc. ''If people are going to have more control over their assets, people are going to need advice on how to manage those assets, and that can only help the financial services industry.''

That, in turn, will make financial stocks more attractive, analysts said.

Likewise, dividend-yielding stocks a popular asset class in the uncertain market of 2004 will continue to be a solid option. One of Bush's most popular first-term tax cuts was setting the dividend tax rate at 15 percent, rather than normal income tax rates of up to 38.6 percent. That tax cut expires in 2008, but it's expected Bush will work to make it and many other tax cuts permanent.

''It's not coincidental that more and more companies are now raising their dividends. It's the first time where it's actually made sense from a tax perspective,'' said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers.

In the end, however, after a trying year on the stock markets, most investors were simply glad to have the election decided. ''The relatively flat performance of the markets this year is a reflection of the close race and people having no certainty over how things were going to be after Nov. 2,'' McCarthy said. ''It's good to have this out of the way.''

DRUG MAKERS

Status quo is good news for drug makers and investors in the stocks of companies like Pfizer Inc. and GlaxoSmithKline PLC, which were facing the potential of much tougher oversight on pricing under a John Kerry presidency. Consumer advocates counter that that's bad news for average Americans.

Industry analysts say that with Bush in the White House and Republicans increasing their control of Congress, government price controls for prescription medicines won't be on the table. The free-market system, where demand drives price, will continue, said Barbara Ryan, a pharmaceuticals analyst and managing director at Deutsche Bank Securities.

Still, Bush may have to budge slightly on one of the most contentious issues for the industry, allowing reimportation of cheaper prescription drugs. ''Reimportation may actually happen under Bush,'' said pharmaceuticals analyst Tony Butler of Lehman Brothers, ''but only from Canada.''

Butler said importing medicines from Canada, one of many Western nations with government-negotiated price discounts, would not have a huge effect on the U.S. pharmaceutical industry because drug shipments to Canada amount to less than 10 percent of the medicines sold in this country. He said Canadians are sure to complain if siphoning some of that drug supply to the United States causes shortages in Canada.

The Medicare Modernization Act that Bush signed into law in December a law for which the pharmaceutical industry lobbied heavily bans reimportation of drugs from Canada. It also bars the government from negotiating price discounts, as insurers do for their plan members, for medicines seniors buy under the subsidized prescription drug plan that kicks in fully in 2006.

By AP Business Writer Linda A. Johnson

HEALTH CARE COMPANIES

Businesses have identified soaring health insurance costs as the most critical issue facing them today, but proposals by Bush aren't likely to immediately slow the growth in spending for both companies and their employees.

This year, employers will pay on average of almost $7,300 for their share of the cost to insure a family of four and $3,137 for single coverage, according to the survey by the Kaiser Family Foundation and Health Research and Educational Trust. Premiums also rose for the fourth straight year at a double-digit increases rate.

Frank McArdle, manager of Hewitt Associates LLC's Washington office said Bush may be able to accomplish measures such as capping medical malpractice awards and lessening expensive mandates on what services insurers must provide. But because of factors such as the aging population, expensive drugs and technology and the growing number of uninsured, ''there is not going to be a huge relief in costs,'' he predicted.

The president also is expected to renew his push for legislation that provides tax benefits to businesses and their employees if they contribute to Health Savings Accounts. He also wants Congress to give low-income families a $1,000 direct contribution to their HSAs along with a tax credit to help them purchase insurance policies.

Firms that offer such policies such as Golden Rule Insurance Co., a division of UnitedHealth Group Inc.; Fortis Health, a division of Fortis Inc. and the American Medical Security Group Inc. may benefit.

HSAs allow Americans to use pretax money to cover medical expenses, but they must be combined with a high-deductible insurance policy.

While Bush signed into law last year legislation passed by the Republican-controlled Congress that provides a prescription drug benefit for Americans covered by Medicare, the program has been slow to gain consumer acceptance.

The measure also increased reimbursements to companies like Humana Inc., Coventry Health Care Inc. and PacificCare Health Systems Inc. that run managed care programs for Medicare beneficiaries.

By AP Business Writer Theresa Agovino

ENERGY

The president is likely to call on Congress to revive stalled legislation that would have allowed private companies to search for oil, coal and natural gas on federal lands currently off limits to exploration and production, including Alaska's Arctic National Wildlife Refuge. Such a move, part of Bush's plan to reduce the country's rising dependency on imports, could benefit large petroleum producers such as BP PLC, Anadarko Petroleum Corp. and Devon Energy Corp.

Bush also wants to make it easier for the oil industry to build new refineries. There hasn't been a new refinery built in the United States in 28 years and the industry complains about meager profit margins, hefty environmental costs and too much government regulation.

Bush will push Congress to require reliability standards for power lines and provide incentives for new power line construction, measures that are widely backed among power producers, such as American Electric Power Company Inc., and makers of power grid equipment, such as American Superconductor Corp. Opposition to new power line construction typically occurs among consumers concerned about environmental and health effects.

