Best of the Week
Most Popular
1.UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - Nadeem_Walayat
2.Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - James_Quinn
3.UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - Nadeem_Walayat
4.Billionaire Investors Backing A Marijuana Boom In 2017 - OilPrice_Com
5.Emerging Markets & Basic Materials Stocks Breaking Out Together - Rambus_Chartology
6.Global Currency Reserve At Risk - Jim_Willie_CB
7.Gold and Silver: Your Stomach Is Probably Wrenching Right Now - The_Gold_Report
8.Warning: The Fed Is Preparing to Crash the Financial System Again - Graham_Summers
9.Basic Materials and Commodities Analysis and Trend Forecasts - Rambus_Chartology
10.Discover Why A Major American Revolution Is Brewing - Harry_Dent
Last 7 days
4 Insights for Adjusting Your Portfolio in a Rate-hike Environment - 19th Aug 17
Gold Direction Indicator - 19th Aug 17
Historical Inevitability and Gold and Silver Ownership - 19th Aug 17
You Are Being Lied To About “Low” Gold Demand - 19th Aug 17
This is Why Cocoa's Crash Was a Perfect Setup - 19th Aug 17
Gold, Silver Consolidate On Last Weeks Gains, Palladium Surges 36% YTD To 16 Year High - 19th Aug 17
North Korea Is Far From Being Irrational… It Has A Plan - 18th Aug 17
US Civil War - FUNCTIONAL ILLITERATES TRYING TO ERASE HISTORY - 18th Aug 17
Bitcoin Hits New All-Time High Over $4,400 As It Catches Paypal In Total Market Cap - 17th Aug 17
3 Psychological Ingredients behind Great Web Content - 17th Aug 17
The War on Cash - Rogoff, Orwell and Kafka - 17th Aug 17
The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - 16th Aug 17
Stocks, Bonds, Interest Rates, and Serbia, Camp Kotok 2017 - 16th Aug 17
U.S. Stock Market: Sunrise ... Sunset - 16th Aug 17
The Next Tech Crash Could Delay Your Retirement by a Decade - 15th Aug 17
Gold and Silver Precious Metals Nearing Breakout - 15th Aug 17
North Korea Showdown: Pivotal Market Turning Point - 15th Aug 17
Tech Stocks DOT COM Bubble Do-Over? - 14th Aug 17
Deep State Conspiracy or Chaos - 14th Aug 17
From the Trans-Atlantic Axis and the Trans-Asian Axis - 14th Aug 17
Stock Market Intermediate Correction Underway - 14th Aug 17
The Islamic State Jihadi Pivot to Asia - 13th Aug 17
Potential Pivots Upcoming for Stocks and Gold - 13th Aug 17
North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - 12th Aug 17
Gold Stocks Coiled Spring - 12th Aug 17
Neil Howe: The Amazon-Walmart Rivalry Will Determine the Future of Retail - 12th Aug 17
How to Alton Towers Half Price Discount Entry 2017 and 2018, Any Time, No Pre-Booking! - 12th Aug 17
Top 3 Technical Trading Tools Part 2: Relative Strength Index (RSI) - 11th Aug 17
What Makes Women Better Investors - 11th Aug 17
Crude Oil Price Precious Metals Link in August - 11th Aug 17
Influencer Marketing Predictions All Businesses Should Take Into Account - 11th Aug 17
Really Bad Ideas - Government Debt Isn’t Actually Debt - 10th Aug 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Machine Gun Economics

Politics / US Politics Feb 25, 2013 - 06:46 PM GMT

By: Investment_U

Politics

Andrew Snyder writes: The soldier’s hands never moved from the butt of the machine gun as his patrol slowly passed by. And yet nobody in the camo-clad group would make eye contact with me. It was a sign their duty was symbolic – true killers wouldn’t mind the life behind a person’s eyes; they only see a target.

But the patrol did its job. As the soldiers drove off into the dusty Mexican countryside, I was intimidated. I knew the government controlled the streets. And somebody was willing to kill to keep it that way.


The episode in Mexico last week brought the same emotions trudging through my head that I felt during a research tour through Argentina last year. But down there, the killers don’t roam the streets. They take political office.

Argentina’s oh-so-socialist leader Cristina Fernández de Kirchner turned 60 on Tuesday. We bid her a feliz cumpleaños, but we question how many candles to put on the cake. Using the same home-baked equation her government uses to gauge the national inflation rate, Kirchner becomes the world’s most powerful five-year-old.

