Your Survival Guide to the "Perfect Political Storm"
As Washington continues to grapple with the budget, another crisis is beginning to gather.
Later this month, we will be faced with the rancor over raising the debt ceiling and the real possibility of a national default.
This brewing double whammy promises to put the markets under considerable pressure as we edge closer and closer to October 17 – the date the U.S. Treasury says it will run out of borrowed money.
Unfortunately, both sides are now hunkering down for a bitter battle. The normal ability to compromise our way out of trouble is apparently no longer an option in DC.
It’s shaping up to be a “perfect political storm,” which is why I have been outlining an energy investment strategy to prepare for it in the last two issues of OEI.
In fact, I’ll have a third installment in this survival guide in just a moment.
But first I need to get a few things off my chest…
Staring Down the Edge of the Abyss
There are disturbing reasons why we’ve reached the edge of this abyss.
It appears some politicians would prefer to jump in rather than step back, and they are testing the most important foundations of why I love this country.
I am a political scientist by training and pedigree, with decades of academic, public, and private sector “scars” to prove it.
All of this experience has led me to one conclusion: Democracy does not work well when elected officials choose to lead crusades, debate from fixed ideological positions, and prefer battle over negotiation.
It wasn’t always this way. When I was growing up, there seemed to be giants walking the halls of Congress. Whatever I happened to be doing in Washington there would always be time to sit in the gallery listening to the debates and the oratory. What distinguished those debates from now is quite striking.
In the not-too-distant past, there were liberals, moderates, conservatives; Republicans, Democrats, even an occasional Progressive, Populist, or genuine Independent thrown in for good measure.
Some were rural, urban, Northern, Southern, Midwestern – all with very different ideas and perspectives. But they overwhelmingly shared one overriding objective.
They had some notion of the general good and cared about the public responsibility. They were custodians of the power. It was never theirs to keep.
There was something genuinely important about “the public space” back then where citizens came together and made common decisions. I admit to having had a certain romantic fascination with that kind of politics then. It may have been rough-and-tumble, but it was somewhere between “Mr. Smith Goes to Washington” and a Norman Rockwell painting.
Today, with more than 90% of the seats considered “safe,” the very structure Congress reduces the need to compromise. Many Democrats stay to the left because their constituents require taxpayer funded services. Republicans move ever further right because the only fear an incumbent now has is a more conservative challenger in the party primary. To get reelected, both have to play to their bases back home.
In this case, the public good becomes a just rhetorical device.
This is not what James Madison – the architect of our unique theory of government – had in mind in Federalist 10. The general good and justice, as he put it, arises from the compromise among factions. It cannot come from bitter battles obliging that one side has to vanquish the other.
An Uncomfortable Moment
Whenever we have faced such crises in the past, sober minds usually prevailed.
More often than not, the electorate worked out the problem by setting a path the politicians could not find on their own. The one time that did not happen, we were torn apart in a Civil War. We anywhere near there yet, but it creates a similar uncomfortable feeling.
We are witnessing the newest times that try the patience of temperate souls. There is no resolution on the horizon and little likelihood an upcoming Congressional off-year election will solve anything.
Unfortunately, there are too many safe districts out there and too few genuine leaders.
So until this storm passes, we need to stay by the wall, dodging the “slings and arrows of outrageous fortune” (sorry, Bill).
Until Washington becomes again the city I used to love and respect, we need to do what Americans have always done in times of peril.
We need to look after our own.
The best way to do that is preserving our investment capital and using the opportunities that arise in the energy sector to make profit.
Surviving the Storm
This is precisely what we have been doing with the Portfolios in both the Energy Advantage and Energy Inner Circle services, along with what we’ve been emphasizing in OEI.
In fact, I introduced you to the first stage of how to deal with the mess right here last week (“Two Moves to Make if Government Does the Unthinkable“). This stage involved balancing a contrarian approach using utilities with smaller, well-run, well-focused, leaner oil and gas production companies.
Then on Tuesday, I discussed why midstreams – especially select Master Limited Partnerships (MLPs) – were bucking the markets and moving up.
Now, let’s move on to stage three. It involves energy expansion in those areas likely to remain insulated from government expenditures and sectors of the economy dependent upon public sector finance.
After all, there are specific segments in which demand for energy remains, even in the uncertainty of American public policy.
Some of this is domestic, but most of the action is found in the rising energy requirements abroad. Regardless of the location, there are U.S. companies that will benefit, as well as foreign companies that trade depository receipts on American exchanges.
The prospects here are escalating for one very unsatisfying reason. Many on the international energy side have already concluded that the political malaise in the U.S. will not end anytime soon.
Yes, there are still major energy investment targets here, and the American market is still the envy of the world. But more of what is about to come in will take it bearings from what is happening elsewhere.
Those moves are already underway and the results will allow us to identify a wide array of attractive prospects whether or not the Congressional children choose to put their tantrums aside. (Like this $175 trillion oil deal I’ve been working on for the last five years.)
Unfortunately, there is a personal downside to this… a lot more time spent in airports.
I have another cycle of travel suddenly underway to discuss how this will play out and where to invest. As you read this, I am once again in an airplane, this time traveling west to meet with some Canadian colleagues.
Over the next several weeks, I’ll be at major meetings in London, Rio de Janeiro, Moscow, and my second home in the Bahamas.
Of course, I’ll be bringing you along every step of the way.
And what shakes out from these meetings as Washington fiddles will provide another range of new opportunities for all of us because of one simple and unchangeable reality.
The need for energy, its production, transport, delivery, and usage isn’t going anywhere.
That part never changes.