Obama to Unleash $300 Billion in Off-Budget Spending

Andy Obermueller's picture

Thursday, February 18, 2010 - 2:59pm

by Andy Obermueller

"There has never been," President Obama proclaimed this week, "a program of this scale, moved at this speed, that has been enacted as effectively and as transparently as the recovery act."

This is Mr. Obama's assessment of his $787 billion stimulus package, which marked its first anniversary this week. The President trumpeted it as a resounding success.

Republicans, for their part, variously counter that the whole thing has been a boondoggle, an albatross or a fleecing.

I don't know which side you come down on. But whether you agree with the stimulus or not, the fact of the matter is this:

You ain't seen nothing yet.

Fact: Most of the stimulus money hasn't been spent.

Fully two-thirds, in fact, is still waiting to be deployed. About $20 billion allocated for digital medical records is about to be unleashed. Another $4.5 billion in funds is about to go gushing into the nation's electricity grid to update that sector. The lion's share of this year's allocations, as much as $180 billion will go to infrastructure projects and absolutely deluge contractors with cash.

I mean, they're going to need to build another Hoover dam to capture that Mighty Colorado of Cash.

In all, Washington's stimulus spending is expected to reach the $300 billion range in the next year.

That's twice the gross domestic product of Chile.

It's enough cabbage to buy a snazzy new iPad for every household in the United States -- as well to purchase Apple itself outright.

$300 billion is a phenomenal sum of money, a number one would expect in an astronomy lecture to describe distance, not in an economic text about a single government program.

What does it mean for investors? See above. As in: "Cash, Mighty Colorado Of"

Here's the thing: Every dollar of that public money will generate a private profit. That is an immutable law of the economics of government spending. If every dollar of Mr. Obama's spending were to go to a smart, profitable company like Cisco Systems (Nasdaq: CSCO) -- and many of those dollars will go to such companies -- it would add $60 billion to its bottom line. That's great for business.

And boy oh boy is it going to be great for shareholders.

Just to be clear: When I said many of those dollars will go to such companies, I meant in the direct sense. Indirectly, ALL of those dollars will go to industry, as Americans spend the tax cut dollars contained in the stimulus.

In the inaugural issue of Government-Driven Investing last May, I made the case for four companies that I predicted were likely to benefit in the long term from Mr. Obama's medical-records initiative.

Since then, none of those picks has lost a dime and three of them have resoundingly beaten the S&P 500 Index. And that was before the actual money supporting the digital medical records program has even been spent.

When hospitals, clinics, doctor's offices, diagnostic centers and other medical companies begin to embrace digital medical records in earnest, there's no limit to this sector's earning power. It creates an entire new industry. It will mean massive revenue streams for the companies that can provide the technology. It will mean thousands of good-paying jobs.

As I wrote then: "It will be a massive undertaking … a mere 8% of the nation's 5,000 hospitals and only 17% of its 800,000 doctors use digital records, according to the prestigious New England Journal of Medicine. Mr. Obama has promised about $20 billion in federal spending to spark the transition; studies suggest the plan will cost between $75 billion and $100 billion. Dr. David Brailer, a former national coordinator for health information technology who worked for President Bush from 2004 to 2006, said the system could save $200 billion per year."

Mr. Obama did not find success with his plan to change the nation's health care system, but his push for digital records could afford him a chance to salvage a win that would modernize the delivery of medicine, streamline its efficiency and ultimately save scores of billions in costs.

That's all well and good -- for patients, sure, but also for shareholders of the companies I recommended, who are going to see $20 billion stream into the industry this year.

The big winner so far has been QuadraMed (Nasdaq: QDHC), an outstanding, innovative little company that has been the brains behind the best digital medical records initiative in history: The Veterans Administration's VistA system. This software grants doctors access to our nation's servicemen and women's medical records at any VA medical center.

QuadraMed has returned +38.6% since I added to the Government-Driven Investing Portfolio, nearly 20 percentage points more than the broader market. And, like the stimulus itself, this exciting company is just getting warmed up!

And health care is only one area of the stimulus plan -- a relatively small one. There are literally dozens of other industries that will be affected by the enormous outlay of stimulus money that Washington will make this year.

Remember: We're talking $300 billion. Think about it: Three hundred billion U.S. dollars.

These forthcoming government actions by the largest financial force on the planet, if leveraged by individual investors, have the possibility to continue to deliver outsized returns. Interested in how your portfolio can exploit them? Click here.

Andy Obermueller does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.