The Perfect Pick
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- Published on Monday, 24 September 2012 12:29
- Written by Andrew Snyder, Editorial Director, Insiders Strategy Group
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The Dow changed today. The iconic index got a new member, and I say it was the perfect choice.
The Dow looks different today. And I'm not talking about the fact that it's worth less today than it was on Friday... but that's an idea you should get used to, as well.
What's happened is a sign of the times. The nation has changed... and our investments must follow.
Kraft Foods will spin off its North American grocery business next week. When it happens, Kraft will go from the world's second-largest food business to a company that's too small to be included on the iconic Dow Jones Industrial Average.
That means we need a replacement.
The men in charge of such things made a perfect choice. No other choice is so indicative of what's happening in the great American economy.
The index committee did not pick a manufacturing company... companies that actually make things are a dying breed.
It didn't snag another food company... too much inflation risk.
And there was no way the committee could go with Google or Apple... way too expensive for the price-weighted Dow.
Instead, it went with a company that doesn't make anything. It has never invented a single product. In fact, it doesn't add much, if anything, to the national economy.
At its core, the company takes money from one group of people and gives it to another.
UnitedHealth is the perfect representative of today's America.
What could be a better measure of health for an economy managed by the government than a company that's virtually run by Washington?
The critics agree...
"To me, it just shows the sector is gaining the kind of importance and visibility with the Street that it should be getting," said Sanford C. Bernstein analyst Ana Gupte. "I think it's pretty clear that private-public partnerships are the future."
Yup. It's pretty darn clear where we're headed... or where we're already at.
America today looks far different than her past. But it's not all Washington's fault. After all, politicians never think for themselves.
Instead, our dearly beloved elected leaders go where they can get the most votes. And because America is getting poorer and older by the minute... that's where politicos spend most of their time.
It's as I told conference attendees in Las Vegas. Our economic model has turned upside down. Where we used to have a wide base of middle-aged wage earners who could easily cover the cost of a small group of retirees, we now have an inverted triangle that's ready to topple.
Here are the graphics I used to illustrate my point. The first illustrates the greatest Ponzi scheme of all time. A huge slug of young and middle-aged workers, propped up with union wages and post-war tailwinds pushed the economy into a state of bliss.
Some folks thought it would last forever. But they overlooked the two most important laws of nature -- people grow old, and unionized companies can't compete in a global market.
That's why we get a current-day model that looks like the one below -- with few young workers and even fewer who make anything close to a decent living.
If I were stuck in an outdated investment strategy, I'd be concerned. If I owned stock in the companies that led my grandfather to a wealthy retirement... I'd be broke.
But as the country and her economy change, so do we. That's why a company that actually makes a good product is forced to break apart and lose its spot on the list of iconic American success stories. Kraft couldn't compete... it doesn't cater to the old or the poor.
In its place... an insurance company whose largest product is paperwork and waste. Worse yet, its business is almost entirely dictated by our leaders in Washington. They want to ensure that the old and the poor are properly taken care of.
That's what makes UnitedHealth so great. The new Dow component sells something every American must own... it's right there in Obama's law.
Welcome to modern America. Out with the old and in with the new.
Editor's Note: Forget Obama, Gerald Ford is about to crush your retirement! A law passed by the Ford administration nearly four decades ago is about to rear its ugly head... And the millions of Americans who will be affected by it could trigger a snowball event that will crush the stock market! But it's not too late to protect yourself from the destructive effects of this little-known law. Discover the details here.
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