The Greatest Threat to Your Portfolio Is Not the Economy

Original post

Equity investors always face various economic threats.

These include higher interest rates, rising labor costs, negative currency fluctuations, expensive energy costs and the next recession.

Any of these can result in lower corporate profits and sinking stock prices.

Yet the biggest threat facing investors today is something else entirely: anti-business legislation and confiscatory policies promoted by populist politicians on both the left and right.

I call it “the coming war on investors.” And if “war” sounds like too strong a word, consider the following:

  • Last month Gallup reported Americans aged 18 to 29 are more positive about socialism (51%) than about capitalism (45%), the greatest wealth creator and anti-poverty program ever devised.
  • It’s tempting to chalk this up to youth and lack of education. Yet Gallup also found, for the first time ever, Democrats similarly have a more positive image of socialism than capitalism. (Fifty-seven percent view socialism positively. Only 47% view capitalism favorably.)
  • Even 16% of Republicans polled prefer socialism to capitalism.

No doubt these attitudes are due, in part, to the financial crisis a decade ago and the Great Recession that followed.

That put a significant dent in American household net worth – and understandably generated more than a little anger.

Yet the politicians responsible for the crisis successfully deflected that anger – with the help of the mainstream media – by promoting the narrative that it was caused by “corporate greed” when the real culprit was government ineptitude. (For details, read my column “Get Rich… By Knowing the Real Truth About Wall Street.”)

The next time you hear someone ask, “Why didn’t any Wall Street bigwigs go to jail?” tell them that a far better question – once you know the basic facts – is “Why didn’t any politicians or regulators go to jail?”

After all, they created and oversaw the laws that encouraged subprime lending, permitted no-money-down mortgages, allowed rating agencies to bless toxic securities with AAA ratings, and sponsored Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC) – two quasi-government agencies – to warehouse the crummy loans.

Then they put taxpayers on the hook to clean up the mess – and blamed it on Wall Street.

The fictitious counternarrative conveniently absolves their gross political incompetence and shifts the blame to Wall Street.

Polls show most Americans just aren’t buying it. They’re demanding politicians stand up to powerful corporate interests.

Even successful technology companies – from Apple (Nasdaq: AAPL) to Amazon (Nasdaq: AMZN) to Google’s parent, Alphabet (Nasdaq: GOOG) – now face intense regulatory pressure from Washington. (In case you’re wondering why their share prices have been sinking lately.)

This is odd when you think about it.

People are in love with their iPhones and MacBooks. The 95 million Americans with Amazon Prime are delighted with the company’s wide selection, low prices and quick delivery.

And if you’re unhappy with your search results on Google, you can use Bing, Yahoo, Ask, AOL or one of the many other free search engines.

So why are nearly two-thirds of all search queries in the U.S. conducted on Google? Not because they are required or coerced. Internet users prefer Google.

Only in the Alice-in-Wonderland world of Washington can happy consumers making voluntary transactions with the ability to switch at any time be portrayed as victims requiring government interference.

Make no mistake. That interference will negatively impact corporate sales and earnings – and reduce the investment returns of shareholders.

In short, populist politicians and unelected regulators are bearing down on successful, customer-centric companies… and the folks like you who invest in them.

In my next few columns, we’ll talk more about how and why – and what you can do to minimize the damage.

Good investing,

Alex