The Damn Will Break Soon

Charles Payne
Posted: Nov 09, 2012 12:01 AM

For the market, Obama's re-election means relying on cheap money and overseas growth as the best underpinnings for higher stock prices.

Sure, the domestic economy is positioned to move higher, but I think it will stumble along, and in fact, could crash from political squabbling and doubling down on policies too harsh on success. Looking at the roots of the economy, small businesses and entrepreneurship, you see them drying up fast. People are not starting businesses, small businesses that are already going concerns can't raise money, and the damn will break soon releasing more rules and regulations and taxes.

I have to believe in America even as I must admit to being crestfallen. Have you ever gotten to an event like a party late and all the good stuff was gone? I've met only a few more people in my life smarter than my father and yet he had more hurdles toward getting more out of the American Dream than I did and I suspect fewer than his father did. But there still are hurdles yet why should I keep trying to clear them? 90% of millionaires in this nation are self-made where's the incentive for people to take chances anymore?

It's not a great feeling to get to the finish line and find out those that put out less effort are already their eating what you thought would be your cake. You take the long and winding road by leaping these hurdles and as you approach the finish line you hear loud music. There is no celebration for you. In fact, there's only scorn and harsh stares. For me personally it is bewildering. I'm one of those people President Obama should know played by the rules, put in the extra work (ten years without a vacation) and feel like a sucker. I make good money but it's like pennies to Warren Buffett, yet over the next four years its possible I could pay more than 60% in taxes.

I like to achieve and it is more than money for me, so I'll keep pushing, but how many people out there will simply quit or never try. The answer is millions because that's already the trend.

There are two dynamics now.

Strong American companies with money and know-how versus a government that wants to take that money and muffle that know-how. It's not going to happen overnight, but the chipping away has already begun. The EPA has crushed coal and jobs, and the NLRB has intimidated companies with the hint of forced unionization, and businesses have responded by hoarding cash, hiking dividends, and repurchasing stock. In other words, given a choice on what to do with cash, management teams have decided major investments would have limited returns in a poor economy coupled with higher taxes.

Investment Proposition

We've seen over the past four years that the stock market can move higher even in the face of hostility toward capitalism. A lot has to do with valuation - it is obvious the market was oversold in March 2009 - for individual stocks, many are so cheap using a variety of popular and esoteric metrics. But, value can stay hidden and unrealized for a long time. I've seen so many stocks I gave up on zoom to amazing heights over a period of time I wasn't willing to deal with. We are looking for value but dealing with the frustration of waiting for stocks to blossom.

An uncompassionate market makes mistakes deadlier than before. The rally has gotten to the point where celebrating mediocrity isn't good enough anymore. Moreover, the market is breaking out a sledgehammer for even the slightest disappointment.

The good news is this environment creates opportunity but it also means getting scuffed up from time to time.

In the meantime, I suspect the economy will bump along with flaccid growth like this morning's jobs opening report (hiring is breaking down while firing is increasing). The Wall Street game of expectations could mitigate economic news but those games only buy or waste time depending on your point of view.

Immediate Action

We are going to raise cash ahead of the fiscal cliff debacle and will have a special focus on American companies with big global footprint. There will also be areas of opportunity that may seem illogical until you consider value and longer term risk/reward - not unlike March 2009.

The last thing you want to do is sink your head in the sand and sit out the next four years. Lots of people did that back in March 2009 and regret it (or will as they get closer to retirement age). Of course, millions actually sold back then and never came back putting themselves in a hole that could take decades to recover (I wouldn't say catch up) which means going through many presidents.