"No man can become rich without himself enriching others"
Andrew Carnegie

Tuesday, July 30, 2013

What I Told Rand Paul

Official portrait of United States Senator (R-KY).
Official portrait of United States Senator (R-KY). (Photo credit: Wikipedia)
By Investment U

Las Vegas, Jul.30, stock advice .- Earlier this month, I spoke and debated on several panels at FreedomFest in Las Vegas, the annual libertarian conference described as "the world's largest meeting of free minds."

These liberty-minded individuals are upset with the federal government. And who can blame them? Government spending is out of control. The federal budget is awash in red ink. In the absence of genuine reform, entitlement programs are headed for the elephant's graveyard. And dissatisfaction with Congress is lower than ever.

Many of these irate citizens, however, are taking their political convictions into the investment arena and drawing some wrong conclusions. In particular, many have avoided the stock market entirely over the last five years.

That has been a mistake. And it is almost certain to remain one in the future. I'll readily concede that I don't know what the stock market will do over the next six weeks or the next six months. But over time, share prices follow earnings. And those earnings will almost certainly trend higher over the next few years.

Things Are Looking Up

Why? Just look at all the positives. Short-term interest rates are near zero. Inflation is MIA. The housing market is recovering. The dollar is rising and recently hit a three-year high. Thanks to fracking and horizontal drilling, we are experiencing an energy revolution in this country. And corporate earnings are at an all-time record.

Yes, things are dysfunctional in the public sector. But they are improving in the private sector. And government may get better after the next election.

One evening in Las Vegas, I had dinner with Sen. Rand Paul, a likely Republican candidate for the 2016 presidential election. Paul is sympathetic to the view that the government hinders businesses with too many taxes and regulations, but he said those issues don't resonate with young people. He plans to emphasize the intrusive nature of the federal government by arguing against government surveillance methods that track innocent citizens' phone records and Internet movements.

I told him I believed that was important, but if he wanted an economic issue that would resonate with young people he should clearly describe the debt we baby boomers are laying on them.

The numbers are almost too large to fathom... until you break them down. For instance, the U.S. national debt is currently $16.9 trillion. But that is meaningless until you explain that it amounts to more than $148,000 per taxpayer. Unfunded liabilities for Medicare, Social Security and the Prescription Drug Benefit are $124.9 trillion... or an additional $1.1 million per taxpayer.

We're handing young voters an IOU - that we have no intention of repaying - totaling nearly $1.25 million per taxpayer. (Talk about a fairness issue.) Now that should get young people's attention.

Private Trumps Public

But as bad as our federal budget situation is, it is trumped by all the positive things happening in the private sector. Every day companies are knocking themselves out to make products that are better, cheaper and longer lasting. They're creating new materials, better technologies, and improved medicines and medical devices. They are fulfilling all our wants and needs and creating new ones.

So don't let government bungling keep you out of the stock market. The free enterprise system is built on a durable, three-pronged foundation. No. 1, everyone has economic needs: food, clothing, shelter, heath care, transportation, communications, etc. No. 2, self-interested individuals start and expand businesses to meet those needs. No. 3, businesses need money to start and grow and that requires well-functioning capital markets.

Human needs, businesses and capital markets aren't going away. And the stock market is the quintessence of capitalism: the private ownership of the means of production.

So organize around your political views. Raise money. Donate money. Cast your vote. But don't take your frustrations out on your financial future.

Owning a portfolio of profitable businesses has always been the best way to build and protect a financial fortune. And it always will be.

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