Obonomy is catching.

I have always been  a somewhat aggressive investor. But over the last couple of years I have been much simpler. My retirement  portfolio is managed (because it is subsidized) but I am cashed out. The money is in the bank… in a fairly safe currency. Because I cannot tell what risks our rulers will place in front of us all

Spengler calls this consequence of intrusive regulation the Obonomy. And it is catching.

There’s an investors’ strike underway of proportions we have never seen before. Corporations are hoarding $2 trillion worth of cash. Private equity funds have $1 trillion of unused commitments. Pension funds and life insurance companies are gasping for returns. Yet Americans refuse to take risk on other Americans. Households, corporations, and institutional investors would rather keep money under the figurative mattress in ultra-safe investments than invest in future productivity.This isn’t like the Great Depression. During the Great Depression, to be sure, investment collapsed, but no-one had money to invest. Now everyone has money to invest and the Federal Reserve keeps shoving new money into the system by purchasing securities from the open market, yet no-one wants to invest.There’s no textbook description for this condition, so we’ll give it a name: the Obonomy. The anti-business toxicity in Washington is so intense that that no-one will take risks.The investors’ strike is especially onerous given that the average profit margin for the nearly 4,000 exchange-traded public companies for whom data are available was over 18% during the second quarter of 2012. Why wouldn’t investors put more money into businesses earning 18% year, rather than buy safe securities yielding the rate of inflation or less? The answer is that they are terrified of the anti-business environment

The reason it is catching is that the US could fall off a financial cliff as time limits on tax cuts end this year, and the euro could implode, causing the biggest economy in the world (still the USA) to collapse at a time when the next two big economies (China and the EU) are struggling.

NZ is a small trading nation. We have a pro business environment. But it matters little. We have to trade. And working with US agencies (which I have done) is a pain. Not because of the people or the companies, but because of the reporting. Simple things. I am not a US citizen & I do not have a US corporate body I work through: I therefore do not have a social security number or tax number. The tax regulations in the US are opaque: I therefore do not invest directly there.

The hassle is too great. The risk does not match the reward. Most NZ corporates expand to Australia (we can move freely there) and then into the NZ free trade zone (which includes China) before trying to deal with the mess that is the US. And the risk of more regulations has a chilling effect.  There is a reason we watch the EU and US. We have to sell things to them to make a living. And if their policies drive their economy off a cliff, we too will suffer.