by Lawrence Meyers | July 19, 2012 1:17 pm
Financial service providers should be very fearful if both President Barack Obama and Massachusetts Democratic senatorial candidate Elizabeth Warren win their elections in November.
Now, I’m not trying to rant against Warren. I’m merely pointing out that her statements and record indicate that she’s not a friend to financial service firms — and that means that investors should take heed.
There’s a reason she isn’t running the new Consumer Financial Protection Bureau, despite having been appointed to oversee its construction. That’s because she would never get enough votes in the Senate to confirm her to that position. In addition, she wasn’t recess-appointed the way CFPB chief Richard Cordray was because she’s too polarizing. Obama would have gotten significant pushback from his financial services donors.
The president has already saddled American business with onerous and expensive regulations. Warren has made rather famous statements that are hostile to financial services firms, and given the dustup over her unsubstantiated claim to minority status, voters have every reason to doubt what she says when she claims she’s not anti-business.
Even the most simplistic analysis should tell investors to be wary. Warren is a liberal politician, with a recent significant background in the CFPB, and a history of academic activity in finance. Liberals pushed for Dodd-Frank. Liberals are generally in favor of government restrictions on business. And Warren has been outspoken about financial service institutions.
It doesn’t matter whether she’s right or wrong. If she and Obama win, it’s bad news for financial service providers.
So, how should you respond as an investor if this comes to pass? Get the heck out of financial services, with a few exceptions.
Sell the banks. Warren would push for even more burdensome regulation on banks and possibly push for further mortgage reparation penalties. I don’t want to hold Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C) or JP Morgan Chase (NYSE:JPM) in this event. However, I would definitely buy US Bancorp (NYSE:USB). This is one of the few major players that had virtually no exposure to the mortgage crisis, and continues to run a conservative, well-capitalized operation.
I think investment banks would get slammed by any new regulations. Say goodbye to the stocks in your portfolio like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS).
Insurance may also find itself in a bind. Tighter regulations could rein in certain financial products like universal life insurance policies and annuities, which are complex instruments and exactly the kind of thing to get targeted. American National Insurance (NASDAQ:ANAT) and Prudential (NYSE:PRU) might get squeezed.
The one area I actually think is safe may surprise many readers: payday lenders and pawnshops. I just think these are small potatoes given all the other big sectors that are lower-hanging fruit. Recent statements from CFBP head Cordray even suggest that he understands that Americans needs access to short-term credit.
To that end, I’d buy the two most undervalued players, First Cash Financial Services (NASDAQ:FCFS) and EZCORP (NASDAQ:EZPW). I also like the strong cash flow generated by Cash American International (NYSE:CSH), and its soon-to-IPO spinoff, Enova.
Regardless, if you’re in the financial services business and haven’t maxed out your contribution to Warren’s GOP opponent Scott Brown, you’re asking for trouble.
The opinions contained in this column are solely those of the writer.
Lawrence Meyers owns shares of First Cash and EZCORP. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.
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