Populism, What Is It?

Populism is a political doctrine. The short, take home point, is that in populism a person or group sides with the people against the elite. Dictators used this approach to take over Germany and Italy and bring about World War II. In India and Latin America the same doctrine brought strong men into power. The widespread result of these movements is typically the loss of political freedom and the consolidation of power in the hands of a new elite. The strongest example is Communism as seen in the world of today. Although Marx envisioned a world of fairness to the worker, witness the huge amount of wealth amassed by the Communist Party elite in China and the power and privilege of the Russian commissars before the collapse of the USSR. If one believes that free enterprise, capitalism, and democracy go hand in hand then one comes to the conclusion that populism when it gains final control falls into the hands of scoundrels and defeats its stated purpose. Will populism kill the American economy? Could be if things go too far.

Fundamental Analysis of Investments

Basic to successful investing is the ability to analyze the fundamentals. One considers the forward looking income stream of a stock, its intrinsic value. If intrinsic value is more than current value a smart long term investor buys the stocks. If the reverse is the case he sells or simply does not buy. Will populism in the person of a debt default kill the American economy? Smart investors will likely sit on the sidelines instead of risking their money in uncertain markets. If a debt default occurs the rating of US debt will fall precipitously making it much more expensive for the USA to borrow through Treasury bond sales. This will raise the cost of servicing the US debt at a time when Tea Party populists claim that their goal is to reduce the burden of US debt. The concern of many investors is that debt and growth are inversely related. The nation needs to get a handle on its spending but it needs to do so in a rational manner. Will populism kill the American economy? An old saying is that if good men do nothing evil prevails. In this case the evil may simply be pig headedness and stupidity but the result might be the same with a terrible depression worse than that of the 1930s. That would be the killing of the American economy!

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What Taxes Might Go Up?

Any further raising of personal income taxes is probably a non-starter this year. The Republicans gave as much as they cared to in recent negotiations and the Democrats carried the day with the promise not to put any more burdens on the average Joe. However, user fees can always go up. Tax deductions can always be modified. And government incentive programs could go away. In the days after the onset of the Great Recession of 2008 and forward the USA poured a huge amount of national wealth into programs to create jobs, prop up banks and other failing businesses, and even print money to buy Treasury bills to drive down interest rates. There may come the day when all of these methods of helping the economy and getting votes may be beyond the ability of the nation to pay. Picking new winners may simply have to do with finding companies that make money because they make good products and do so efficiently.

Cut Social Programs or the Military

It is unlikely that Social Security and the rest will go away but a slowdown in cost of living adjustments may well be in order. This simply puts less money back into the economy and results in a general slowdown. Cutting how much Medicare payments could hurt HMO’s and their stock prices. A cutback in military spending could hit hard at new high tech efforts to keep ahead of the Russians, Chinese, Indians, etc. and drive down stocks across the board in that sector.

Where is the Dollar Headed?

The government can always print money. They seem to be doing so as part of the Bernanke Doctrine. This may have been what kept us out of a worse fiscal mess than might have happened. It is a great way to pay off national bills. And it may simply drive the dollar lower and make offshore investments more attractive. Investing in foreign stocks may be the answer to investing for a tighter budget in the USA.

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