Should changes in politics change investing strategies?

What if you were to chart how much time you spend thinking and or talking about politics over the last 20 years. (OK, this is a question just for baby boomers. The rest of you can relax and enjoy the ride.)

The reason I ask is because I have caught myself thinking more and more about political issues. It used to be that political news was very limited to the evening news shows on the major channels with occasional special features. Now you can watch politics almost continually. The amount of politics watched on television may be a sufficient proxy for how much time is captured by politics in our mind.

If I were to chart how much I think about politics in the last 20 years, I would guess is that the time has increase by multiple times. Of course it is impossible to know for sure, but this seems right.

I now ask the question why?

Because in our personal lives, we have moved from researching the best health care alternatives to worrying about the decisions the government will make that may radically change how our health care is administered. And, rightly so, that concerns us. So we spend more time thinking and talking about politics of health care.

But what about our investing strategies? Should the increases in government debt, ownership of private industry, changing regulations of the financial industry, demonization of Wall Street change how we invest?

Will price patterns continue as they have been? Will large amounts of cash wash in and out of the market driven by changes in the Feds interest rates? Has fear replaced PE ratios? Are the wheels coming off of the cart or has the pendulum swung so far and we are coming back to historical patterns of investor behaviors?

I assert that increasing federal power over the markets and companies will be matched by increasing volatility of optimism and fear in the market place. As the source for producing value shifts from millions of individuals and companies who create employment to the federal government (who is taking responsibility for creating jobs) the market place will move in response to the trillion dollar gorilla. Industries can be created and destroyed, tax changes can shift billions of investing dollars, regulations can hobble growth and subsidies can create wealth that isn’t sustainable.

Whew…

I am staying optimistic and looking for opportunities created by our changing governmental responsibilities. So start thinking…what if…and then think, what are the consequences…what are the unintended consequences…and who benefits?

Blame it on the overgrown banks....

"Restarting Financial Reform" NY Times January 24, 2001.

Let me get this straight...our financial problems were caused by banks. Were these the same banks that were given billions in bailouts? Are these the same banks that gave the top donations to the Obama campaign? Are these the same banks that have their executives in the Obama administration?

"...an overgrown banking sector diverts resources from more productive uses and, in the process, amasses riches at the expense of everyone else. The entire country can see the evidence of that in stagnating wages, disappearing retirement savings, vanishing home equity and taxpayer-supported bonuses.

If you replace the word "banker" with "government" this paragraph now makes a lot of sense.

Remember, at the epicenter of the financial meltdown was the Fannie and Freddie institutions that were an extension of the federal government. Talk about being overgrown!

The banking industry is the most regulated industry in the United States. And the regulators failed.

One of the reasons the banking sector is overgrown is the implicit and explicit guarantees by the Federal Government. What if there were no deposit insurance? Or it was applied only to local banks? All of a sudden, we as depositors would be a lot more careful about where we parked our money. And I'll bet that the average investor would be a lot more smarter about this then the regulators.

With their anti-banking rhetoric, the administration should have let the banks fail.

Capitalism only works when it is disciplined by reality. The feds have removed that discipline years ago. And now the NY Times complains.

in reference to:

"an overgrown banking sector diverts resources from more productive uses and, in the process, amasses riches at the expense of everyone else. The entire country can see the evidence of that in stagnating wages, disappearing retirement savings, vanishing home equity and taxpayer-supported bonuses."
- Editorial - Restarting Financial Reform - NYTimes.com (view on Google Sidewiki)

Charles Blow thinks you are a mob....

"Mobs Rule" by Charles Blow NY Times January 22, 2010

Hear these words about people in our country....

gladiator
easily manipulated
shaped a mob
mob is fickle
feted the fearful
people are angry
they are frustrated
underestimated the mob

The picture that Mr. Blow paints is disdain for the intelligence and core values of the American people. They are so easily manipulated he believes.

President Obama "underestimated the mob."

What, he should have created more "bread and circuses" to keep them entertained?

May I suggest an alternative picture?

The mob isn't fickle. The mob isn't composed of zombies that are easily manipulated by right wing media. The mob isn't driven by emotions.

The vast majority of people in the United States simple want a government that isn't beholden to special interests (i.e. Unions) that is transparent (i.e. closed door health plan) that moves slowly and carefully with all parties participating when making major moves and that lives within its budget.

It isn't that the "mob" is fickle, the mob hasn't moved. It is simply disappointed that the Obama administration didn't live up to its promises.

I find this theme an undercurrent from most Washington politicians from both major parties. That is a disdain for the American people. They want to re-label common sense beliefs as extremist and mob activated.

It is the politicians that are disappointing. The American people haven't moved.

in reference to: Op-Ed Columnist - Mobs Rule - NYTimes.com (view on Google Sidewiki)

Gail Collins thinks Massachusetts voters are....

"The 10 Percent Rules" NY Times January 14, 2010

As the liberal democrats see the potential for a loss in the special election for Massachusetts' "Ted Kennedy" seat, it is fascinating to watch their thinking process.

Here we have a state has the highest percentage of voters who identify themselves as Democrats, a seat that has been reverentially dubbed as the "Ted Kennedy" seat, and a sweeping victory for the Democrats in the previous election.

It is unthinkable that this seat is in "Code Orange" for the dems.

