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2010: The Robin Hood Economy


Stealing from the "rich" redefined.

Last week, our local paper included a story about Reverend Tim Jones of the Church of St. Lawrence in York, England, who recently delivered a Robin Hood-like sermon "telling his congregation that it is sometimes acceptable for desperate people to shoplift."

While Reverend Jones' remarks drew an immediate "retraction" from the Church of England, it wasn't his "recommendation" that got my attention, but rather its specific caveat -- that desperate members of the congregation limit their shoplifting to "large national chain stores, rather than small, family businesses."

So in the spirit of Reverend Jones' "altar call," I'd offer as my major investment theme for 2010 -- "The Battle of the Faced Versus the Faceless."

Now admittedly, I'm a little late with this theme. The battle of the "Faced" versus the "Faceless" already saw one major skirmish during 2009 with the bankruptcies of GM and Chrysler. And without question, it was a clear victory for the "Faced" as current and former union employees made out for better than "Faceless" institutional bondholders.

And there were other minor battles that played out over the past year in Washington, with Congress and the Federal Reserve approving "consumer friendly" regulations covering everything from the interest rates on credit cards to the overdraft fees on checking accounts -- populist reforms at the expense of future "Faceless" too-big-to-fail bank earnings.

But if Reverend Jones is any indicator, all of these are but a preamble to a much more broad-based battle ahead which attempts to reconcile the interests of individuals versus large corporations; large banks versus small; current and former state and local municipal employees versus municipal bond holders; and dare I suggest "developed" versus "developing" nations.

The "faced" versus the "faceless."

With this as background, I think it's worth considering how much of S&P 500 profits is generated by the largest companies in the index. Not surprisingly the most "faceless" and the most profitable go hand in hand. (Just as in the context of municipal finance, "faceless" (bondholders) and the most wealthy Americans also go together.) But what I think is most interesting about our most profitable companies today, is how susceptible they are to a populist wave -- Exxon Mobil (XOM) and Chevron (CVX) in energy; Johnson & Johnson (JNJ) and Pfizer (PFE) in health care; JPMorgan (JPM) and Goldman Sachs (GS) in banking; not to mention Philip Morris (PM), AT&T (T), Verizon (VZ), Microsoft (MSFT), Procter & Gamble (PG), General Electric (GE), IBM (IBM), and Walmart (WMT). None exactly pulls at the heartstrings of the average American; and many generate outright hostility.

I'd also point out that substantially all of the firms listed above also demonstrate oligopolistic (if not monopolistic) behavior, which combined with their Main Street "popularity" make their earnings extremely vulnerable to government "taxation" of one form or another. (And in this regard, I'd note BP's (BP) recent record breaking "settlement" with the EPA.)

So as we enter the New Year, I'd recommend that readers review their investment holdings with the growing wave of populism in mind. I anticipate that in the year ahead, the old phrase "To those to whom much has been given much is expected" will take on new meaning.

Welcome to the Robin Hood Economy.
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Position in SPY, SRS, and JPM.
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