Bush supports the construction of new nuclear-powered generating stations, but opposes enacting federal requirements for utilities to use renewable fuels such as wind, arguing that should be up to the states.

He favors market-based approaches to reducing pollution, but supports a 10-year, $2 billion government-sponsored program to develop cleaner ways to burn coal, a potential boon to coal producers such as Massey Energy Co. and owners of coal-fired power plants such as Duke Energy Corp.

The president's hands-off policy on energy prices is expected to continue. And he is likely to continue pumping oil into the government's Strategic Petroleum Reserve and reject calls to use the government oil except to counter a major supply disruption.

PFC Energy, a Washington-based consultancy, predicts an average U.S. crude oil price of $48 a barrel in 2005 under Bush.

By AP Business Writer Brad Foss

FINANCIAL SERVICES

In addition to benefiting from Bush proposals for Social Security privatization and health savings accounts, the nation's brokerage firms and asset managers, including mutual fund companies, could be aided by a rising stock market.

''This should give the incentive to investors to look at financial stocks of companies that would manage these private assets,'' said Sam Stovall, chief investment strategist at Standard & Poor's in New York. ''And if we have more money flowing into the equity markets, the capital markets divisions of diversified financial service companies should do well.''

Still, Bush's pledge to try to make permanent the tax cuts he won in his first term despite the widening federal budget deficit could be a negative for some financial services companies.

''I think it would have been more positive for financial services stocks if Kerry had won,'' said Val Colasanto, assistant portfolio manager at Appleton Partners in Boston. ''He would have been more likely to address some of the budget deficit issues we have, which would have had more favorable long-term interest rate impact.''

The higher rates likely to result from high deficits ''would hurt fixed-income markets and be a drag on equity markets over time,'' Colasanto said.

Another area where Bush can have an impact is through appointments. Among the government officials likely to be named by Bush is a successor to Federal Reserve chair Alan Greenspan, 78, whose term as a Fed governor expires Jan. 31, 2006.

And while Kerry and other Democrats supported a stronger regulator to rein in Fannie Mae and Freddie Mac, the big Washington, D.C.-based mortgage companies, the Bush administration has instead pushed for structural reforms, such as eliminating the implicit government guarantees that have given the companies an edge in the secondary market. Continued strong participation in the mortgage market by Fannie and Freddie should boost the prospects of both home builders and mortgage lenders.

By AP Business Writer Eileen Alt Powell

MEDIA

The Federal Communications Commission is likely to revisit in a second Bush term its proposal to allow greater consolidation of media ownership, though perhaps more gingerly than the first time around when the sweeping rule change largely failed due to public opposition and legal challenges.

The FCC succeeded in making headway on a few key issues, notably raising the limit on the size of the national television audience that one broadcaster can reach. The FCC had wanted to raise the cap from 35 percent to 45 percent, but Congress stepped in and set the cap at 39 percent, the approximate current reach of stations owned by News Corp.'s Fox and Viacom Inc.'s CBS.

Many of the changes the FCC wanted were thrown out by a federal court in Philadelphia in June, sending them back to the agency for further consideration. The FCC passed the original rule changes along party lines, with the three Republican commissioners approving them and the two Democrats opposing.

The most important rule changes to be revisited include an FCC proposal to lift a ban on owning a television and a newspaper in the same market. Several media companies, notably Tribune Co. and Media General Inc., have been pressing for the ban to be lifted, and both are pursuing strategies of owning TV stations and newspapers in the same city.

The FCC is also likely to reconsider changes to rules governing when a company can own two TV stations in the same market and when it can own both TV and radio stations in the same city, which would affect major TV station owners such as News Corp. and Viacom.

In September, Viacom chairman Sumner Redstone was widely quoted as telling an audience of executives in Hong Kong he planned to vote Republican this year, although he's a self-described Democrat, because it was better for his company.

By AP Business Writer Seth Sutel

DEFENSE AND TECHNOLOGY

Government technology spending will likely continue to be concentrated on defense and homeland security, with a question mark hanging over promises of an ambitious space program.

During Bush's first term, federal spending on research and development rose more than 50 percent, jumping from $84 billion in 2000 to $126 billion in 2004. Most of that money $71 billion in 2004 was spent on research and development for defense, said Kei Koizumi, director of the budget and research policy program at the American Association for the Advancement of Science. Another $4 billion went to research and development for homeland security.

The administration spent billions on missile defense and is likely to plow more into continued research and deployment of missile defense systems, which will benefit Boeing Co., Lockheed Martin Corp., Raytheon Co. and Northrop Grumman Corp.

Bush has set a goal to complete the International Space Station by 2010, return to space shuttle flight ''as soon as possible'' and develop and test a new spacecraft by 2008 that's capable of ferrying astronauts and scientists to the space station. He also has said he wants the United States to return to the moon by 2020 ''as the launching point for missions beyond.''

