There are lots of things bugging the market these days, from the extraordinary strength of the Japanese yen, to the stepped-up aggression of President Obama’s War on Capitalism. While major indices were able to climb off the lows late in the session, the White House clarified its previous comments about more executive action against corporate inversions and mergers. There’s no doubt that Obama has shaken investors. Another reason for angst is the evolving epiphany that central banks may not matter anymore.

Japan has gone to negative interest rates, and the yen has responded by surging to a 17-month high against the dollar.

For a while, investors were worked-up about central banks running out of ammo; now, we have to ponder about the possibility that they’re shooting blanks.  Even if this proves to be a short-lived blip, the message is clear- money printing has a limit that doesn’t make up for risks, and two ‘lost’ decades in Japan is proof.

Socialism vs. Crony Capitalism

This week, a war of words broke out between Democratic presidential hopeful Bernie Sanders and General Electric CEO Jeff Immelt, ostensibly over capitalism.

The first salvo came from Sanders, who says JP Morgan and GE are “Destroying the fabric of America.” The replay from Jeff Immelt points out that GE has been in business for 124 years and never became a “big hit with socialists.” He further points out that GE created 125,000 U.S. jobs, and the fact that Sanders never bothered to stop by the company’s aviation plant in Rutland, Vermont, where the company has invested $100 million dollars in recent years.

I will always defend capitalism as the best way to grow wealth, and to provide the individual with the ability to change his or her circumstances.  Yet I think Sanders picked the right target with respect to GE, which has moved away from a trailblazing innovating company that once dazzled the world and the stock market.  Sadly, it’s become more of a poster company for crony capitalism, which is ripping the fabric of the country.

When Immelt headed up President Obama’s Council on Jobs, many snickered at the absurdity, considering the number of jobs that GE was shipping outside the United States. Like most multi-national businesses, growth means taking advantage of a changing world that added a billion people to the middle-class over the past decade. You can have 300 million potential customers or 5 billion; it is one thing to sell to those folks and even hire locals to effect local transactions, but it’s another thing to ship ‘American’ jobs.

Is this what GE has been doing?  In the last 20 years, the rate of growth in workers is significantly higher than the rate of growth in business.

GE Outside America	1995	2015	Change
Revenue outside United States	40%	55%	+38%
Workers outside the United States	32%	62%	+94%

There might be extenuating circumstances to the outsized growth outside America, but how does GE explain the decline of U.S. workers to 125,000 from 161,000 in 2005?

My beef with GE is the cronyism and its cozy relationship with the government, particularly the Obama administration.

Export Import Bank

GE has received billions in guarantees from the bank to fund projects outside the United States, even though the company is sitting on approximately $120 billion offshore.

Bailout

There were so many layers to the bank bailout that it somehow included GE; it is hard to tally how much the company actually benefited, but what I do know is the following:

• FDIC guarantees allowed GE to raise up to $139 billion
• The company borrowed $16 billion via the commercial paper relief program
• The company got paid billions to facilitate energy retrofitting that was a part of the so-called stimulus program
• Taxpayers bailed out the company, but it was able to carry over losses and to avoid paying taxes for years

The Real Problem

That is greed and that’s selfishness.  That is lack of respect for the people of this country.

-Bernie Sanders on GE moving jobs overseas

So, Bernie picked a great target to rile against, but his premise is wrong. To be sure, Bernie Sanders and Barack Obama share resentment toward profit motivation, and Romanticize the notion that mankind is best when it’s working for a communal good. They both think people and businesses can make too much money.  And believe it’s the role of the government to make sure that doesn’t happen.

Bernie doesn’t care about jobs going overseas; he cares that such moves may bolster corporate bottom lines.  Bernie Sanders and maybe Hillary Clinton would further bludgeon businesses for making money, effectively squeezing the economic supply line that oxygenated the success of America.  I get that it is a populist issue, and many Americans want to bring jobs back and stop international trade; however, it’s a key pillar of our success.

We have to do a better job and take it out of neutral, a big part of that would be getting the government out of the way: 

• No bailouts
• No cronyism
• Lower taxes
• Fewer fees
• Fewer regulations

On top of it all, we need the President of the United States to be a cheerleader for success and to promote the fact that there is no such thing as too much in the land of plenty. 

The Market

All the S&P 500 sectors finished in the red as there were few places to hide; once again, blue chips held up pretty well.  Overall, the good news is that the market was lower on light volume and above its key support of 17,500. 

Today’s Session

The market is looking to rebound at the open, but the action this week is worrisome enough for me not to force the issue.   Understand that while the new reality of greater volatility means more angst, it also means chances for outsized gains.

But you can’t win by throwing darts or with index funds- you have to have a balanced portfolio of quality names and the nerve to buy when selling waves fade. 

Comments

Thank you so much for your commentary on GE under the leadership of Immelt. He's turned a great American company into the poster child for truly disgusting crony capitalism. doris on 4/8/2016 10:19:09 AM

One of your better articles, Charles. You are correct in needing a "cheerleader"---something that becomes less and less likely when so many are willing to vote for providers of "free stuff" Dick on 4/8/2016 12:27:10 PM

Wasn't it Immelt yucking it up with Kerry and Obama about "shovel ready jobs". Right after nailing down the stimulus package? Roy Orem on 4/8/2016 8:02:22 PM

The entire Democratic Party has become a Socialist oriented Elitist group selling nirvana to young people through the University systems and Media/Social Media. Frankly they haven't invested anything into building the American Economy or our culture yet they protest the loudest AND have contributed the least. The other groups they (Dems) target are minorities and immigrants who are under performing economically and lastly women who have a propensity to vote for "Safety/Family" related issues. They call themselves PROGRESSIVES but, that is just rebranding Socialism! Clinton, Sanders and the lot of both parties have become rich or at least comfortably financially secure off the TAXES that American CAPITALISM/WORKERS pay. And, to top it off the Fifth Estate is totally in bed with this selling of Progressivism! WHAT in the world is wrong with educated Men and Women that they cannot see where our current path is leading economically and socially. This great Nation is in peril from the aggressive expansion of Government and it's parasitic appetite to redistribute wealth so the Political Elite can stay in power and retain their privilege! Sorry, I got carried away but everything the two Democratic candidates say gets under my skin. Garro on 4/9/2016 8:53:38 AM

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