One of the most important things that you will read about investing in 2009 and beyond
I am in the middle of reading a surprisingly reasonable, less over-the-top than I had expected book on the current credit crisis titled “The Trillion Dollar Meltdown” by Charles R. Morris. It provides a great overview of the current mess that we find ourselves in. That’s not exactly why I am bringing it up though.
Many books have a single passage that makes them worth the price of admission so to speak. I think that I just found the one for this book. Towards the end the author brought up a theory on politics that I have been thinking a lot about lately, the inevitable shift from an extremely conservative to an extremely liberal U.S. government. The following passage sums up the theory beautifully:
“A less apocalyptic reading is that we are witnessing the final days of another quarter-century political/ideological cycle – the last gaspings of the raw-market, Chicago-school brand of financial capitalism that moved into the vacuum created by the 1970s collapse of the Keynesian / liberal paradigm. As I write this in the fall of 2007, comparisons of current events to the debacle of the late 1970s are popping up regularly in the daily press.
The great historian Arthur M. Schlesinger Sr., father of the late historian and liberal pundit, may have been the first to suggest the existence of such cycles, and attributed them to a kind of Gresham’s law of political motivation. Any shift of power in America requires building large coalitions, and the best people in the camps of both conservatives and liberals - or radicals in Schlesinger’s terminology - “find themselves in bad company…
Political cycles turn when an extended period of either conservative or liberal hegemony brings the baser, more self-seeking, or barmiest elements to the fore. The market and regulatory reforms introduced by economic and monetary conservatives in the 1980s, I believe, made a major contribution to the recovery of American competitiveness and economic energy in the 1980s and 1990s. But as the more unsavory impulses in the conservative understanding have asserted themselves, the country has been brought to the brink of financial, economic, and in politics, moral disaster. All the signs are that we are on the cusp of turning the cycle, much like that in 1980.”
In short, our country operates on a political cycle that swings back and forth from conservative to liberal…liberal to conservative every twenty-five or so years. If this is indeed the case, and I personally believe it is, it makes sense to think of what sectors will benefit from a more Democratic, liberal U.S. government. I suspect that anything related to domestic infrastructure and clean energy will do well. This is one of the reasons why I have purchased stakes in two power companies, FPL and EXC, that have the lowest carbon footprints. I am also starting to look at domestic infrastructure plays.
I also suspect that an Obama administration will continue to embrace corn ethanol, partly because it is “clean” (HAHAHA) and mainly because he is in bed with the ethanol producers. Whatever the reason, if the next administration sticks to the current ethanol blending targets, the price of corn and in turn most crops will continue to rise. This will continue to benefit companies in the ag sector, like farm equipment manufacturers, seed companies, fertilizer companies, etc…
I used to consider myself a Republican, but I personally do not identify with either party right now so this isn’t a political editorial on who should be elected or what the current administration has done wrong. I am merely trying to predict what will happen politically in the United States and figure out how to use it to my advantage in investing. Investors who think ahead and get a head start at positioning their portfolios to benefit from the new domestic trends that will likely surface in 2009 and beyond will benefit immensely.