Welcome to the first post from Investment Irregular, so called because we will print only when we have something new (and hopefully interesting) to say. There will be no fixed schedule.
It has been said that one of the keys to investment success is finding the item in the newspaper on page 16 that will be on page 1 six months from now. The following are big picture questions that we think about in addition to what stocks are attractive and how healthy is the market. Some of these will end up on page 1.
- There is increasing evidence that the limits of the Welfare State have been reached, not only in the US but all major western countries. Existing promises (entitlements) cannot be met with the current tax system even if taxes are raised. What are the investment implications?
- A value added tax (VAT) which is used in Europe to fund the welfare state may be necessary in the US if entitlements are to be funded, although the Obama Administration denies any interest in a VAT. This would be a highly regressive tax which would raise a substantial amount of money from the 47% of the public who currently pay no federal income taxes. What are the investment implications?
- The rapidly growing economies of China, India and Southeast Asia have created extraordinary demand for many commodities. Is this demand sustainable and what are the investment implications?
- The current severe recession has exposed dangerous and unsustainable debt on the balance sheets of individuals, municipalities and states. Clearly an effort must be made to reduce this debt. What are the investment implications?
- The current recession is bad enough to fit what our grandparents would call "hard times." There is some evidence that it is producing a behavioral change in consumers. There seems to be a greater willingness to save rather than spend and a new appreciation of risk. Are these changes permanent and what are the investment implications?
- In spite of the recession, the balance sheets of major US corporations are in good shape. Cash is at an all time high. Corporate earnings have been generally healthy. It is possible that major US companies have learned to cope with a recession in their home country through aggressive lay offs, substitution of capital for labor and concentration on those Southeast Asian countries where growth is robust. What are the investment implications?
These are all questions. No answers. Nor does this exhaust the list of interesting and important questions for an investor today. We will use the Investment Irregular to explore answers to some of the questions. Stay tuned.
