BG29052009
INVEST IN UNCLE SAM INCORPORATED
The biggest investor isn’t a Warren Buffet, Bill Gates or George Soros – But Uncle Sam and his US Government Incorporated.
By Neil George
Now for a while now I’ve been writing that some of the biggest and best bets for the general stock market might well not be found in the private sector – but rather investing in what I call Uncle Sam Incorporated.
The US Government.
Now, I know that Uncle Sam doesn’t issue publicly traded stock and yet the government does issue bonds – which in my weekly Stress Test found at the www.stocksthatpayyou.com website I just outlined that I wouldn’t be a buyer of right now.
But at the same time – it’s interesting and perhaps a bit more disturbing how quickly and with such size – that the US Government has been acquiring ever larger stakes in what used to be some of the biggest companies in the world.
Let’s start with American International Group (NYSE: AIG). This mega insurer and financial is now 80 percent owned by Uncle Sam amounting to an investment of around 180 billion dollars. Not all in direct equity – but still a significant amount of capital has been contributed by the US Government in this company.
And as the government has been making its inroads into this company – its been grabbing control over management with 5 of the 9 board members effectively chosen by the West Wing.
Then let’s move on to Citigroup (NYSE: C). This used to be the biggest of the big global banks. While not as big as it used to be – that hasn’t stopped Uncle Sam from grabbing some 33 percent of its capitalization amounting to around 50 billion dollars. And like AIG – the West Wing has made it’s mark on management with 4 directors coming one way or another from the government’s choice.
How about some of the consumer and other financiers in the US? GMAC - that is not a listed company and used to be called General Motors Acceptance Corporation – now has some 35 percent of it owned by the US Government amounting to what nowadays seems like a paltry sum of only some 12 to 13 billion bucks.
As for control of the company – Uncle Sam has been a bit behind in his directives as only 2 board members have been selected by the West Wing.
Then there are the two automakers. Chrysler – on its way to becoming an Italian company – has 8 percent locked up by the US Government costing Uncle Sam the bargain price of 12 billion. But even with a smaller stake – the West Wing controls 4 of the 9 board members.
And the company that’s making all the news – General Motors (NYSE: GM) might well have Uncle Sam taking as much as 70 or so percent of it – costing 50 or more billion. We already know that the CEO was replaced by the West Wing and the board of directors are made up of 5 of the 13 picked by government hands.
Really, is this anyway for a free market economy to operate if the government is the big owner and controller of an increasing number of the leading companies?
Even this week – we have Bank of America (NYSE: BAC) announcing the departure of a long-standing board member that has been on the executive committee. Temple Stone was one of the board members that fought tooth and nail over the West Wing’s desires to make CEO Ken Lewis step down from his spot as chairman of the board. Temple lost as did Ken – and now it seems that Temple has been kicked to the curb as well.
I wonder how that happened?
This comes as Uncle Sam’s Treasury Secretary – Tim Geithner is winging his way over to China to meet with the government in Beijing. It will be interesting how he tries to tell the Chinese how they need to me more market friendly while back home Geithner and the rest of the guys from the West Wing are grabbing more and more of the public market and putting into the hands of Uncle Sam.
But as investors this isn’t as disturbing as it might be. Instead, it continues to play into one of my strategies for getting your portfolios back on better footings in this very challenging market and economy.
One strategy is to buy into the companies that aren’t yet controlled or owned by Uncle Sam – but have Uncle Sam as some of their best customers.
From healthcare – to defense – there are plenty of companies that you need to own that are making good money as federal dollars and contracts keep coming their way.
Defense in particular is quite interesting. Did you see the durable goods numbers for the last month?
The data released by the Commerce Department showed a gain of 1.9 percent. Now as the cheerleaders in the West Wing were popping corks – the bad news was that without defense contracts the real number was still a sagging minus 2.1 percent.
But lets look at the positive – buy the defense contractors getting the contracts and the durable goods orders. One to note continues to be Long Hauler favorite of mine – General Dynamics (NYSE: GD).
And for more – I’ll be posting some of my other core favorites in the days to come.
Lastly, there are two housekeeping notices that I want to make you aware of. First, for those reading this on www.neilgeorge.blogspot.com note that this is just one part of what I am currently writing and publishing. More can be found at www.stocksthatpayyou.com. And on this site, I would encourage you to sign up for my alerts and notifications as well as to post comments on my writings.
Second, one of the sections on the stocksthatpayyou.com website is called my Stress Test. Every week I go through a particular segment of the markets – from individual companies and funds to whole market groups of securities and outline the real and potential threats that they might pose to investors. I would encourage you to read this section and in coming weeks if readers like – I’ll be emailing it to you just like I do for subscribers to By George.
Finally, a man that didn’t quite like the lack of choice on the proxy votes for Uncle Sam’s leadership teams around the nation – died at 80 years.
How many of us would like to have a little more say on proxy votes for board members of the companies that we invest in? But here’s the thing – while we have little real voting power on who gets to be on the boards of directors of public companies – we arguably have the same trouble when it comes to political leadership elections.
Think about so many of the past elections whereby we really didn’t think much of any candidate. Our choices often come down to the lesser of two evils. But what if we could have a third option when voting for elected posts from mayor to congressman or even president? No, I’m not writing about independents and third party candidates – but rather a choice of none of the above.
That’s exactly what Luther Knox wanted to put on ballots around the nation starting with his own state of Louisiana. He saw that there really wasn’t a choice of none of the above and fought the courts to have it as a legal choice on ballots. He didn’t get his way – but perhaps, just maybe, someday?
Neil George is editor By George and Stocks That Pay You.
The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.
Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.
