Tuesday, July 03, 2007

Presidential Deal Maker

Part of my Fourth of July celebration involved a visit to Montpelier, the family home of James Madison in central Virginia. The diminutive Madison is probably most well known for his rework of the U.S. Constitution. He wrote the first ten amendments, bringing alive the judiciary and most of the personal freedoms we enjoy today.

Madison also helped Thomas Jefferson and James Monroe in negotiations with the French for the Louisiana Purchase. In 1803, the U.S. paid $15 million for 800,000 square miles of land. At the time it was the largest land deal in history and had far reaching ramifications for the formation of the United States.

A bit of the Montpelier history casts the Louisiana Purchase in a different light. After Madison returned home from Washington, D.C., Madison’s farm was a financial failure. The prices of Montpelier’s major crops - corn and tobacco - had fallen dramatically. Why? The addition of the great western territory made vast tracts of cheap land available for cultivation. After Madison passed away, his wife, the fair Dolly Madison, was forced to sell off Madison’s notes and papers and finally Montpelier.

Madison was neither the first nor the last president to make bold moves and only later to begin to see the full ramifications of his actions. There are no more massive land deals to be made, but recent presidents have made decisions that have had equally significant economic consequences. Take for example, the recent administrations’ acquiescence on immigration reform or the Bush administration’s decision to invade Iraq.

Investors, myself included, often overlook political forces when looking at stock targets. Politics and executive decisions are vital in several sectors today - alternative energy, aerospace and defense, pollution abatement. It is worthwhile to include the risks of a reversal in political sentiment or control in every valuation exercise.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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