In this I believe

As a supply-side libertarian, I firmly believe in the power of free markets, capitalism, the rule of law, and limited government. I believe in these things because they have proved to be the best way yet discovered to create the most prosperity for the greatest number of people. So naturally I believe that fiscal policies which respect free markets, capital, the rule of law and limited government are superior to those that do not. As an investor, I believe that such policies are more likely to lead to stronger economic growth, rising incomes and more widespread wealth gains.

Investors cannot live in a political vacuum, because politics and economics are firmly entwined; one can never underestimate the ability of policies to change the outlook, whether for better or worse. Policies informed by left-leaning politicians tend not to respect the things I believe in, while policies informed by right-leaning politicians do tend to. There exists the very real possibility that the November election may reinforce the message of the Nov. 2010 election, and lead to a rightward shift in policies going forward which could have huge and positive consequences for economic growth and financial markets. Moreover, the Supreme Court's decision on Obamacare, due out any day now, could have far-reaching consequences since it could put important limits on the scope and size of government.

Deirdre McCloskey has penned an eloquent summary of how the views of liberals and conservatives contrast, (HT Don Boudreaux) and I'm compelled to post this extract:

The liberals' narrative:

Modern life is complicated, and so we need government to regulate. Government can do so well, and will not be regularly corrupted. Since markets fail very frequently the government should step in to fix them. Without a big government we cannot do certain noble things (Hoover Dam, the Interstates, NASA). Antitrust works. Businesses will exploit workers if government regulation and union contracts do not intervene. Unions got us the 40-hour week. Poor people are better off chiefly because of big government and unions. The USA was never laissez faire. Internal improvements were a good idea, and governmental from the start. Profit is not a good guide. Consumers are usually misled. Advertising is bad.

Externalities, asymmetrical information, and other collective action problems are . . . pervasive in economic life. Countless ways of conducting business reap gains for some while imposing unjust costs on others. Create a cartel. Stuff rat feces in sausages. It is a truism to say that in order to achieve the benefits of an efficient market economy (increasing productivity, greater economic output, increasing productive capital, etc.), the basic rules of property, contract, and exchange must be structured [by government] to realize efficient market relations.

The conservatives' narrative:

Externalities do not imply that a government can do better. Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers. Efficiency is not the chief merit of a market economy: innovation is. 

... anyone who after the 20th century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing 19th-century proposals for governmental action are still neat, harmless ideas for improving our lives is not paying attention.

In the 19th and 20th centuries ordinary Europeans were hurt, not helped, by their colonial empires. Economic growth in Russia was slowed, not accelerated, by Soviet central planning. American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High-Street shops and protected monopolies of professional services like medicine, not the consumers. “Protective” legislation in the United States and “family-wage” legislation in Europe subordinated women. State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats. Some of the New Deal prevented rather than aided America’s recovery from the Great Depression.

Unions raised wages for plumbers and auto workers but reduced wages for the non-unionized. Minimum wages protected union jobs but made the poor unemployable. Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians and made housing more expensive for the poor. Zoning and planning permission has protected rich landlords rather than helping the poor. 

Plus much more; read the whole thing, especially the comments section, where Deirdre addresses numerous criticisms.

The housing market has definitely turned the corner

Just in case there are still people who doubt that the residential construction industry has turned the corner, I offer these charts:

May housing starts dipped from an upwardly-revised April level, but as this first chart shows, starts are up a solid 30% since early last year. Compared to their recession low, starts are up 48%. This is almost irrefutable evidence that the residential construction industry is on the rebound, after suffering the six worst years of its existence.

This chart shows an index of home builders' sentiment, and it too clearly shows a rebound from recession-era lows. Conditions are still miserable, to be sure, but they have definitely improved.

Finally, this chart of the stocks of 18 leading home builders also shows that there has been a distinct improvement from the recession lows.

The industry can now look forward to many years of continuing gains, as home building will eventually have to catch up with the ongoing growth in home formations, and what could prove to be widespread shortages of housing. Already there is anecdotal evidence of a lack of homes for sale in some areas of the country, and even reports of bidding wars.

With everything pointing to better times ahead for the housing market, and with mortgage rates at rock-bottom, historical lows, today's conditions represent a homebuyer's dream.

The U.S. continues to avoid Eurozone contagion

The Greeks yesterday voted to keep trying to fix their problem, but there remains much to be done and markets were understandably unimpressed. Still, I note some encouraging signs. As the charts above show, there has been virtually no contagion effect of the Eurozone crisis on the U.S. Conditions remain tenuous in the Eurozone, with swap spreads still uncomfortably high (though not extremely so), but systemic risk in the U.S. is remarkably normal. The Eurozone crisis has been brewing for over two years, and although U.S. markets have had their confidence shaken a few times, in the end the U.S. economy has continued along its path of slow improvement while the Eurozone economies have for the most part slipped into recession; the S&P 500 has climbed irregularly higher, while the Euro Stoxx index has slipped irregularly downward.

This next chart tells the same story but with a different twist. It compares the ratio of the Vix index (a measure of fear) to the 10-yr Treasury yield (a measure of the market's confidence in the U.S. growth outlook) with the yield on Spanish 2-yr bonds (a measure of the near-term likelihood of a Spanish default). This shows how rising tensions in the Eurozone have tended to coincide with bouts of increased fear and despair in the U.S. Interestingly, over the past year the Vix/10-yr ratio has tended to lead the Spanish 2-yr yield, and so the recent decline in the Vix/10-yr ratio could be telling us that the worst of the Eurozone crisis has passed and that Spanish yields could once again decline in the next several months. In any event, I note that despite today's record-setting high in Spanish 10-yr yields (reflecting acute investor distress over the prospect of an eventual Spanish default), the Vix/10-yr ratio today is only about half as high as it was late last September, when the Eurozone was on the verge of its second panic attack. Message: the Eurozone is really taking a hit, but the U.S. remains largely insulated.

With markets here still dominated by fear (e.g., PE ratios significantly below average, the 10-yr yield close to record lows, and $6.3 trillion sitting in banks savings accounts earning almost nothing), the longer the U.S. economy avoids a calamity, the more likely it is that risk assets rise. That is a plausible explanation for why U.S. equities and commodity prices have moved up this month even as Eurozone yields and fears have increased. Conditions in the U.S. are far from terrific, but in comparison to the Eurozone they are pretty good.