Politics and Investing

So, I got the following comment from a reader.

“the blog was not about politics before and now after the election you take shots at the new admin, so you starting to dilute your blog focus, which I thought was about undervalued companies and business.

As a reader i am not really interested in your political views, actually I am not interested in politics at all. so you can choose to continue to obsess about obama and whatever and I choose to stop visiting and reading.”

Where to start? How about a quiz.

– Can anyone name the largest investor in US financial companies?
– Can anyone name the entity that forced shareholder dilution on US banks?
– Can anyone name the entity that has control of the US mortgage market?
– Can anyone name the entity that arbitrarily changed the basic rules of investing when it banned short selling, first in financials them a gamut of US businesses?
– Can anyone name the institution, that had it’s “bailout fund” been classified as a “Sovereign Wealth Fund” would be the world largest?

The answer to all of the above is the US government.

At no time in my adult life has the day to day action of the US Government had so much effect on investors. Perhaps one could argue the election of Ronald Reagan in 1980, but since I was 12 then, we’ll omit that. The reason politics rarely entered the conversation here before was that politics before had very little effect on it content.

I can understand and enjoy hearing differing views, but to ignore Washington now as a investor is to do so at your own risk. Shareholders of Fannie, (FNM), Freddie (FRE), and AIG (AIG) held by some of the greatest investor of all time and at the time called “undervalued” were wiped out by the actions of the US gov’t.

I’m not sure I have been anything but vicious in my criticism of Bush appointee SEC Commissioner Chris Cox and have begged Treasury Secretary Paulson to take a “time out” and have criticized the current bank injection plan. I have even come off my earlier in the year support of Ben Bernake and said he is trying too many things right now. All these folks are product of the current administration. In that respect, my criticism easily crosses political party lines.

The reader says I “take shots the new administration”. Not really. I have repeatedly trashed the media’s lap dog mentality to it. As a rule if the media in mass love something, I immediately become skeptical about it. For proof one need only go back the first press conference as President Elect. We were subject to hard hitting questions like “what kind of dog will you get”, “what book are you reading”, “where will your kids go to school”. Really? That is the best you got?

The world stands on the edge of global recession and we are wondering if Obama will get a beagle or a lab? Really?

My fear of the current administration is that we know nothing about what they will do. Why? The media did a pathetic job getting answers. Even Tom Brokaw admitted post election “I don’t know” in response to a question about what Obama will do now elected. Isn’t that their job in its most basic element, to find out?

If anyone read the Sunday papers this week they were full of articles guessing about what Obama will do. Guessing…Again, at no time in my adult life have these questions been asked AFTER and election. We knew where Clinton was going and we certainly knew what GW was going to do.

The reader then says I “obsess about Obama”. We’ll, he is the new President. He will be for the next 4 years. I think by default that requires he be top of the list? I will give Obama credit for one thing, he managed to be elected President without anyone really knowing what his plans are. Kudos..

What we do know is based on Barack’s record and his words. From that we know he has never voted for a tax cuts, has had a floating “tax increase” income target and wants to spend $1 trillion more . Other than that, nada. We have some grand plans but, thank to the media, we have scant, if any details.

At least in the 1980 election Reagan had been Governor of California so people had a good idea of his plans based on how he had previously governed. That and the media then at least asked him for specifics. The media was right about one thing in this election though. This is perhaps the most important election in a generation. I just wish they had attempted to give us the information necessary to make an informed decision.

For any investor to ignore politics today is to do so at their own peril. Does anyone think shareholders of Ford (F) or GM (GM) are not wondering if the gov’t will step in, and if they do if their shares will become worthless? Does anyone really think that based on the AIG, Freddie, Fannie episode anyone thinking about buying shares is not standing by waiting to see what the gov’t is going to do first?

Need value investors look any further that Friday’s press conference to see Berkshire’s (BRK.A) Warren Buffett standing onstage for proof that the political climate has the interest in and is of primary importance to investors of all types?

One could easily argue and be correct in saying that Bush 1, Clinton and Bush 2 (until 2008) only had an effect on the fringes of the economics of the country as none faced anything like what is in front of us today.

Today we are embarking on re-writing the basics of our economic and regulatory framework that has been in place for almost 80 years. We are also doing so with an incoming administration we know very little about at a time when things will have to be done rapidly. Does anyone think the rules the banking system follows are going to be the same at this time next year? Me either. If you don’t know what the rules will be next year, how can you value and entire sector of the economy?

Do I want Obama to succeed? Of course. His failure will be all investors and America’s failure. A Carter-like Presidency from Obama is bad for all of us and no one wants that (at least not here). That being said I am not going to sit back and say that a “new day has dawned” or the “world is better today” because we have a new leader who can give a hell of a speech. For the record, had McCain won I would be saying the same thing. Changing the driver does not mean the car works better right away.

I have not commented on Obama’s foreign policy or social programs, their effect on investing in general is negligible. I do get nervous when his people use words like “rule” to describe his readiness though..

Has anyone seen or heard a politician talk recently without them using the words “Wall St.”? Why should we as investors ignore Washington when clearly they are focused on us?

I can’t think of how it would be anything but irresponsible to ignore it and the effect it will have on investing going forward in the blog. If you disagree, feel free to talk about it in the comments section but to ignore the political landscape today I think may be costly..

Disclosure (“none” means no position):None
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