(Please note that the views expressed in this article solely represent those of the author).The 2008 Olympics are in the books. The U.S. won the most medals and China won the most Gold. Now it's time for the real games to begin. The Democratic National Convention (DNC) kicks off this week, to be followed by the Republican National Convention (RNC) next week. The gamesmanship will far surpass that of the last two weeks in Beijing. The Democrats will likely spend the week talking policy: the economy, energy, taxes, spending, trade and everything else that matters to them. Then they will presumably nominate Senator Barack Obama as their candidate with Senator Joe Biden at his side. The GOP with go through the same drill and nominate Senator John McCain and whomever he chooses as a running mate. Both parties will pound the podium with countless reasons why their candidate will help us navigate through the current economic "crisis," as Democrats deem it, or "slowdown," as Republicans deem it. I think energy policy (or lack thereof) is the critical issue in the election. It is the reason we are paying $3 or $4 per gallon at the pump. It is the reason everything from corn to coffee to bleach is substantially more expensive at the checkout counter. It is partly the reason why our housing sector is taking so long to recover, as people are finding it easier to walk away from a home than find a way to make the mortgage payments. That's why there is only one candidate that should be considered at this point. Sen. McCain has told the world he wants to reduce our dependence on foreign oil by drilling offshore. We already know those waters contain an estimated 18 billion barrels of recoverable oil and gas equivalents, according to the the U.S. Geological Survey.
In addition, allowing shale development projects could literally eliminate our need for OPEC oil over time. McCain is steadfast in his resolve to explore these options. Sen. Obama, however, has not embraced drilling the same way, although he has an opportunity to submit a clear agenda in Denver. He has opposed -- and then been open to -- drilling offshore, with a caveat. That problematic caveat: Drilling offshore would be allowed if the oil companies could be taxed on their windfall profits and if their exploration tax incentives are removed. This would not encourage exploration and development of sorely needed oil and may actually deter oil companies from aggressively developing new ways to locate and extract new oil. We also need to consider NAFTA. Canada and Mexico ship us 1.5 million and 1.2 million barrels per day (BPD), respectively. (Saudi Arabia is the No. 2 supplier with 1.4 million BPD.) Agitating our biggest suppliers of crude oil by tinkering with an economy-boosting free trade agreement is ill advised. As I continually mention on TV, the only ones looking forward to a re-write of NAFTA are the Saudis, Venezuelans, and Russians because their oil becomes crucial if Canada and Mexico decide to seek partnerships with other oil consumers like China or Europe. For the record, I think Sen. McCain is off the mark with his proposed "gas tax holiday," which would have cut the 18.4 cents federal excise tax off the pump price for a period of time. We know from Econ 101 that lower prices stimulate demand ... if anything! We need to decrease demand for oil and gas, not increase it.
So where is the trade? That's the issue at hand. The winner in November will have substantial impact on various energy-related companies and sectors. In an Obama win, I would look for momentum in alternative energy plays. I think the stock prices of many solar companies are already up in anticipation of a Democratic win. There will be more upside if Obama wins, but realize that a McCain win would be materially negative to the sector. FirstSolar ( FSLR - Get Report), Solarfun ( SOLF) and ReneSola ( SOL - Get Report) have been three stocks that would see further upside in an Obama win. In a McCain win, I think investors are overlooking the refiners. Refining margins have been decimated due to the high cost of their feedstock, crude oil. With high gas prices putting pressure on demand and high crude oil costs pressuring margins, refiners have been getting it from both ends, so to speak. If McCain wins, I like the whole refining sector with few exceptions. Specifically, I think Hess ( HES - Get Report) is in a position to boost profits thanks to the hefty amount of diesel production needed by the transportation industry. I still like Chevron ( CVX - Get Report) as well. I know they are more of an integrated oil play, but the company's access to the U.S. West coast gasoline market will provide added margins. And Tesoro ( TSO), before refining margins got hammered, was rumored to be a buyout target. With margins improving, a potential buyer may feel more comfortable spending big bucks to buy Tesoro.
The bottom line is that we should all watch the two conventions for indicators of energy policy. Anyone looking for a profitable trade, that is. I will be all eyes and ears on Denver and Minneapolis for the next two weeks, looking for that tip. "Trade with your head, not over it"