John Galt Speaks Through SeekingAlpha
It should surprise no readers of Seeking Alpha that we have been toiling in a Brave New World of Investing, since approximately this time last year. To mix my historical fictional novel metaphors, Atlas is certainly shrugging. Whatever rules you liked to employ, whatever worked for you in the past were most likely tied at least somewhat to the assumption that we have free, or mostly free markets, that at its core the ability of a company to develop unique products or services with a competitive edge and a superior business model would result in the reward of an increasing stock price. And the search for those (or shorting the ones that had tripped up) has always been exciting. But we now exist in a world that was previously unimaginable; the world of Investing in the era of Obamanomics - and I contend that if you attempt to utilize classical methods of financial analysis whether technical or fundamental or some mix thereof, without tempering your strategy by acknowledging the new surreal - you will surely fail, and all attempts at such analyses in this and similar forums should be met with frowning cynicism at the very least..
As a financial professional for more than 15 years, I have loved the process of analyzing company fundamentals and technicals to test my skills and intuition at picking winners. Strangely thrilled at pouring over balance sheets, searching through novel business approaches with the same excitement as panning for gold. But for more than a year now, I have been living in some sort of weird, parallel universe. Episodes of the Twighlight Zone keep running through my head as I have tried to employ the techniques that worked so well for me over the years all the while knowing I am only trying to fool myself.
Shocked into awareness, I realized last fall while under the Bush administration, that with Henry Paulsen's moves to rescue his old firm from a potentially devastating exposure to AIG's failure utilizing taxpayer dollars we were stepping into bizzaro-world. (In fact, the seeds of this transformation, along with the lurching toward socialism have been taking root for years now.) The "tentative" steps taken by Bush and Paulsen toward statism have been passionately embraced by Barack Obama,- his administration storm troopers have shrewdly recognized this combination of corporate-government as the means to consolidating ultimate power over the United States economy, over our individual lives, and over the ultimate direction of the country we once knew. They also know that expediency is the key to their successful overthrow of our unique American Democracy, as we Americans can be rather slow to be stirred to action. A further and perhaps even more insidious impact on investment strategies and portfolios is the creation by BHO of a shadow government run by "Czars" with real authority to enact policy and impact markets with no congressional oversight. It really is a remarkable and perhaps complete coup, and my friends, it is the world we live in.
Proposal: 'Open Source' development of Investment Methodology in the "New Real" of Obamanomics
Thinking, surviving investors need to create a realistic strategy for investing in the Obamanomics era. Analyses in this forum that simply employ traditional methodologies makes as much sense to me as continuing to use 'flat earth' maps once we've discovered the earth is (mostly) actually round.
This blog, SeekingAlpha, I think, provides an incredible medium for the voice and vision of a "John Galt"-type, open-source response to the Obamanization of our government and markets. There are a number of bright (and perhaps some slightly less-bright) and independent voices in this community. It may be for instance that classic fundamental or technical analyses serve some purpose, but as we well know, the prevailing regulations allow for all kinds of balance sheet manipulation and 'shadow markets' where large transactions are hidden from the investing public. It is, I think, foolish not to be aware of deliberate collusion between corporations and government. Can you really consider investing in GE nowadays without an awareness of its support through its broadcasting arms of the Obama administration, its vested-interest support of cap and tax? Can we really analyze an investment in Goldman Sacks on the mere basis of a blowout quarter without considering the intricate interconnections between that firm and the officials in the highest positions of government? Is it possible to make a valid stock pick without having looked first at the companies political contributions and connections? I posted on my own site recently, for instance, that the appointment of Obama's health care Czar Nancy Ann DeParle was certainly more significant than his figurehead cabinet secretary of HHS. With DeParle's industry connections, it is likely foolish to ponder whether one health care provider versus another is superior without considering both companies connection to the Czar. While on the board with Cerner, for example, she received $471,000 in compensation. With Obama's emphasis on medical record technology, what company do you suppose will have an edge grabbing that particular piece of the Obama health care pie? (I have no positions in GE, GS, or CERN, nor do I in any way recommend them; they were used as illustrations only).
We have always been aware that among the risks to an investment portfolio is political risk. It is just that now, that risk, I argue, is THE single most important and impactful factor in assessing overall portfolio risk. We can wish that it were not so, and mourn the loss of our free market representative republic. Or we can accept that this is the world we live in for now, and figure out how best to develop realistic strategies that employ what remaining usefulness there is in classical fundamental and technical analysis, and combine those with new methodologies.
Invitation. I suggest we, as a community, begin to formalize a new 'modern portfolio theory', supported with quantified models and methods. We can all struggle, as most of us have, individually to come to grips with the new surreal. Or we can pool our ideas and develop a more formalized matrix of variables for assessing investment opportunities and threats in the new age of Obamanomics. I expect I am not alone in my assessment of our situation, and I hope you will feel encouraged to join in and continue this discussion, and add both your insights and analytical suggestions as we attempt to create (a la Linux) our own Open Source Investing code.