This post appeared Tuesday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.At the start, I will admit to being a political junkie. I follow elections as if they were baseball games, complete with snacks and adult beverages. The electoral and legislative process fascinates me, usually in its absurdity. What I am not a huge fan of, however, is when the markets become overly politicized. Politicians will always have some impact on the financial markets, since they set economic and regulatory policy, but the current environment is reaching the point of the ridiculous. Government influence and participation in the markets is at a level I have never seen in my career. It seems that every day the president or a congressional leader makes a speech or remark that changes the direction of the market. New regulations are coming from every level of the government, and this is changing the structure and mechanics of the market itself. It complicates the process of picking stocks and choosing investments to build or protect capital. In addition to understanding valuations and finance, you need to be able to guess what the federal government might do and how it will affect your decision. The scramble to fix the financial crisis and also fix the blame is creating an increasingly anti-business climate. It is coming from both sides of the aisle as well as from various federal agencies and the Treasury. The threat of new regulations and taxes is making business very hesitant to expand or invest for an uncertain future. Add in the various poorly thought-out, highly politicized green energy policies, and it becomes very difficult to pick investments for the long term. To avoid the possible negative consequences, an investor needs to stay away from industries that have heavy regulation or government involvement. This rules out banks and other financial institutions almost entirely. Many of them are cheap on the numbers, and ordinarily I might consider them a screaming buy. I have been very cautious to act with these stocks, and government regulations and policies are among the biggest reasons for my caution.
Although I do own a couple of utilities, Duke Energy ( DUK) and Potomac Energy, this is another industry that is going to face considerable government intervention and taxes. In the face of a cap-and-trade bill, I am a little slower to buy the group than in years past.