Four years ago, I tried to rent sound equipment for a 20-year high school reunion. The sound guy was booked solid, because he was one of only a handful in the state, because of licensing requirements, inspections, exams, and continuing education—all for plugging a 15” subwoofer into an outlet. I did some quick math and figured that the number of people writing regulations on plugging in speakers probably exceeded the number of people plugging in speakers.
Upon hearing that story, a subscriber commented dryly that it is that little panhandle down in the southwest corner of the state that pays for the giant regulatory bureaucracy in Hartford. Except now the people in that little panhandle are leaving.
You probably heard the news that GE, yes, General Electric, has moved its headquarters to Boston. I heard some backchannel stuff on the clownish attempts by the state to try to get them to stay. Hedge fund guys have figured out that there are no taxes in Florida, and Miami real estate has gone bananas. Slowly but surely, businesses are leaving, and the tax base is eroding, and like the dumb cable companies, the state continues to raise taxes on the poor people who are left behind just to break even.
Last one out, turn off the lights.
Revolution!
It’s kind of a political hack thing to say, but I’m going to say it anyway: What is happening in Connecticut is not all that different from what is happening in Venezuela (although on a much, much smaller scale, obviously, and without the humanitarian crisis).
What I mean by that is: If you make it difficult for people to conduct business and commerce, the smartest among them are going to go somewhere where they can, and leave everyone else behind. Some people call it a brain drain. Every once in a while there is a glimmer of hope in Venezuela that the opposition might be able to oust Maduro, but even if they did, anyone who was talented enough to help rebuild the country is already gone.
Capital goes to where it is treated best. Period.
Part of my shtick as a macro investor is to figure out where capital is going to be treated best, and send it there before everyone else does. This takes some pretty sharp political intelligence. Capital is flooding to Argentina now, after the election of Mauricio Macri, but the time to invest was actually in 2013, when Cristina Kirchner lost the midterm elections and was prohibited from running for another term. I once was blindsided by an investment in Chile because I did not anticipate Michelle Bachelet Part 2, Electric Boogaloo.
It’s hard to separate cause from effect, especially since it was during the financial crisis, but US stocks were very nervous about Barack Obama coming to power. He was saying some pretty far-left stuff on the campaign trail. And I assure you, if there were ever a realistic chance of Bernie Sanders becoming president, the market would act accordingly.