Election year investing, What the next 365 days could mean to your portfolio

One year from now, I will be sipping on morning coffee while reading about who won the 2008 Presidential Elections. History has shown that the Stock Market does very well during election years, but this time around offers many more variables and an in depth study may help clear the fog.

As I witness today’s market risks and economic policy proposals as diverse as the candidates themselves, I can’t help wondering what impact these intentions will have on business, jobs, taxes, and credit.

I see an economic slowdown materializing day by day with geo-political risks continuing to rise, and an Asian bubble just waiting for a reason to burst. If Uncle Ben and his cohorts at the Fed could act with a greater sense of urgency then the recession might not come as fast and furious for the new candidates to point fingers at each other about next year. Either way our new President will have a lot on the plate to deal with and it is not looking rosy.

I decided to put together a small model portfolio of what I would like to call the Ultra Election Strategy.

Now I am not endorsing any particular candidate or party, nor am I able to predict with any certainty what new policies, foreign and domestic, will have on the performance of this portfolio. But I thought it a good time to take a look out one year from now with a few sector ETF long and short predictions. I am a big fan of the new Ultra ETFs that trade so I am tailoring the portfolio to include only theses funds.

My biggest prediction is that a democrat, probably Hillary Clinton, will win (She actually looked like a sure bet three years ago). However, contrary to the successful performance of the Stock Market under Democratic Presidents, the market under Bush has done very well and has outperformed the average year's performance while the Democrats held the big house. This could be a forewarning that times are changing and the scenario of the new President walking into a recession could make post election performance challenging for the markets. Time will tell.

I also remember with clarity the damage to big Drug stocks the first time Hillary took on healthcare, so if she moves up in the polls, I would stay clear of this group. No matter who wins, any radical new healthcare plans are sure to sharply affect these types of stocks. The following list represents the rest of the overall portfolio strategy and will be adjusted accordingly at the end of each quarter.

Prices are as of close Friday 11/2/07

$100,000 Portfolio

Cash - 20%

Bullish
Nasdaq 100 - Ultra QQQ Proshares (QLD - $120.06)
Technology - Ultra Semiconductor Proshares (USD-$82.21)
- Ultra Technology Proshares (ROM-$95.87)
Financials - Ultra Financials Proshares (UYG - $49.17)
Utilities - Ultra Utilities Proshares (UPW - $86.70)
Consumer Services - Ultra Consumer Services (UCC - $59.78)

Bearish -
Healthcare - Ultrashort Healthcare Proshares (RXD - $66.28)
Consumer Goods - Ultrashort Consumer Goods ( SZK - $64.00)
Real Estate - Ultrashort Real Estate Proshares (SRS - $98.95)


Neutral
Energy
Materials
Homebuilders

I do not own these ETFs as of this post, but I always wanted to put together an overall ETF market strategy using only the Ultra Proshares.