Everyone seems dissatisfied with his political party these days. Whether one is a Republican or a Democrat, no one is happy. But are the two groups actually in the same boat? In my opinion, even in their dissatisfaction, there are important differences between the parties.

Consider the dilemma of small-government Republicans. They want to curb government spending, yet the government has exponentially grown even under Republican leadership. In some ways, it’s their own fault. No one in the party seems to complain when defense contractors get fat government checks. Furthermore, many hypocrites in the party would like to cut the other guy’s programs but not their own.

Regardless of these inconsistencies, the conservative philosophical rhetoric hardly ever becomes actual policy. Even during the Reagan years, government continued its expansion (let’s not even get into George W. Bush). Republican voters are promised a fiscally conservative government, but they never get it. The reason for their anger is obvious.

But with Democrats, it’s a completely different story. They demand more government oversight, more safety nets, and more government programs. Have you opened up a history book lately? That’s exactly what happened in the U.S. over the last century. Democrats can’t honestly say that their leaders don’t fulfill their demands.

Sure, maybe the Democratic Party hasn’t enacted all its promised programs, but it’s better than the situation in the Republican camp: Their party never reduces the size of government, administration after administration.

Look at Obama as an example. He voted to bail out the auto companies and the banks. Then he passed a nearly trillion-dollar stimulus package and “Obamacare.” And from debit-card fee limits to Dodd-Frank, he’s regulating the financial sector. On top of that, Ben Bernanke’s neo-Keynesian policies pumped trillions into the system.

More regulation and more spending is pretty much the Democratic Party line, and the Obama administration has followed it. So why the complaints? Well, it’s kind of obvious here too: The unemployment rate is still high, and the economy has not recovered despite the trillions spent.

Republicans are angry because their politicians never fulfill their campaign promises. But Democrats actually do get most of their programs. However, they never work as promised; and naturally anger ensues.

Voters for both parties live in a state of denial about obvious facts. It’s time for hardcore Democrats to accept that big government doesn’t work. Do we really need to spend another trillion to prove that point? And Republican voters should realize that their party will never become fiscally responsible. It never has been, and it never will be.

It’s pointless to agonize over party politics. Democrats will keep creating failed program after failed program, and Republicans will continue to lie. Personally, I don’t care in the slightest about their false promises – no matter how sweet they may sound. I’d rather sit on the sidelines, relax, and enjoy a margarita.

In today’s issue, we’ll be reporting on USAA’s decision to discontinue the buying of some over-the-counter foreign microcap stocks. Naturally, this decision greatly affects Casey Research subscribers with USAA accounts, particularly in regard to junior resource stocks. Based on our research, other brokerages are not likely to take similar steps – nonetheless, we want to inform readers about this change, and have posted the essay as a standalone article for easier future reference.

Microcap Trading: Changes on the Way?

By Casey Research

Recently, a number of our subscribers notified us of an unsettling development with one of their brokers, USAA – a large umbrella organization that offers insurance, banking, and investment services to some eight million present and former members of the military and their families.

Our subscribers had been informed that USAA was discontinuing buying and selling (except for sales of existing positions) of certain over-the-counter (OTC) foreign microcap stocks that trade in the U.S. in American Depositary Receipt (ADR) form, including some of the Canadian securities covered in International Speculator and other Casey Research publications.

Along with these reports came unsubstantiated rumors that other brokerages were planning to follow suit – the implication being that junior resource stocks, among others, would become more difficult for Americans to trade. So, we quickly dug into the issue to discover what was behind the USAA decision and whether or not it should be of concern to our junior resource investors in the U.S.

The answer we discovered is, in short: This is a one-off decision by USAA, and we can find no evidence that a precedent has been set for other brokers.

These pink sheet or bulletin board ADRs now unavailable to trade in USAA brokerage accounts are used by Americans who, for convenience or other reasons, don’t want to trade the underlying security directly on a foreign exchange – and they’re identified by an F at the end of the listing symbol. Activity in them is conducted by the OTC Markets Group, which facilitates transactions but is not a stock exchange.

For most subscribers, we continue to recommend trading directly on the Canadian markets when possible, which usually offer superior liquidity and more favorable bid/ask spreads. Depending on the investor’s goal, we either recommend using a full-service broker that has direct access to Canadian exchanges and can spend the time required to locate the best deal for you, or one of the many discount brokerages that now offer direct trading on foreign exchanges. However, we recognize that for any number of reasons there are many people who need or prefer to keep their trading confined to a broker that doesn’t have that ability, like USAA, and for them the pink sheets are the only way to go.

