We tried for several years early in the Obama presidency to figure out where to follow in the big money people as to position long assets to take advantage of the new normal. Last year we struck gold and frankly by accident more than planning. The real point here is our 35% plus gains in long holdings last year leaves us ashamed we did not see it earlier.
The idea is quite simple. The Federal Reserve is pumping $80 billion plus into the economy each month printing money. The Federal Government under Obama is pushing just under $100 billion monthly in deficit spending into the economy. Where is that money going and how do you get your hands on some of it, call it your fair share if you like.
If you know anything about small business you know if that small business is growing it is quite slow and the profits there are being held onto tightly by the local owners. Local owners see no reason to hire due to the higher regulatory burdens, especially from Obamacare and the EPA. The additional costs do not justify the hiring or spending capital to expand. The same can be said for medium sized business as well. Just too concerned with additional regulatory burdens and costs to take a chance. However the one place that where all these extra billions are finding a home is mega sized businesses. Mega sized businesses can lobby Obama for regulatory relief and in many cases push regulations to hurt their smaller competitors. The current buzz about the minimum wage is nothing more than mega sized businesses who can find ways around almost any law due to crony capitalism wanting their competitors, which tend to be small business, to take a big hit from employee costs.
Obama's crony capitalism, where big companies buy off protection from EPA rules, exemptions from federal rule making and get in on big government contracts is where the gains where in 2013. Here are the sectors that scored by stock valuation gains in 2013, healthcare, consumer discretionary, financials, and consumer staples. Easy here to define as in anywhere all those government checks from welfare, food stamps, unemployment, and such can be spent. Healthcare comes from all that crony capitalism going into companies who where bought off by Obamacare. Financials are banks and such who have prospered from lower mortgage rates and bailouts from Obama. Trust me here bankers, big bankers not your local community banks, are doing well under Obama and he is getting lots of campaign funds in return. Rhetoric is to be ignored.
The leaders early on in 2014 are drug stocks and biomedical stocks. Again Obamacare is the reason. Big drug companies and medical companies were bought off by Obama to get onboard Obamacare and now is their turn at the crony capitalism trough. I would expect consumer stocks to prosper again in 2014. Repeat of banks and such. In fact most mega sized companies.
How do you prosper and get in on the action? We have two ideas and we would put any money next year in these two vehicles. Fortunately for us we were positioned in one of these last year and another less concentrated mega stock fund as well. Our first pick is the S&P 500 Vanguard Index Fund. The symbol is VFIAX. This fund targets the largest 500 companies in the US and most of these companies have worldwide assets. The other one is MGV, again a Vanguard Fund, but this one is concentrated in the top 100 stock companies in the US. MGV is sorta a concentrated 500 fund so as to make place your assets more deeply into mega sized companies that will prosper from all this crony capitalism. Use both so as to spread your assets making sure not to miss any gains.
Now we are not here to say if all this crony business is right and morally correct, which we personally find disgusting. We are here to make money and prosper from what is out there to be had. So choose accordingly.
We are long the Vanguard 500 Index and shortly will buy some MGV long as well. One other note both these funds are operated on the dirt cheap under .15% of holdings. We like Vanguard Funds since no where else will you find this kind of investments at this cheap operating expense.
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