Government Meddling: Bad News, Unless You're an Investor

The stimulus debate du jour is how the government will save Fannie Mae and Freddie Mac. More government support is vital, said Treasury Secretary Timothy Geithner, the maestro of yesterday’s White House housing summit, “to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn.” It is, after all, your God-given right.

To be clear, the Treasury “will make sure the GSEs have the resources to meet their financial commitments,” Geithner added. Whatever the fate of Fannie and Freddie, it will be financed with tax dollars and controlled by government. Both companies, despite being at the very heart of the financial crisis, were left out of the recent Financial Reform Bill.

“Government is part of our future,” Bill Gross responded. “We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”

Scary stuff, eh?

But as menacing as this all ought to sound, here’s an interesting twist: Some of the best-performing stock markets in the world this year are in socialist-leaning nations. Denmark’s OMX 20 (like our Dow) is up 22% so far this year, the best-performing index in the developed world. Incredibly, Hugo Chavez’s IBVC index of Venezuelan’s stocks is close behind.

Compared to the S&P 500, it’s no contest… 2010 is the year of the socialist investor.

There’s more going on here than just form of government. Denmark, for example, is in the catbird seat of the euro crisis — part of the EU but not a euro nation, very low debt and a conservative banking system.

But still, it’s worth noting… in a world that’s terrified of excess government involvement, two countries with massive state presences are giving investors top-rate returns.

Ian Mathias
for The Daily Reckoning