Five Stocks for a 1984 Kind of World

It turns out George Orwell’s 1984 was a little more prescient than maybe many of us thought just a few days ago. The public is in an uproar over secret surveillance programs (and rightfully so!) by intelligence agencies like the National Security Agency or NSA. Strangely this is one of those rare political topics that has garnered support (but to be fair, also criticism) from both sides of the aisle. George Carlin warned us that “bipartisan usually means that a larger-than-usual deception is being carried out” and in this case we are talking about a Bush administration policy ramped up significantly by the current administration and supported nearly unanimously through passage of the Patriot Act in the wake of the September 11^th attacks.

Beyond the obvious, that our 4^th amendment rights have been clearly infringed upon, it also begs the question of how is all the technology in our phones, iPads, computers and other wired devices is being used, and for what purpose(s). These devices are highly advanced and have the ability to record sound, video and gather other information about users, often without the user even realizing it.

More to the point, how markets react to this news in the coming days, weeks and months will be particularly telling. Many well know firms like Verizon VZ, Microsoft MSFT, Google GOOG, Facebook FB, Apple AAPL as well as others have been implicated. Some have denied any connection in the scandal, but all the facts are still yet to be collected and analyzed, and at this point we have a he-said/she-said stand still.

Market reaction to the news, particularly in the well-known, above mentioned names, will serve as a kind of referendum for politicians interested in expanding their own powers while curtailing constitutional freedoms. While there is a very vocal group of citizens outraged by these revelations, the true test of how the population, as a whole, feels about this program will play itself out in the financial markets. It’s easy to be outraged when something this shocking is first revealed, but the staying power is still to be tested.

A sharp, sustained pull back in these names, driven by a decrease in sales (i.e. consumers voting with their wallets) will be quite telling. It will be an indication that Americans don’t take kindly to have their rights infringed upon and will change their buying habits accordingly. Should this scenario play out it will send a strong message to politicians.

If, however, we see a pullback in these names based on speculation of the above happening, without a corresponding, material impact in revenues going forward then we can deduce that we Americans were outraged initially, but ultimately too lazy or too dependent on our technology to do anything but complain for a while. This also sends a clear message to politicians; basically inviting further curtailment of rights.

Our reaction as consumers and as investors to this news has the potential to dictate future government policy and surveillance programs, as well as perhaps even more wide reaching ramifications going forward with regard to our rights.

As Benjamin Graham, the author of the best book on investing ever written (according to Warren Buffett) said: “In the short run the market is a voting machine. In the long run it’s a weighing machine.” Immediately, in the short run, we will be voting with our hearts but for the impact to be sustained we need to act to make the long run valuation of these stocks reflect our true feelings with respect to these issues.