By AP Business Writer

Ellen Simon

AUTOS

The Bush administration has instituted a slight increase in fuel-economy standards for light trucks a minimum fleet average of 22.2 miles per gallon by 2007, up from 20.7 mpg but maintained the standard for cars at 27.5 mpg.

Automakers, in general, oppose government-mandated changes in fuel-economy standards. Still, some analysts say the combination of high oil prices and environmental concerns may force the second-term president to push for more aggressive measures on fuel economy. He already has proposed increased federal support for the development of advanced technologies such as hydrogen-fueled cars.

Medical costs also have emerged as an important policy issue for automakers. Detroit's Big Three contend the massive amounts they spend on health care for workers and retirees $8.5 billion combined in 2003 is the biggest obstacle for competing with foreign automakers.

Before the election, General Motors Corp. and Ford Motor Co. said it was vitally important for whomever wins the White House to work across party lines to solve the nation's health care crisis.

One historical item that might cause automakers a bit of concern: Since 1960, vehicles sales have risen an average of 5.3 percent in the first year of a Democrat president's term, compared with a rise of less than 1 percent under Republicans, according to an analysis by Ward's Automotive Reports.

By AP Auto Writer John Porretto

TELECOMMUNICATIONS

Michael Powell is expected to step down as chairman of the Federal Communications Commission after leading the agency to a series of deregulatory decisions that benefit the regional Bell telephone companies. President Bush's replacements for Powell and a Democratic commissioner who's term is up will ensure a continuing GOP majority, leading to further deregulation with a goal of bridging the digital divide more quickly.

Freed of an obligation to lease new fiber lines to rivals such as AT&T Corp. and MCI Corp., three of the four Bells Verizon Communications Inc., BellSouth Corp. and SBC Communications Inc. said last month they were accelerating plans to replace copper wires with speedy fiber-optic cables which can deliver high-speed Internet access to more homes, schools and businesses.

In Congress, where there have been calls from both sides to replace the Telecommunications Act of 1996 with new legislation, it's not likely a stronger Republican majority will have a major impact as most senators view the issues in terms of how they affect their urban or rural constituencies. For example, as revenues from traditional telephone services plunge due to competition and new technologies, so does the flow of taxes used to subsidize phone companies in less-profitable rural and poor areas. So while Republicans generally seek to minimize regulation, senators from rural states may not be inclined to excuse the new Internet phone services from payments to the Universal Service Fund.

At the same time, any attempt to rewrite the Telecom Act would likely seek to simplify the complex system of access fees paid to local phone companies who connect either end of a call, reflecting the emergence of cell phones and Internet phone service as popular conduits for calling.

By AP Business Writer Bruce Meyerson

TRANSPORTATION

Bush wants to keep funding for highways and Amtrak relatively limited, and both he and the Republican majority in Congress seem unwilling to offer any more financial assistance to the ailing airline industry.

Bush wants to spend $256 billion on highways over the next six years, about $60 million less than Kerry said he would seek. Bush has proposed spending $900 million on Amtrak, about 30 percent less than Kerry, and privatizing parts of the financially struggling railroad. He would also like to eliminate the railroad's unprofitable long-distance lines.

As for the airline industry, the Bush administration supported $10 billion in loan guarantees and $5 billion in emergency funding after the Sept. 2001 terrorist attacks, though no further bailout is expected.

Executives from major airlines, including Continental Airlines Inc.'s Gordon Bethune, have complained about having to pay too much for airline security as well as jet fuel, whose price they contend has been inflated by the Bush administration's policy of continuing to fill the government's Strategic Petroleum Reserve.

But the Bush administration has supported easing the industry's pension burden. Last spring, new legislation allowed for a two-year interest-rate adjustment that would let businesses pay less into their workers' retirement plans. In addition, airlines were given a two-year reprieve that let them only pay 20 percent of what they are currently required to contribute.

Airline employees say Bush has been bad for them by cutting funding for the federal air marshal program and diluting security training for flight attendants.

By AP Business Writer Brad Foss

BIOTECHNOLOGY

Biotech titans Amgen Inc. and Genentech Inc. stood to lose the most if Kerry were elected and quickly moved to permit reimportation of cheaper versions of pricey U.S. drugs from Canada and elsewhere.

Now, with Bush headed to a second term, ''the big issues for biotech are who the new president will appoint to key positions such as the FDA commissioner and other agencies if vacancies occur,'' said Carl Feldbaum, president of the Washington D.C.-base Biotechnology Industry Organization. The FDA post has been vacant since Mark McClellan left in March to head the government's mammoth Medicare program.

And even though a $3 billion bond measure supporting stem cell research passed in California Tuesday, Bush is expected to continue restricting federal funding to the field because of ethical concerns about the destruction of human embryos in some stem cell research.

Shares of Geron Corp. and other stem cell companies had rallied in the days before the election because Kerry had promised to immediately quadruple federal funding while reducing research restrictions.

The federal government allocated $25 million for human embryonic stem cell research last year, an amount that leading scientists and biotech executives say is not enough to significantly advance a promising but nascent technology.

By AP Biotechnology Writer Paul Elias



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