How The Dow Jones Could Rise To 20,000

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Includes: AAPL, AMZN, BIDU, CMG, CVX, GOOG, HAL, HPQ, IBM, PBR, PFE, SLB, WMT, XOM
by: James Hartje

8 Reforms to Kick Start the Economy

There’s a lot of complaining these days, but very little constructive action. Occupy Wall Street seems to be driven by a hodgepodge of naïve dreamers and malcontents, but few constructive ideas. Our economy – and economic disparity – can never be fixed until we deal with the debt. We’ll never deal with the debt without dramatic reforms to stop underlying dysfunction in government and endemic wasteful spending. We cannot grow our way out of the debt. No credible forecast suggests that future rates of growth for the U.S. economy will be sufficient to close these deficits without significant changes to our fiscal policies – in particular entitlement programs that seem to run on autopilot. It’s a fundamental axiom that power corrupts. Systemic corruption throughout all levels of government needs to be countered with dramatic reforms, not window dressing reforms. True, effective reform that anticipates unintended consequences, not revolution and anarchy, should be the battle cry for Occupy Wall Street. Here are 8 reforms that need to be addressed if we are to have any hope of ever turning things around. I believe they would propel the Dow Jones to 20,000 and beyond. Three are budget related; one addresses legal reform; four deal with electoral issues that enable dysfunctional governance and corruption:

  1. Balanced Budget Amendment and Federal Budget Process Reform by passing the Honest Budget Act to end budgetary trickery. This was proposed by Senators Olympia Snowe and Jeff Sessions. (Google ‘Honest Budget Act’ to learn more.) By 2020, net interest payments costs will be more than 70% the size of the entire budget deficit!
  1. Tax Reform. Flat! Flat! Flat!
  1. Entitlement Reform. Focused on Medicare and Social Security – these are elephants in the room when it comes to consuming the bulk of our tax dollars. Washington spends almost $31,000 per household on entitlements. Social security and Medicare are on pace to crowd out spending on other programs.
  1. Term Limits. Term limits for ALL members of Congress and the Senate. There’s no empirical evidence supporting the notion that ‘experience in government/politics’ holds sway over the talents/experience of non-political representatives. I’ll take new blood any day over the hacks that would have us believe we need their expertise. How’s that expertise working for us so far?
  1. Campaign Finance Reform. Reform with ‘millionaire amendments’ that truly equalize campaigns and cannot be vulnerable to being overturned by the Supreme Court.
  1. Redistricting Reform. A nationwide reform based on California’s recent redistricting plan which aims to eliminate gerrymandering and non-competitive elections; this is one of the few things California actually got right.
  1. Lobbyist Reform. Let’s clean up Washington and eliminate the influence peddling of high-priced lobbyists. Current efforts at lobbying reform law are a sham. We need to start over with a clean slate and develop a law that has teeth and cannot be manipulated by politicians who have a vested interest in maintaining the status quo.
  1. Tort Reform. Aim at controlling frivolous malpractice lawsuits, excessive jury awards and eliminating the huge bureaucratic logjam in our justice system. Claims that tort reform would not reduce health care costs are patently false. How else do you explain that Americans can save 60%+ on health care insurance by simply assuming a non-U.S. residence, even though they continue to get healthcare in the U.S.? Blue-chip international health insurance companies know full well the huge costs wrought by an overly litigious America. Class action suits would remain, but much of the system needs to be completely overhauled with common sense reforms. This is not rocket science.

If I had to pick just one reform, it would be Balanced Budget Amendment & Federal Budget Process Reform; this would havea lasting and rippling effect throughout society and the global economy. Flat Tax Reform would probably deliver the fastest boost and likely send the markets soaring. Then there’s Entitlement Reform. Entitlements consume a large amount of government spending. ‘Entitlementitus’ is truly a cancer that’s killing America.

So how do we capitalize off of the Dow Jones soaring to 20,000? We believe the energy sector will benefit greatly, Haliburton (NYSE:HAL), Schlumberger (NYSE:SLB), Petrobras,(NYSE:PBR), Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM). Large-cap tech stocks are another strong bet: Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Baidu (NASDAQ:BIDU) Hewlett-Packard (NYSE:HPQ), IBM (NYSE:IBM) and Amazon (NASDAQ:AMZN). Other long-term bets would be Chipotle (NYSE:CMG), Pfizer
 (NYSE:PFE), and Wal-Mart (NYSE:WMT).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.