Eric Cantor, in the news last week, was the best sort of politician. When he was bought, he stayed bought.
When campaign season came around, the oligarchs wouldn’t forget him. The trouble was, he forgot the poor little “garchs.” He was so sure he had the election in the bag, he forgot to lie to the voters.
Some say Goldman Sachs owned him. That is an overstatement; Wall Street only had a leasehold, which expired when his grip on House Republicans gave out.
Besides, most leading industries had a piece of him, too; the defense industry, for example, rented major parts of his heart and brain.
The Death of the American Conservatism
Many are the explanations for Cantor’s surprise defeat. We put it down to a failure to run a balanced campaign.
He forgot that political commerce in a modern democracy is a two-way street. You have to buy as well as sell. All very well to offer your services to the 1%. But don’t forget the 99% who will decide an election.
Conservatism in the US took a nasty turn in the 1980s. A generation had grown up since Ike Eisenhower was president. This new generation, much of it slipping into Washington along with Ronald Reagan, had come to see Washington as a force for good in the world – especially outside the fifty states. And even if Washington didn’t always do good, a sharp politician could always do well.
The trick was to talk the old conservative talk for the rubes back home, but to vote for every money-guzzling boondoggle that came along.
Cantor talked the talk too. But it was a mushy talk – full of mindless platitudes and empty phrases.
That would have worked fine had his district been a little farther north. Squeeze up nearer to DC and blah blah is all the voters want to hear. They know how it works.
The nation is tilted towards the Potomac. The money rolls towards its denizens like loose change down a storm drain. The last thing they want is a candidate who speaks clearly about the need to change things.
The Greatest Fix of All Time
But poor Mr. Cantor’s district is on the James River, not the Potomac. Around Richmond, voters are less sympathetic to crony democracy.
This is not because they are more high-minded; far from it. It is simply because they get less from it. They don’t necessarily want more of other people’s money; but they definitely want to keep more of their own.
And they knew that their man in Washington wasn’t helping. Congress reacted to the crisis of 2008-09 with the TARP. It transferred $700 billion to the banks… and gave them $23 trillion worth of credit guarantees to boot.
The first time it was proposed in the House, Republicans voted no. But Cantor – leader of the pack – turned them around. The second vote put the TARP in business and began the greasiest fix the world has ever seen.
Five years later, the voters of central Virginia are still puzzled by it.
How come, after five years of “recovery,” are there so few good jobs?
Why is the Fed still handing out free money to Wall Street?
Does it have something to do with Goldman Sachs’ generous contributions to Mr. Cantor’s political campaigns?
And might it help him secure a nice position – maybe like former secretary of the Treasury Timothy Geithner at a private equity firm – after his political career is over?
Cantor raised $5.4 million from his cronies for this year’s campaign. At the time, it seemed like overkill. He was the leader of his party in the House… and a household name in Republican circles. He was on the escalator – set to become speaker when John Boehner left.
His opponent, on the other hand, was unknown… and had only $200,000 to work with. The oligarchs had nothing for him, because he had nothing to offer them.
Now his stock is rising fast. Goldman should have made a bid sooner.
P.S. If you’ve had enough of America’s crony system, you’ll want to read the special report Bill’s son Will has put together for Diary of a Rogue Economist readers. It chronicles how Will sued the US government… and lost. And how it led him to an important wealth discovery… and a roadmap for growing wealth independently outside of the rigged system. You can read Will’s full report here.
A Return to the 1970’s
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
Debilitating political cronyism at home isn’t the only problem facing investors.
A new jihadist insurgency in Iraq…
Russian tanks rolling into southwest Ukraine to upgrade the capabilities of pro-Russian rebels there…
Rising tensions between China and Japan in the East China Sea…
A destabilizing civil war in Syria…
Combine these geopolitical tensions with a weak US foreign policy… and a Fed intent on producing inflation… and what you have is a distinct 1970s feel.
This is being reflected in the energy sector.
As you can see from the chart below, which plots the performance of the Energy Select Sector ETF (NYSE:XLE) against the S&P 500 (with XLE as the numerator and the S&P 500 as the denominator), after nearly six years of relative underperformance, the energy sector is on the cusp of a multiyear breakout (highlighted in yellow on the chart).
When this indicator is rising, the energy sector is outperforming the S&P 500. When it is falling, it is underperforming.
Since its peak in 2008, the energy sector has been a major underperformer. But with rising geopolitical tensions… inflationary policies from the Fed… and a potential return of 1970s-style stagflation… adding some beaten down hard assets or energy-producing stocks looks like a great way to play a reversal of this trend.