Economic Freedom or Czarist Rule?

I recently reviewed the proxy for a retail mutual fund on which, in addition to the normal election of board members, there was a proposal to prevent the fund from “holding instruments in companies that … substantially contribute to genocide or crimes against humanity.” Jeez, can a money-market fund actually do that?

Regardless, it’s there on the proxy, and it’s our right as investors to vote either way. If our side of the issue doesn’t prevail, we are free to sell our shares and take our business elsewhere at any time. Domini and Calvert, for example, offer the Calvert Social Investment Fund Money Market Portfolio (CSIXX) and Domini Money Market Account money funds that address these type of social issues – if that’s your interest.

Thus is the nature of a capitalist economy. Individuals are free to either support a company—or not. If you don’t like a company’s strategies, compensation practices, pay perks or policies, you are free to sell the stock at any moment and no longer have any involvement whatsoever. Not surprisingly, smart companies compete by incentivizing investors to hold their shares, not dump them in disgust.

That process is undermined when we are forced to become investors, as we have been with the automakers, the banks and the other failing businesses in which the government has poured our tax dollars. As involuntary shareholders, suddenly we no longer have a vote—or a say in the matter at all.

To oversee the process normally governed by shareholders and boards, the administration has appointed a new “pay Czar” with wide-ranging discretion over executive compensation. Decisions are no longer made by shareholders or boards of directors, instead they’ll be made by one unelected dictator with the power to deem an executive’s salary as “excessive” or “inappropriate.”

While it might seem as simple oversight of a massive government investment, consider that other politicians, including Rep. Barney Frank (D., Mass.), have sought to limit or dictate compensation across the financial sector, even those companies which have not received a dime of taxpayer money.

To that end, the president is also calling for "say-on-pay" legislation, which would require annual votes on which shareholders vote on the CEO’s pay. Of course shareholders already have a say on pay. They can lobby other investors through persuasion to support their views as to how the company should be run, as is often the case with proxy contests. Or they can simply sell their shares.

The whole notion of a czar dictating how free individuals can interact and trade is so unmistakably contrary to the American principles of liberty and individual rights. Czars after all, were dictators who dealt with others through force, not free trade. And while he does not resemble Russia’s Ivan the Terrible, the president’s efforts do not respect the rights of free individuals to handle their own affairs, but forces them to be governed as he…or the czar…or any other politician sees fit.

Tin has rallied some 44% since profiled in this space last March. Greater anticipated economic growth plus a sharply lower dollar has boosted commodities across the board, including industrial metals such as tin—and the trend appears very much intact. Similar allocations for those interested in following the trade include Dow Jones-UBS Lead ETN (LD) and Dow Jones-UBS Nickel ETN (JJN), which both offer exposure to niche industrial metals in a convenient exchange-traded (albeit thinly) security.

Heavy Metals

Dow Jones-UBS Lead ETN (LD) and Dow Jones-UBS Nickel ETN (JJN) – 6 months
Source: BigCharts.com

On the verge of bankruptcy is Eddie Bauer (EBHI), a company founded in 1920 with 10,000 employees, thousands of suppliers and a long history of innovation, including the first patented goose down-insulated jacket in the United States.

Don’t expect a bailout for the company, just as there wasn’t one for Circuit City, Thornburg Mortgage, General Growth Properties, Sharper Image, or scores of other companies facing tough times without the political connections of the big auto makers or banks. By propping up GM ($50 billion) and AIG ($182 billion), the government essentially says that the employees and families of the banks and auto makers are somehow more important than those who work at General Growth.

The lesson is that in America, we’re all equal. It’s just that some of us are a little more equal than the rest.