Posts tagged ‘Tea Party’
Betting Before the Race Starts
The spectators, myself included, are accumulating economic and political information as fast as it’s coming in and placing bets on different horses. Since Election Day, wagers on stocks have pushed the Dow Jones Industrial Average higher by more than 1,400 points (+7.8%) to almost 20,000. The current favorites have names like the banking sector, infrastructure, small caps, commodities, and other cyclical industries like the transports. The only problem…is the race has not even started.
Rather than place all your wagers before the race, when it comes to the stock market, you can still place your bets after the race begins (i.e., the presidency begins). So far, many bets have been made based on rhetoric emanating from the presidential election. Nobody has ever accused President-elect Trump of being short on words, and ever since the campaign process started a few years ago, his gift of the gab has led to many provocative claims and campaign promises. But as we have already learned, actions speak much louder than promises.
The walls of Trump’s pledges are already beginning to collapse, whether you interpret the shifts in his positions as softened stances or pure reversals. Examples of his position adjustments include recent comments regarding the maintenance of Obamacare’s preexisting conditions and universal care access components; immigration policies for illegal immigrants and his protective wall; or promises to lock up Hillary Clinton over her email scandal. The main point is that words are only words, and campaign promises often do not come to fruition.
The President-elect’s definitely has a full plate before his January 20th Inauguration Day, especially if you consider he is responsible for naming his White House and the heads of 100 federal agencies before his swearing in. But this only scratches the surface. When all is said and done, Trump will be making roughly 4,100 appointments, with 1,000 of those needing Senate confirmation.
While we sit here only one month after Trump won the presidential election, he has not sat on his hands. Trump has already made a significant number of his Cabinet announcements (click here for a current tally), with the much anticipated Secretary of State announcement expected to officially come next week.
From an investment standpoint, it makes perfect sense to make some adjustments to your portfolio based on the president-elect’s economic platform and political appointments. However, any shifts to your portfolio should be measured. For example, Hillary’s tweet heard around the world regarding skyrocketing pharmaceutical prices had a significant negative impact on the pharmaceutical/biotech sectors for many months. Expectations were for a more lenient and pharma-supportive administration to take place under Trump until excerpts from his Time magazine interview leaked out, “I’m going to bring down drug prices. I don’t like what has happened with drug prices.” Subsequent to his comments, the sector swiftly came crashing down.
As I have also pointed out previously, although Trump and the Republican Party have control of Congress (House & Senate), the make-up of the Republican majority is limited and quite diverse. I need not remind you that many of Trump’s Republican colleagues either campaigned against him or remained silent through the election process. What’s more, many fiscally conservative Tea Party members are not fully on board with a massive infrastructure bill, coupled with significant tax cuts, which could explode our already elevated deficits and debt loads.
Suffice it to say, there remains a lot of uncertainty ahead, so before you risk making wholesale changes to your portfolio, why not wait for the President-elect’s actions to take shape rather than overreact to fangless rhetoric. In other words, you can save money if you wait for the race to begin before placing all your bets.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Rating Agencies to Government: Go Back to College!
Remember those days as a young adult, when you were a starving student in college, doing everything you possible could in your power to not run out of money (OK, if you were born with a silver spoon in your mouth, just play along). You know what I’m talking about… Corn Flakes for breakfast, PB&J for lunch, and maybe splurge with a little Mac & Cheese or Top Ramen for dinner. Well, the rating agencies, especially Standard & Poor’s (S&P) with their long-term sovereign credit rating downgrade on the U.S. from AAA rated to AA+ rated, are signaling our U.S. government to cut back on the champagne and caviar spending and go back to living like a college student.
Rent-A-Cops Assert Power
The rating agencies may have been asleep at the switch during the tech bubble (Enron & WorldCom) and the financial crisis of 2008-2009 (i.e., ratings of toxic mortgage backed securities), but they are doing their best to reassert themselves as credible security rating entities. By the way, as long as S&P has some wise critical advice for the U.S. government regarding fiscal responsibility, I have a suggestion for S&P: When providing a fresh ratings downgrade, please limit error estimations to less than $2,000,000,000,000.00 – this is exactly what S&P did in its ratings downgrade. Time will tell whether S&P can maintain its role as credit market policeman or will be mocked like those unarmed, overweight rent-a-cops you see at the shopping mall.
In reality, S&P’s moves represent little fundamental change, especially since these moves have been signaled for months (S&P initially lowered its outlook on the U.S. to negative on 4/18/11). I know there will be some that panic at this announcement (won’t be the first or last time), but should anyone really be shocked by an independent entity telling the U.S. government they are spending too much money and hold too much debt? If my memory serves me correctly, Americans have been screaming S&P’s same message for years – I think the rise of the Tea-Party, the results of the mid-term elections, and the tone of the debt ceiling debate may indicate a few people have caught onto this unsustainable fiscal disaster.
