What to Watch Out for Now
By Dr. Steve Sjuggerud
September 23, 2008

"What we NEED is OVERSIGHT..." That's what both presidential candidates said yesterday.

Oh no. If that's the thinking, we're in trouble.

I just got back from India. I've got news for you... Indian businessmen are just as smart as American businessmen. They work many more hours than we do. They understand finance, accounting, and profits. They're looking for fewer handouts. All they want is a chance to compete freely.

Right now, they don't get that chance... because government is in the way.

In India, the graft and corruption is terrible. In the States, we might say the road to hell is paved with good intentions. But hey, at least it got paved... In India, the intentions are great. Remember, this is Gandhi's country. But with its government corruption, the money for paving the roads doesn't make it down to the workmen.

So tractor-trailers are stuck behind oxcarts on the pitted dirt highway. The roads are so bad, apparently one-third of vegetables spoil on their way to market.

India puts government officials in charge of road construction. The officials know they can't get fired, so they steal instead of pave. Officials are hired to oversee these overseers. Same thing happens...

Good intentions. More oversight. Less paving.

Based on the promises of our presidential candidates, that's what America has to look forward to.

The one thing that made America great... the one thing that gave us an advantage over India, for example... is freedom. Freedom from government's "good intentions." Freedom to try to succeed.

More government oversight sounds like the obvious right answer. But history tells us, time and again, government meddling is not the right answer. It is sand in the gears of economic growth.

Our most recent business scandals were Enron and WorldCom. The government responded with the disastrous Sarbanes-Oxley Act. This was the government requiring overseers of the overseers. The cost is huge.

In 2004, after it was enacted, Fortune 500 companies had to pay an average of $5.1 million to comply with Sarbanes-Oxley.

To avoid the enormous expense, numerous American companies took themselves off the stock exchange. Others chose to list their shares in London, where it doesn't cost as much to comply with government regulations. And foreign companies stopped coming to the U.S. to list their stocks. Only 10 foreign companies listed in the U.S. in 2004.

Will Sarbanes-Oxley really protect us from corporate fraud? No. Was corporate fraud really a big problem that required the over-the-top Sarbanes-Oxley Act? I don't think so. We will always have a few bad seeds in business that find their way around the rules.

Sarbanes-Oxley was about good intentions. More oversight. And, well, less paving. America became worse off. We became less competitive in the world.

This Is What a True Free Market Looks Like Why the Recession Is Good for Us

Take away our advantage of limited government interference, and American business will be less profitable... every year. You will make less money, every year.

What's done is done. But let's end it there...

Let's not make it worse by creating yet another Sarbanes-Oxley to make us more regulated and less competitive.

Good investing,

Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.

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PORTFOLIO INSURANCE IS GETTING EXPENSIVE

The theme of last Thursday's edition was the current "bull market in cheap"... that's why defensive stocks like Wal-Mart are doing well as the broad market struggles. It's one of the few bull markets we can find these days...

Here's one more: The bull market in volatility.

Two years ago, a 10% daily move in a sector was almost unheard of. Nowadays, it's almost commonplace. We haven't seen such enormous market swings in over 10 years. These skittish moves are sending stock-option prices to the moon.

Money managers use options as a sort of "portfolio insurance." Options can protect portfolios from big swings in price. And you can measure the price of this insurance with the "VIX," the volatility index.

When the VIX is high, it tells us folks are scared of the stock market... and they're buying instruments that will rise in value if the you-know-what hits the fan. When the VIX is low, it indicates traders see smooth sailing ahead for the asset markets. As you can see from today's chart, folks are heavily betting on a you-know-what scenario.