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Philip Mause
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My name is Phil Mause. I am a Senior Advisor with the Pacific Economics Group, focusing on energy, regulatory and valuation issues. I retired from 40 years of law practice earlier this year. I am a yield oriented investor and in the last two years, I have done reasonably well in junk bonds,... More
  • The Investor Manifesto 0 comments
    Sep 25, 2011 1:05 AM | about stocks: T, VZ, MSFT, JNJ, INTC
       When I'm not busy reviewing my portfolio, writing articles or taking sedatives and antidepressants, I try to do "what if?" thought experiments.  My latest involves Karl Marx.  What would he be up to right now?  His wife sarcastically commented that they would have been much better off if he had spent more time accumulating and investing "Das Kapital" rather than writing about it; so, I don't think he would be rich.  I picture him as in his early 70s living on the Gulf Coast, maybe near Clearwater(Miami would be a little risky given Castro's self-identification as a "Marxist") eking out a living on his investments and trying to squeeze yield out of a shrinking portfolio. One thing I know for sure.  He was a colorful writer and once the writing bug bites you, you are infected for life.  So he would still be turning stuff out.  Here is my modest guess at what a recent opus of his might look like:

      "The financial capitals of the World are haunted by a spectre - the spectre of investor revolt.  The events of the last 3 years - the sell off in stocks, the retreat to Treasuries, the massive investment in gold - can best be understood as a violent General Strike on the part of investors.  The financial markets - at one time organized to serve the capitalist system and provide financing for the expansion of production -  have become a corrupt casino serving only the interests of a privileged class - the financial "professionals".  This has produced a massive malignant tumor on the body of society funding the excesses of its new Masters. This New Class has seized control of the levers of governmental power and is marshalling all its resources to terrorize investors into its risky products by creating negative real returns on safe investments.  
      "Like the Czarist armies employed by Europe's monarchs in 1848, the Central Bankers have rallied behind the New Class to further its objectives.  The goal of the financiers is to expropriate an ever larger share of society's wealth and resources through manipulative financial arrangements - enticing investors with illusory returns supercharged with leverage so that all losses are borne by taxpayers and all gains are in the hands of financiers.  The penultimate stage of this insanity is the creation of a financial doomsday machine in the form of computerized trading which has already spun out of control and could go an a rampage like a financial Frankenstein's Monster devouring its creators and hordes of hapless bystanders. The inevitable outcome will be the destruction of the economy as the New Class of financiers desperately competes with itself to earn higher and higher returns in a world with a shrinking real economy by employing greater and greater amounts of leverage culminating in a catastrophic collapse. 
       "All history is simply an ever evolving pattern of class warfare - master and slave, lord and serf, manager and worker and now financial "professional" and investor. Each successive dominant class is relentless in its efforts to displace its predecessor and the financial class has reduced the bourgeoisie to an inconvenient appendage to its trading schemes, with corporate managers enslaved to a pattern of quarterly conference calls.  Just as the landed gentry disappeared into quaint irrelevance during the capitalist era, so too the "captains of industry" have become mere handmaidens to Wall Street, their companies mere vehicles for elaborate and corrupt "trading strategies" designed to fleece investors.
      "Investors - people who invest their own money - have initially lacked class consciousness and have been subject to manipulation by the financial class. But the events of the past 3 years, together with the emergence of Baby Boomers dependent on retirement savings for income in an ever lengthening period of senescence is creating the tinder for the creation of a Class Conflagration.  The increasingly arrogant behavior of the financial class and its minions in the government will become the gasoline that will turn the fire into an explosion.
     "Because the stakes are so high, investors must organize around a set of principles designed to insure that after the crisis passes, their interests are protected.  All investors - Liberal or Conservative, Republican or Democrat, -  should vote for candidates for public office and vote for directors of corporations based upon pledged adherence to the following principles:
      1. The most essential principle is that corporations and their profits are the property of their owners - the shareholders - and not of their directors, their managers, the government or "society."  In the normal course of events, profits and cash flow in excess of amounts necessary for debt service, reasonable expansion, acquisitions approved by the shareholders, and reasonable contingencies should be returned to the shareholders in the form of dividends.  
      2. The tax on dividends should be completely and permanently abolished.  This tax is a form of double taxation and sticks the government's hand in the investors pocket.
     3. Compensation of corporate executives should be limited to $1 million per year cash and benefits plus stock options exercisable at the price of the stock on the date the option is granted with an exercise date of no more than 3 years after such date.  Stock option profits shall be subject to a 10 year claw back in the event fraud or malfeasance is discovered.  We should no longer be lavishing massive amounts of money on executives for running companies into the ground.  Lehman could have managed to go bankrupt without Mr. Fuld's unique and expensive expertise. 
     4.  All government agencies charged with financial regulation shall adopt conflict of interest rules prohibiting employment in the regulated industry for 5 years before and after employment with the agency.  
     5. The majority of the membership of all commissions and regulatory bodies charged with financial regulation shall consist of individuals whose sole involvement in financial markets is the investment of their own money.
     6. Capital gains taxes and corporate income taxes should be totally and permanently abolished.  A tax on financial transactions shall be enacted to offset any reduction in revenue due to the abolishment of the corporate income tax and the capital gains tax. 
     7. The Securities and Exchange Commission shall be required to administer periodic IQ tests to its commissioners and management and professional personnel with a goal of achieving an average agency-wide IQ of at least 90 by 2014. In recognition of the difficulty of achieving this goal, the SEC shall be given special permission to increase its size by hiring high IQ individuals for the next two years.   
      "The Investor Class must organize itself around these principles and take control of its destiny.  Investor Communes will spring up and bypass financial institutions in providing options to investors and funding to businesses.  The reaction of the financial class will likely be violent and it will employ the government which is largely its puppet to stifle any revolt.  But its self destructive tendencies will create increasingly unmanageable crises which will set the stage for the emergence of a better world in which investors are given full disclosure and companies are operated in the interests of their owners  
      "Investors of the World unite!  You have nothing to lose but cold calls, hidden fees, research corrupted by conflicts of interest and manipulated markets.  You have the whole World to gain."  

      If this resonates with you and your friends, it may suggest a new subterranean fault line in American politics.  It would also suggest that 'dividend mania" is taking hold and its not a bad time to pile into reliable, financially strong dividend paying stocks like AT&T(NYSE:T), Verizon(NYSE:VZ), Microsoft(NASDAQ:MSFT), Johnson & Johnson(NYSE:JNJ), and Intel(NASDAQ:INTC).           

    Disclosure: I am long T, VZ, MSFT, JNJ, INTC.
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