Two Simple Choices
As I have said for some time, these horrendously difficult issues will get resolved. The only question is who will resolve this negligent fiscal behavior? There are only two simple answers: 1) Politicians can proactively chip away at the problem with solutions my first grader has already identified (spend less and/or increase revenue); or 2) Financial Market Vigilantes can rip apart financial markets and force borrowing costs to the stratosphere. Option number one is preferable for everyone, and for those that don’t understand option number two, I refer you to Greece, Iceland, Ireland, Portugal, Italy and Spain.
If you’re getting sick of listening to debt and spending issues now, I will gently remind you this is an election year, so the nauseating debates are only going to get worse from here. I encourage everyone to make a game of this fiscal discussion, and do enough homework to the point you have informed, convicted opinions about our country’s fiscal situation. Unlike in periods past, when Americans could take a nap and ride the U.S. gravy train to prosperity, the ultra-competitive globalized game no longer allows us to rest on our laurels of being the world’s strongest superpower. There are a lot more people playing in our game outside our borders, and many of them are stronger, faster, smarter, and more efficient. Decisions being made today, tomorrow, and over the next year will have profound effects on millions of Americans, myself included. So as the government prioritizes spending programs and debates methods of raising revenue, I advise you to go back to your college days and decide whether you prefer Corn Flakes, PB&J, and Mac & Cheese. If voters don’t pressure politicians into doing the right thing, then we’ll all be collecting food stamps from the Financial Market Vigilantes.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in MHP, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.
Will the Fiscal Donkey Fly?
Source: TopPayingIdeas.com/blog
Will Barack Obama become a “one-termer” like somewhat recent Presidents, Democrat Jimmy Carter (1977-1981) and Republican George H.W. Bush #41 (1989-1993)? Or will Obama get the Democratic donkey off the ground like Bill Clinton managed to do after the 1994 mid-term election when Republican Newt Gingrich spearheaded the Contract with America, which led to a similar Republican majority in the House of Representatives. Clinton’s approval ratings were in the dumps at the time, comparable to voter’s current lackluster opinion of Obama and his spending spree (see also Profitless Healthcare).
Source: Gallup
Reagan Rebound
Similarly, Republican Ronald Reagan (1981-1989) was picking up the pieces with his lousy approval rating after the 1982 midterm election. Tax cuts, “trickle-down” supply side economics, and a tough stance on the Russian Cold War turned around the economy and his approval rating and catapulted him to reelection in a landslide victory. Reagan carried 49 states with the help of Reagan Democrats (one-quarter of registered Democrats voted for him).
Source: The Wall Street Journal
One should be clear though, popularity is not the only factor that plays into reelection success. George H. W. Bush had the highest average approval rating in five decades (60.9% approval), only superseded by John F. Kennedy (70.1% approval). The economy, international politics, and other external factors also play a large role in the reelection process.
Flying Donkey Time?
If President Obama wants to get the Democratic donkey off the ground and raise his current approval rating of 47% and remedy his self-admitted “shellacking” by the Republicans, then he will need to shift his hard-left political agenda more towards the middle, like Clinton did in 1994. If he leads on ideology alone, then the next two years will likely be a long tough slog for him and his Democratic colleagues.
In order to shift toward the center and gain more Independent voters, Obama will need to find common ground with Republicans and Tea-Partiers. Obama has already conceded in principle to extend the Bush tax cuts, but if he wants to gain more political capital, he will have to gain some ground in the area of fiscal responsibility. With the help of a strong economy, Clinton managed to run surpluses, but front and center today is a $1.3 trillion deficit and over $13 trillion in debt. The first step in building any credibility on the issue will come on December 1st when the president’s bi-partisan commission for deficit reduction will release its report.
It will be interesting which party will show leadership in making unpopular spending cuts, just as the 2012 re-election cycle just begins. The elephants in the room are the entitlements (Medicare and Social Security), and although less talked about, efficient cuts to defense spending should be put on the table. Sure, pork barrel spending, inefficient subsidies, tax loopholes, are gaps that need to be filled, but they alone are rounding errors given our country’s unsustainable current circumstances. Whether or not politicians (red or blue) will point out the unpopular elephants in the room will be interesting to watch.
Financial irresponsibility at the consumer and corporate level were major drivers behind the 2008-2009 financial crisis, and both individuals and businesses are responsibly adjusting their expense structures and balance sheets. Our government has to wake up to reality and adjust its expense structure and balance sheet too. Although foreign countries have reacted (i.e., European austerity), egotistical American politicians on both sides of the aisle haven’t quite woken up and smelled the coffee yet. Thank goodness for the democracy that we live in because citizens are pointing to the elephants in the room and demanding reckless spending and debt levels to come under control. If President Barack Obama doesn’t want to become another one-termer, he’ll have to move more to the center and get the finances of our country under control. If the stubborn donkey refuses to deal with reality and remains flightless, hopefully an elephant or ship-full of tea partiers can get this grass roots call for fiscal sanity off the ground.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.
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