Unfortunately, anyone trading with USAA is stuck. The broker will allow them to maintain the positions already in their accounts until they’re ready to sell. But they cannot add to their positions nor open any new positions. One of our subscribers suddenly stuck with new restrictions on his preferred brokerage account indicated to us that he was faced with having to decide whether to abandon CR or open a new account in which he would be able to act on our recommendations. Though we’re sorry for his troubles, we’re gratified that he chose the latter course. And we recommend the same to all of our subscribers, as it appears USAA will stand alone in this decision.

USAA wouldn’t discuss what criteria they’ll use to determine which companies make the list and which don’t. They said they’ll rely on in-house evaluations in addition to data from OTCBB, which publishes a list of companies that are non-compliant with Financial Industry Regulatory Authority (FINRA) rules.

They did share that the policy change was triggered in part by the accounting scandals that have erupted with respect to a number of Chinese companies over the past couple of years, which was both a customer service headache and raised concerns about their own legal liabilities going forward.

Nevertheless, as best we can determine, USAA’s decision in this matter is not the leading edge of a wave. So far, it hasn’t spread to any of the major investment houses. We spoke with several of them. Some are “watching the situation,” while others claim to know nothing about it. But all – including Charles Schwab, Fidelity, Scottrade, eTrade, and TD Ameritrade – stated that they have no planned policy modifications with regard to OTC stocks.

The important question then is, what does all this mean for Casey Research subscribers and others who trade junior resource stocks? The short answer is: nothing. Provided, that is, that you don’t use USAA to do your trading. If that’s the case, then you’ll have to switch to someone else.

While we think it unlikely that many of the other brokerages will follow USAA’s lead – there is too much business to be lost, in our opinion – don’t be surprised if a handful eventually do. Government regulators have been increasing their attention in the microcap space in wake of these scandals, including creating a new SEC Microcap Fraud Working Group. So, we’ll continue to continue to monitor the situation.

The best solution, as we have always stressed, is to maintain at least one account in which you or your agent can trade directly on the Canadian exchanges.

For further information, be sure to consult these two free reports, available at www.caseyresearch.com:

• The Casey Research Guide to Investing in Canadian Stocks (for Non-Canadians)
• Investing Abroad: What U.S. Investors Need to Know

The latter report details which online discount brokers actually do directly trade foreign markets – particularly Canada – and directs you to full service brokers we’ve used and trusted for years.

Additional Links and Reads

ECB Raises Rate to Highest Since March 2009 (Bloomberg)

This ECB rate hike from 1.25% to 1.5% was another predictable move. However, the big question is the central bank’s next step from here. A few rate hikes is a start, but that likely won’t take inflation down to 2%. In response, the Bank of England has left its rates untouched while Sweden moved its benchmark rate 25 basis points, to 2%. As other countries continue to raise rates, the Fed will feel more pressure to do the same.

The Next Big Boom Towns in the U.S. (Forbes)

Notice anything about the towns on this list? None of them is in the overregulated and overtaxed northeast or west coast. Relatedly, I’ve noticed a new trend among hardcore liberals lately: It’s cool to hate the fastest-growing cities in America – particularly places in Texas. The attitude seems to go like this: “Sure, they’ve got plenty of jobs, affordable rent, and low taxes, but what about the strip malls? Oh my! It’s so horrrrrible.” Even when a place creates jobs and an affordable life, some folks still won’t be happy. Makes you wonder how much they really care about economic growth in the first place.

(On a side note, it’s rather ironic to hear this from folks who live around the strip malls in D.C.)

Pimco’s El-Erian Gives “Low Probability” of QE3 (Reuters)

“We would assign a low probability (at) this stage to QE3 given the general recognition that the forward-looking cost-benefit analysis has shifted away from the potential benefits and toward greater costs and risk,” El-Erian, co-chief investment officer of Pimco, said in a live blogging question and answer session on Reuters.com.

In short, when everyone was printing money like crazy, QE2 was feasible. But now other major central banks are raising rates. The Fed can’t diverge in the opposite direction. If it did, the U.S. dollar would take a severe hit, and the risk of rapid inflation would be much higher.

That’s it for today. Tomorrow, I’ll be here in place of David Galland. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey Daily Dispatch Editor