Wall Street bets on Washington

Politicians often have little power over the cyclical ups and downs in the economy, but they can help investors make their bets on stock picks.

Take this year’s farm bill, which has attracted the attention of Wall Street hedge fund managers. They are hoping to make a buck on whether or not the bill extends tariffs set to expire at the end of the year that protect U.S. ethanol producers from foreign competition.

The article by Jessica Holzer in The Hill on Thursday illustrated the impact Washington policy can have on stock prices and the increasing desire investors have for Washington information. Traders looking for advantages over their competitors when buying and selling stocks can do so by knowing the latest odds that lawmakers will include a key provision in legislation slowly moving through the sausage-grinder of Congress.

Political intelligence isn’t a new business, and for decades investment firms have kept tabs on the nation’s capital. But the boom in private hedge funds, which are limited to accredited investors and can make riskier investments than more regulated public securities such as mutual funds, has led to a jump in political intelligence.

While the farm bill’s energy provisions are spurring the greatest interest from money managers, they’re far from the only sections of the bill grabbing investor attention.

Senate Finance Committee Chairman Max Baucus (D-Mont.) and other supporters of Weyerhaeuser Co. are supporting a tax measure that could lower the forest products company’s taxes by $100 million annually, according to The Wall Street Journal. The tax measure could help the Washington state company’s balance sheets and influence decisions by investors on whether to bet on Weyerhaeuser or its competitors in the forest and paper products sector.

Another section would speed up the tax write-down of farm equipment purchases, which could boost the earnings of companies such as Deere & Company and Caterpillar.

It’s not just the farm bill that has Wall Street’s attention, either.

Hedge funds also have an interest in whether Congress will take action to ensure college students can get loans. The wider financial crisis has made it difficult for lenders to get money for loans, which has sparked the possibility of government intervention.

Furthermore, congressional decisions on trade deals with Colombia and South Korea are sure to get attention.

How much of an impact any of these policy changes will have on the broader economy is debatable.

There’s no guarantee that ethanol stocks, for example, will rise simply because of the extension of the tariff.

But it is inescapable that the connection between Wall Street and Washington is tightening, as hedge fund managers and other investors contemplate farm policy for their stock bets.