A Romney Win Ends the Capital Strike

Capital sidelined by onerous regulations will flood back into market

     

A friend in Florida reports to me that he has moved to Costa Rica because:

“When I closed my home theatre installation business, I was not an engineer; I was a paper-filler-outer. I have ZERO incentive to start my business in the USA between the taxes and the regulations. The last straw was this summer; there are now over 6,000 lamps I can no longer use in jobs. If I do, there is a fine of $5,000 PER LAMP all for some hoax called Global Warming. By the way, the new ‘better’ lamps are from 4x to 10x costlier, and the ‘environment-killing’ lamps are being used in every other non-EU country.”

Imagine these stories extrapolated to every type of industry in the country. Now ask yourself why there’s a capital strike. Ask yourself why public companies have record amounts of cash on their balance sheets (as of Q1, 2012):

  • Apple (NASDAQ:AAPL): $97 billion
  • Microsoft (NASDAQ:MSFT): $51.7 billion
  • Google (NASDAQ:GOOG): $45 billion
  • Amazon (NASDAQ:AMZN):  $9.5 billion
  • Berkshire Hathaway (NYSE:BRK.A, BRK.B): $37.5 billion
  • Dell Computer (NASDAQ:DELL): $13.8 billion
  • General Electric (NYSE:GE): $137 billion

And ask what happens if Mitt Romney –- of Bain Capital, a businessman –- wins in November?

The capital strike ends. It ends even quicker if Mr. Romney has the foresight to gut the most onerous of job-and-business-killing regulations out of the gate. I’m not saying American business should be completely deregulated. That’s ridiculous. I’m saying there are tons of onerous regulations that are unnecessary.

So imagine what happens if that $2 trillion of capital goes into investments in middle-market companies. If it gets invested in small businesses via brokers like me? If the cash on all those balance sheets mentioned above, and more, gets deployed?

I’ll tell you what happens: America starts working again. Unless you are a Kool-Aid-drinking Obama supporter, in which case you are content with your fellow Americans on the unemployment lines. It’s amazing that no matter how often I put these numbers out in public, there will always be people who don’t believe it.

What stocks do you buy if Mr. Romney wins? First up, buy Business Development Companies. They invest in fast-growing middle market companies. Some of these include Prospect Capital (NASDAQ:PSEC), Triangle Capital (NYSE:TCAP) or the diversified UBS ETRACS Wells Fargo Business Development Company ETN (NYSE:BDCS).

I would also go with manufacturing stocks, such as Caterpillar (NYSE:CAT) and United Technologies (NYSE:UTX). Once people start working again, leisure travel will see yet another bump on top of its already strong recovery, so I suggest a hotel REIT like Ashford Hospitality Trust (NYSE:AHT). People will start spending money again, so I’d even suggest a credit card issuer like Visa (NYSE:V). And of course, you could just go long with a diversified broad market ETF like the SPDR S&P 500 ETF (NYSE:SPY).

Lawrence Meyers does not presently hold shares of any company mentioned.

The opinions contained in this column are solely those of the writer.

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