INVESTING: Mexicans turn pro-market, Americans socialist

Hola! I feel like speaking Spanish today. I want to go down to Mexico and protest with my socialist brothers the outrages of the freeelection process. There’s a lot of wealth we Americans didn’t create but want to take, and that’s hard to do when a bunch of
capitalists are running Mexico.

It has been a long struggle for Mexico. Decades of anti-capitalist governments and first-rate corruption have created problems that will take generations to work out. But the election victory of a pro-market presidential candidate there
might be another small step that could be followed by larger leaps soon.

The Mexican stock market has done extremely well the last three years, but this has more to do with the fact that oil is the nation’s No. 1 product than improvements in the political system. Eventually the oil will run out, and a more open economy stands a better chance of handling that scenario than the socialist system the losing candidate wanted to re-establish. (Investors can buy into the Mexican stock market through the exchange-traded fund EWW.)

Americans, on the other hand, are supposed to be the bastion of free-market capitalism. But some recent events have caused me to doubt our commitment. Even though I haven’t been a fan of Wal-Mart’s stock for a long time, I do feel bad for the company.

You see, Wal-Mart is now the symbol of
evil for the socialists across our country. A few months ago, the state of Maryland tried to force Wal-Mart to pay government-mandated minimums in medical benefits. A couple of weeks ago, Chicago voted to force any retail store over 90,000 square feet to pay minimum wages and benefits.

The courts reversed the Maryland legislation, but I have a feeling the Chicago move will stick. This is a classic case of people desperately trying to take what they haven’t earned. In this situation, they are trying to take the wealth from a company that legitimately earned it. The law of unintended consequences is about to visit Chicago, and lawmakers there will be unpleasantly surprised by the coming turn of events.

First, Target just yanked plans to build two stores in Chicago, which would have employed hundreds. Wal-Mart is redoing plans to build up to 10 stores in the area, and I believe those stores had the potential to hire a few thousand people. Wal-Mart got
run out of Germany in July for much the same reasons. Socialism is a stock killer!

The Federal Reserve last week officially announced what everyone knew-that there will be no change in interest rate policy.

The market didn’t go up on the news because it was already factored into prices. A sell-off could be in the offing, but I wouldn’t bet the farm on the market’s falling apart in the very near term. I believe the major averages will fall decisively below the mid-June lows, but maybe not until September or October.

But then again, the demand side of the equation in the stock market is approaching multi-decade lows. In this environment, it will only take a little more motivation from sellers to send this market into a tailspin. I have been advocating an extremely defensive mind-set since the beginning of this year, and I see no reason to change now.

Lower prices are coming. Stay patient, and you will stay solvent.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.