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Seeds of Thought
Actionable Intelligence for Those Who Seek Growth
Issue 15-14
April 14, 2015

Inertia
An object in motion continues in motion with the same speed and in the same direction unless acted
upon by an unbalanced force. - Newtons Law of Inertia
This is an important concept to remember when discussing markets and the economy. We have been
witnessing some incredibly powerful trends over the past several years. In order to stop underperforming
them, we must recognize what triggered them and what unbalanced force is most likely to act upon
them. In other words, what is likely to cause these trends to change direction.

The Politics of an Unbalanced Force

If you buy into my view that, similar to the late 1800s and again in the 2nd quarter of the 1900s, a leap
forward in technological innovation has created this very unique and dynamic global macro
environment, with all its derivative micro phenomenon, then you know the only thing that is likely to
alter its trajectory is government intervention. That is why, far more than being distracted by the
minutiae of central bank balance sheets, dot plots and Q&As, or getting caught up in the rhetorical
battle between Bernanke and Summers (Einhorn, Krugman or anyone else who wants to make a name
for themselves by getting mentioned on Bens blog), I am spending more and more of my time focused
on the political realm.
As always, my goal is to separate fact from fiction, not just in the daily commentary, but in identifying
the truly important factors themselves. In other words, I must first spend time understanding which
factors matter and which dont, so that I dont risk getting caught up in the heated, yet often irrelevant
debates that will inevitably develop as more and more people come to realize the significance of this

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side of the equation, and more and more pundits vie for our attention. Along the way, I will publish my
findings in a series of Seeds, with an occasional Macro Radar to tie it all together and create context.
Lets begin by examining some fundamental aspects of the state of politics in America today, so that we
can avoid leaping to conclusions based on possibly outdated beliefs. Since we are entering primary
% of Time Voted with Party
Marco Rubio (R)

95%

Ted Cruz (R)

95%

Rand Paul (R)

92%

Dianne Feinstein (D)

99%

Charles Schumer (D)

99%

Nancy Pelosi (D)

99%

season, there is a very real possibility that we will be led into

believing that there exist some fundamental differences among
candidates of the respective parties. That it actually matters
whether you support one Republican in his bid for the White
House versus another. Of course, the same goes for the
Democratic nomination. Turns out this is a disturbingly easy one
to dismiss.
One quick look at the chart and you will almost immediately
conclude that a Democrat is a Democrat is a Democrat, and the
same goes for the Republicans too. In fact, the more a member of
Congress has gained household notoriety, and therefore can be considered a serious contender for their
partys nomination, the more likely they have been to vote along party lines.
Lest you think its always been this way, take a look at this chart (see Sorting Out) showing how times
have changed. The difference is staggering (and suggests a possible tipping point), but should it really be
surprising?
The answer, of course, is no. As evidenced by the recent Koch Brothers announcement that they will be
investing (I see no other way to describe
it) nearly $1 billion in the 2016 election,
PAC$Spending$in$Congress$
(Millions"US"$)"
money has become a significant part of
500"
the political landscape. Yes, even more
450"
than it has at any time since, well, since
400"
the last time wealth disparity entered
350"
similar territory.
300"
The message for politicians with
aspirations of occupying higher office is
simple. Toe the party line and you will get
your share of the advertising budget.
Deviate, and you are on your own. The
message for those of us who are watching
Issue No. 15-14

250"
200"
150"
100"
50"
0"
1978" 1980" 1982" 1984" 1986" 1988" 1990" 1992" 1994" 1996" 1998" 2000" 2002" 2004" 2006" 2008" 2010" 2012" 2014"

April 14, 2015

Bija Advisors

Seeds of Thought

the political landscape unfold, dont get caught up in the individual candidates. Instead, pay attention to
the message being crafted by each of the two parties. See if you can decipher the underlying theme for
each partys message. If I were a betting man, Id wager the messages are going to occupy the most
extreme ends of the spectrum reflecting differences not seen since, well, since the last time we faced
similar issues as a nation.

Further Evidence of Historic Levels of Risk Aversion

I was informed late last week that several hedge funds are complaining that banks are turning away their
cash accounts. The explanation was, banks are losing money on these short-term accounts and rather
than charge customers to keep cash with them, they would prefer to simply turn it away. It was then
suggested to me that this would lead hedge funds to take on more risk with that cash. I say, Nonsense!
The role of the bank in these situations is actually that of the risk taker. It is their job to take cash
deposits and convert them into loans, creating leverage in the system and converting savings into
investment. The mere fact that they are turning that cash away rather than fulfilling their role in the
system, should serve as evidence of the incredible level of risk aversion in the financial system today.

About the Author

Over a 28 year career in finance and economics, Stephen Duneier has headed global investment
businesses for Bank of America and AIG International, launched a $1 billion hedge fund and generated
average annualized returns of 20.3%.
In addition to publishing Bija Advisors unique brand of actionable intelligence for the institutional
investment community, key policymakers and business leaders, he regularly speaks around the world on
macroeconomic related topics, as well as how to improve performance through a more deliberate
approach to decision making.
Mr. Duneier teaches Decision Analysis at the University of California Santa Barbaras College of
Engineering and is an accomplished artist whose work has been featured in numerous international
publications and is represented by the world-renowned gallery, Sullivan Goss. He received his masters
degree in finance and economics from New York Universitys Stern School of Business.

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Issue No. 15-14

April 14, 2015