Obama's New War on Investors: Part II

I may have stirred up less trouble the last time I swatted a hornets’ nest…

My column last week about Obama’s new war on investors provoked a ton of responses from readers. Most fit into one of three broad categories:

1. “Amen, brother.”

2. “You couldn’t be more wrong.”

3. “Shut up.”

I enjoyed them all, even the nasty ones. (Especially the nasty ones.) So let’s take a closer look at this contentious subject, how it impacts the markets, and why it will dramatically affect your financial future.

To recap, how is Obama at war with investors? He raised income tax rates, long- and short-term capital gains tax rates, and dividend tax rates, in addition to putting a new 3.8% tax on dividends to help pay for Obamacare.

He raised the estate tax.

His administration proposed limiting the size of your pension and the amount of tax-free income you can earn each year from municipal bonds.

On the stump, he refers to the economically successful not as hard workers or risk-takers but “the fortunate” and “the privileged.”

And this is just the tip of the iceberg. There isn’t space in a 900-word column to lay out all the anti-growth, anti-business and anti-investor policies of the Obama administration.

[Special note: Readers who suggested I’ve spent too much time watching Fox News may be surprised to learn I’m not a Republican, don’t watch Fox or any TV news (and neither should you), agree with Obama on most non-economic issues, and believe George W. Bush was one of the worst presidents in American history.]

I disagree with Obama’s economic policies not because of politics but because they don’t work.

Take a look around. More than 100 million Americans are on federal food assistance. That’s more than the number of full-time workers in the private sector.

Never has economic growth been so sluggish this late in a recovery. Never has true unemployment — when you add in the folks who are so discouraged they’ve quit looking — been this high outside of the Great Depression.

We have a national crisis in entitlements looming, yet he has ignored the recommendations of his own bipartisan commission. He has discouraged business formation and expansion by increasing taxes and the burden of federal regulations. If Obama truly wanted to mitigate economic inequality, he would repeal his own policies.

As I conceded in my column, we have had a booming stock market under Obama. Several readers wrote to insist he deserved the credit.

Not so. The stock market has roared under Obama for three primary reasons.

One, Obama was sworn in just weeks before the Dow hit a 13-year low, an auspicious starting point. Two, the Federal Reserve implemented an ultra-accommodative policy that included years of zero interest rates and an $85-billion-a-month bond-buying program. Three, U.S. corporate profits and profit margins have hit an all-time record as a result of innovation, cost cutting, productivity increases and rock-bottom interest rates.

Saying that Obama is responsible for this bull market is like saying Bush was responsible for Hurricane Katrina hitting New Orleans. Neither had anything to do with either. Both managed to botch the aftermath.

As for Obama’s repeated demonization of investors (and the rich) for not paying their fair share of taxes, this not only isn’t true, it’s the opposite of the truth.

As Frank Holmes, chief executive officer and chief investment officer of U.S. Funds, noted this week, in 1980 the bottom 90% of taxpayers paid roughly half the taxes and the top 1% contributed about 20%. According to the Tax Foundation, however, in 2011 the top 1% paid more in taxes than all of the tax-paying households in the bottom 90% (an odd term). If the top 1% paying more than 90% isn’t fair, what is?

Of course, some respondents insisted that they aren’t interested in political opinions. They only want investment advice.

This is curious. We just came out of a financial crisis that was caused, at least in part, by Washington itself. Both political parties promoted home ownership for people who clearly couldn’t afford it. The Federal Reserve — an arm of the federal government — primed the pump by taking interest rates too low for too long.

Congress made tax-exempt the first $500,000 in flipped-home profits. Two quasi-government agencies, Freddie and Fannie — or, as I prefer, Phony and Fraudie — warehoused the bad loans. And then a massive government bailout and stimulus were employed to help right the ship.

And you don’t want to know about all the shenanigans going on in Washington?

Neither do I, but we are now in an era of unprecedented government power and influence. Federal spending is a much larger share of the economy than it used to be. And the degree of intervention in the financial markets is unprecedented. This will have a profound effect on economic growth and investment values in the years ahead.

Interviewed in The Wall Street Journal last week, investment pioneer Dean LeBaron, founder of Boston-based Batterymarch Financial Management, observed that we are now experiencing “administrative markets” in which prices are set by government policy as much as by market forces.

These policies will have a dramatic influence on the future value of your portfolio — and so we will continue to write about them here.

If you don’t want to read our thoughts on the matter, fine. But you might want to before you start asking, “How the hell did this happen, anyway?”

Alexander Green is the chief investment strategist at InvestmentU.com. See more articles by Alexander here.

The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.