The age seems to fit. If you’ve been following news of the southern hemisphere, you know the Argentine president just did something really childish.

She locked grocery prices for 60 days.

You see, Argentina’s inflation rate is somewhere in the neighborhood of 25%. (However, the government’s math puts it at just 10%.) So to keep her populist voters happy, she told the likes of Walmart (NYSE: WMT), Disco, Jumbo and other large supermarket chains to stop boosting their prices.

Yep… machine gun economics. That’ll fix it.

We know it won’t work. And I’m sure she knows it won’t work. But Kirchner is a politician, so she does what all politicians do… whatever gets the most votes.

I hate to borrow someone else’s thoughts, but Forbes contributor Paul Roderick Gregory says it too well not to pass it along:

“Cristina Kirchner’s Argentina illustrates an alarming trend. Her government has expropriated major foreign investors, falsified statistics, destroyed central bank independence, used the nation’s currency reserves for political payoffs, and faces default. Yet she was easily reelected, just as her neighbor Hugo Chavez, whose gross mismanagement of Venezuela’s economy may be unmatched in Latin America. Barack Obama was reelected in the United States despite the worst recovery of the postwar era. All offer populist programs, which seems to buy them a pass at election time.”

This isn’t a swipe at any particular party or political mindset. It’s a shot at all politicians. They’re all as guilty as the fat kid sitting beside an empty cookie jar.

It’s why I argue you absolutely can’t afford to let political rambling infest your portfolio.

Take, for instance, the looming budget cuts from Washington on March 1. Let me remind you that the “meat-cleaver” reductions we face in less than two weeks are the lingering results of Congress’ version of compromise… from the 2011 debt-ceiling fight.

We are still dealing with this nonsense (and all the uncertainty it spawns) for one simple reason… Politicians live on votes.

They will never bite the hand that feeds them.

Populist Pleasure
It’s the reason Kirchner stole YPF from Spain’s Repsol (OTC: REPYY) last year. Gasoline prices in the country were rising because YPF was sending its supplies to Chile (where less regulation led to higher profits). So the Argentine president seized the company.

Now the government decides where the energy flows.

And votes are also the reason that, despite sitting on the fourth-largest shale deposit in the world, Mexico is on par to become a net energy importer by 2018.

Most folks don’t realize it, but the Mexican government (which hires the men with the big guns) gets roughly a third of its annual revenue from the sale of oil. But that creates a big problem for the state-owned oil producer, Pemex.

With the government picking the company’s pockets for its political needs at a faster and faster clip, Pemex has had trouble funding fresh exploration projects. As a result, the world’s No. 7 oil producer has seen its crude output decline about a quarter in the last decade.

There’s clearly a need for outside help. But a set of fine politicians added a clause to Mexico’s constitution in 1938 that says only the state is allowed to search and drill for oil and gas.

If Mexico City doesn’t make major changes, the country will be a net oil importer in five years.

But if the government allows outsiders to come in… Well, they’ll likely need a few more guns in the street to keep the unions and their workers at bay. The voters won’t be happy.

My point with these examples is simple. One way or another, the government controls the streets. It doesn’t matter where you live. I could pull similar anecdotes from any country on the planet.

It’s the nature of the beast.

It’s an important lesson right now, because later this week, we’ll be up to our eyeballs in political rhetoric. Nobody from the Right or the Left will miss an opportunity to get their talking points in front of their constituents as the budget-cut debate heats up once again.

Their goal is to show us they are in charge. It’s the American version of machine gun politics.

But just like the highly armed soldiers I came across last week in Mexico, the politicians in Washington will refuse to make eye contact – their words are purely symbolic.

As investors, we can’t let the hyperbole intimidate us. American markets are about to swim into another wave of opportunity-inducing volatility. But good companies will still make money… even in Argentina and Mexico.

In other words, don’t be intimidated by the government’s heavy artillery.

Just nod and let the guns pass by.

Good investing,

Andrew

P.S. Looking for your next three-bagger? Our friends at The
Oxford Club recently discovered such an opportunity in a little-known energy company operating outside of the United States. In fact, it owns 18% of the world’s natural gas supply, with a current value of $299 billion. It has the world’s largest transportation network at over 160,000 km. It has shipping operations that span the globe. And somehow, nobody’s talking about it… yet.

For more about the company, click here.

Source : http://www.investmentu.com/2013/February/machine-gun-economics.html

by ,, Oxford Club Investment Director Chairman, Investment

http://www.investmentu.com

Copyright © 1999 - 2012 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife