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Industries Hurt By Obama

Posted: Mar 04, 2009 14:04 PM by Eric Fox

Tickers in this Article: EZPW, FCFS, RDS, SLM

The list of industries that wished they had never heard of President Obama continues to grow with each passing day as industry advocacy groups cringe in fear every time they open the newspaper to see what the White House and the Democrats have on their agenda.

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Energy
The energy industry found that the new budget eliminated three tax credits and some new taxes were being imposed. The government would impose a new $4 per acre annual fee on non-producing Gulf of Mexico leases, responding to criticism that oil and gas companies have large unexplored tracts to drill. A new excise tax on Gulf production would also raise billions over the next few years, targeted towards companies that aren't paying any due taxes, due to a tax loophole.

New taxes like these would hurt all offshore companies including Royal Dutch Shell (NYSE:RDS), which currently holds 459 federal offshore leases. The total extra cost to the industry over the next five years is estimated at $30 billion. (Read more on the effect of government regulations in Free Markets: What's The Cost?)

New Legislation
The payday lenders are also about to get whacked by the new legislation being introduced in the House of Representatives that would put a cap on interest rates that payday lenders could charge its customers. Individual states are also considering legislation.

The reports have sent shares of EZCORP Inc. (Nasdaq:EZPW) and First Cash Financial Services (Nasdaq:FCFS) down sharply the last few trading days despite strong recent earnings reports from both companies. First Cash Financial Services earned $1.26 in 2008, and the company set earnings per share (EPS) guidance of $1.36-1.38 for 2009. EZCORP also reported first fiscal quarter earnings up 18% over last year and raised guidance for the full year to $1.52, above analyst estimates.

Student Loan Industry
Sallie Mae (NYSE:SLM) was hit with news that the Obama budget would eliminate federal government guarantees on loans made by private companies. Currently, 81% of the company's loan portfolio is guaranteed by the federal government, but beginning in 2010, all federal student loans would be made directly to student and not through private lenders. Sallie Mae could still make loans privately to students, but without federal guarantees, the default rates would be much higher, threatening its business model. (Learn more in Fannie Mae, Freddie Mac And The Credit Crisis Of 2008.)

The new administration is attempting to put its imprint on the U.S. as reflected in its budget and legislative proposals. While this is certainly the right of any new occupant of the White House, it raises the possibility that the actions are seen as “anti business” and thus threatening a steeper drop in the stock market.

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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