But what do they do? Do they ask themselves what the voters are concerned about to make such a shift in their political alignment? Do they want to understand the fears, pains or hopes of these voters? Do they want to address concerns about the health care bill?

No.

They blame Martha Coakley's style. They make snippy comments about Brown's daughter. They blame the fact that Obama isn't getting anything done (which isn't his fault). It isn't that the democratic voters are unhappy with what he IS doing they assert, they are unhappy because he isn't doing ENOUGH!

The power of the pen is greatest when it gives us a view of reality, when it exposes us to a view of reality that we have missed.

Ms. Collins could increase her power by giving us insights into what is really going on with the voters. But hey, they may not square with myth they need so badly.

Oh...and the 10% statistics is a manufactured percentage that doesn't exist in reality.

in reference to: Op-Ed Columnist - The 10 Percent Rules - NYTimes.com (view on Google Sidewiki)

A government that uses its women productively

"The Happiest People" NY Times January 6, 2010

I am happy that the people in Costa Rica are happy. I am delighted that they don't have big military expenses. And, what could be better than creating educational opportunities?

It doesn't get much better than that.

But here is where a red flag went up. Most liberals see people as mere vassals that are there to contribute to the goals of government. But rarely do I see this expressed so directly.

"This allows Costa Rica to use its female population more productively than is true in most of the region."

Use its female population more productively?

Ouch. The arrogance.

Women in Costa Rica aren't there to be used more productively. By providing a peaceful country and opportunities, the individual women are able to make choices that make them happier. I love it when people can make choices that make them happy.

But the happiness does not stem from being productive for the state.

The underlying belief it takes to make this statement is chilling. Mr. Kristof...is this what you really meant?

in reference to:

"This allows Costa Rica to use its female population more productively than is true in most of the region."
- Op-Ed Columnist - The Happiest People - NYTimes.com (view on Google Sidewiki)

I actually agree with the NY Times on job creation

"This Year's Housing Crisis" NY Times January 4, 2010

I love the way this editorial throws out the phrase that "job creation should also be a priority..."

How do you create jobs?

Uh...the article fails to mention that, but I think we can assume it means a "jobs program."

What is a job? It is a productive endeavor that adds value to someone's life. If a job or business or entrepreneur does NOT add value to someone's life, that job, business or service cannot be sustained.

So the real question is, how do we as people add value to others? This means we need to create a product or service that is worth more than the money they pay for it. In other words, adding value.

To do this we have to understand was is of value to others, create a product or service that meets a need, communicate the value we have to offer to our target audience, deliver the product or service and then maintain the customer relationship. Sounds like standard business practice? Yes.

But how does the government create jobs?

It really isn't very good at any of the above. It is very good at taxing, creating permanent programs, spending and carving out political favors for its supporters.

So, how can the feds best create jobs? By getting out of the way of the above business process. Give us a stable low tax rate, reduce the byzantine regulatory structure that helps no one, stop sucking up all the capital for expansion with deficit spending and stop bailing out the ineffective businesses that deserve to go out of business. This is a good start.,

But somehow I don't think that this is what the NY Times means when it talks about job creation.

in reference to:

"Job creation should also be a priority so that rising unemployment does not cause more defaults."
- Editorial - This Year’s Housing Crisis - NYTimes.com (view on Google Sidewiki)

More oversight has solved our problems in the past...

"Lax Oversight Caused Crises, Bernanke Says" NY Times January 3, 2010

I would like to support Mr. Bernanke's contention that the problem for our economic woes was a lack of oversight. First let's define oversight.

Oversight: Management by overseeing the performance or operation of a person or group.

Ok, now let's look at examples of how oversight has been so very successful to help support Mr. Bernanke's assertion.

Hmmmm.....

Oh...yeah...Fannie Mae and Freddie Mac! Yes, they had direct oversight from Congress. In fact, they are quasi government agencies. And we all know that even though the private sector crashed, these agencies, with the most oversight of any other financial institution survived just fine.

What? Oh...you mean they didn't? Oh, my mistake. What was that? Congress had to bail out of these fine institutions with the most oversight and they caused the biggest problem? That the US taxpayer is responsible for unlimited losses? Now Congress is pushing Fannie Mae to make more sub-prime loans?

Ok, one example does not disprove Mr. Bernanke's example.

Let's move on...Medicare is actually run BY the government. Now that is as regulated as it gets and it is one of the most efficient organizations there is. You can't get more oversight than that!

What? No, that can't be. 25% of payments are fraudulent? Impossible! Inconceivable! But Congress has complete oversight! That can't be.

OK...let's go the other way. Let's look at an industry that is totally unregulated, run by greedy business people run amok. For example, the computer industry has hardly any regulation. What a failure!

What? The cost of computing power has shrunk by 1000s of times? Computers are as cheap as TVs? Your iPhone has 100s of times more computing power than put the man on the moon?

Ok, that may not be a good example either.

But that doesn't mean that he is wrong. Just because the most regulated industries tend to create the most problems, and the least regulated cause the least problems, doesn't mean Bernanke is wrong. It simply means that we don't have ENOUGH regulation. We have just taken half measures. We need to go all the way.

How about nationalizing the banks as suggested by Congressperson Maxine Waters?

in reference to: Bernanke Blames Weak Regulation for Financial Crisis - NYTimes.com (view on Google Sidewiki)