Streetwise

Lauren Rudd

Sunday, August 15, 2010

Country's Economic Health is Critical to Your Portfolio

It would appear that a contagion of economic hysteria has taken root, fostered primarily by ultra conservative politicians and media types who rant against virtually every effort by Congress and the Administration to ease the effects of the recession.

Why is this important to you? Because the country’s economic health is a critical part of any investment decision. Therefore, let me offer up a cornucopia of positions and myths that could affect your financial well-being.

The economic precipice we faced, and continue to face, is indisputable. Without the unprecedented actions orchestrated by the Federal Reserve, both past and present, the Great Depression of 1929 would be relegated to tea party status, no pun intended.

The current administration did not invent the budget deficit or the national debt. And while increasing both was distasteful, no other course of action was or is feasible, unless of course you have a penchant for bread lines and people with tin cups selling pencils on street corners.

Furthermore, let me once again remind you that not so long ago we had a budget surplus, one which was decimated by major tax cuts that primarily benefited the wealthy. Nonetheless, the myth that extending those tax cuts will somehow now aid Main Street continues unabated, despite the obvious fallacy of that supposition.

Meanwhile, Representative Paul Ryan, the supposed audacious poster child of new economic thought, has put forth his “Roadmap for America’s Future.” To hear Ryan tell it, the Congressional Budget Office confirmed that his plan would cut government expenditures in half by 2020.

Not exactly correct. The CBO merely provided an estimate of effect on the budget of Ryan’s program. The nonpartisan Tax Policy Center determined that tax revenues would also decrease by about $4 trillion, resulting in a deficit of $1.3 trillion. Oh, and by the way, Social Security and Medicare go away.

Don’t worry you say, there is no reason the elderly should spend their days idly enjoying their golden years when they could be spending them working at the Golden Arches, or greeting customers at Wal-Mart. No wait, I am afraid not. Those jobs are unlikely to be available.

According to the latest report from the College Board, we are number 12 out of 36 developed nations in the percentage of 25 to 34 year olds with college degrees. In other words, we are becoming a nation of idiots, entranced by the antics of the likes of Lindsay Lohan.

Not to be outdone, Levi Johnston, the onetime potential son-in-law of Sara Palin, is now running for mayor of Wasilla, Alaska, Following in Palin’s footsteps, Johnston is taking it a step further, he does not even have a high school degree. Maybe the job has educational reimbursement assistance.

At the other end of the spectrum, the upper echelons of political and economic life are doing their utmost to remain there. Those that are fighting the new health care reform programs in an effort to gain notoriety, say the battle is all about freedom. Excuse me; I think I am going to be sick.

The transgressions of AIG represent the pinnacle of poor oversight. Yet, the company complained recently in an SEC filing that the recently enacted controls on Wall Street will force it to raise capital, undergo stress testing and limit its bets on private equity and hedge funds, thereby adversely affecting both the way it conducts business and its earnings. Never mind the past requirement for $182 billion of taxpayer bailout funds.

So how does all this relate to your investment strategy? The answer is simple. Unrestricted access to markets with minimal competition and even less regulation will always lead to rising profit margins, higher share prices and a drug like euphoria for those with the resources to become shareholders.