At least, that’s my takeaway from the election results. No matter what policies and promises were made, lies told, or insults and threats slung around, people couldn’t get over paying $7.00 for a gallon of milk when it cost $3.50 five years ago. It didn’t matter that wages kept pace with inflation. It didn’t matter that the percentage of US household budgets spent on groceries is about the same as before. It didn’t matter that a gallon of milk still ONLY costs $7.00. They saw something they buy every week go up 100% in five years. That cannot be unseen. (Disclaimer: I am not the grocery shopper in my family, so my numbers may be off but are directionally right)
Much has been written about the cognitive dissonance about the state of the US economy. Corporate earnings are at record highs. GDP growth is steadily higher than at any time post-GFC. The US stock market has made almost 50 all-time highs this year. Unemployment ticked up a bit but remains at decades-long lows. Real wages for the bottom 25% of earners actually made up for some of their 40-year losses. But have you seen the price of eggs? Obviously, the economy is falling apart!
Housing is expensive. I’ll give them that.
If you remove our presidential candidates’ names, characters, and political affiliations, you can see objectively that the party in power had a disadvantage. There was nothing they could do or say. Throw in the toxic state of politics and the death spiral silos of biased news consumption, and the outcome is clear. Pay no attention to the populist strong man making fascist innuendos behind the curtain (out in the open).
To those who worry.
I believe financial markets are our strongest check and balance. Markets can be a swift self-correcting mechanism. Markets do not lie. Markets anticipate. They do not wait for the outcome. Do you think the biggest ego in the world won’t be paying attention?
I have two examples to back up this theory.
In late September 2008, at the depths of the financial crisis, Congress rejected the first attempt to pass the $700 billion financial bailout plan called the Troubled Asset Relief Program (TARP). The stock market reacted violently, losing nearly 7% on the day. Banks were failing left and right, and the global financial system was quite literally collapsing. The rejection vote was on a Monday. By Friday, the House voted to approve the bailout bill, and the President signed it the same day. The markets spoke, and legislators listened.
In the summer of 2011, Republicans in Congress fought the Obama administration over the routine process for raising the debt ceiling—the amount that Congress authorizes the Treasury to borrow to pay for the budget Congress has already approved. In mid-May, Treasury Secretary Tim Geithner warned that the debt ceiling had been reached, risking a potential default on US Treasury securities. Marred in debate, Congress stretched the debt ceiling approval to late July. Then the markets spoke. The S&P 500 Index cratered 17% in two weeks. August 2 was the absolute deadline for the Treasury to continue making payments to fund the government, including Social Security checks. Congress passed the Budget Control Act of 2011 on that deadline. Two days later, Standard & Poor’s downgraded the credit rating of US debt from AAA to AA+ with a negative outlook.
Tariffs are terrible policy. Anyone who took Macroeconomics 101 knows this. Mass deportation of any significant amount of the labor force will cause instability in the labor market and reignite inflationary pressures. Government spending is part of economic growth. Austerity causes stubborn and self-reinforcing economic recessions, ask Greece.
But markets won’t wait to react; they will anticipate bad moves and price them. Markets have the power to force lawmakers and egomaniacal executives to shift course. For that reason, I remain unapologetically optimistic about investing for the long term. Volatility spikes in the interim provide opportunities for those who prepare and exercise discipline. I’ll be ready. Will you?
To those who celebrate.
Lower taxes and less regulation are driving exuberance in markets today. That’s plain dollars and sense. But be careful what you’ve wished for and now achieved.
The independence of the Federal Reserve should not be taken lightly. US exceptionalism is driven by the dollar’s status as the global reserve currency and our stable financial markets. The sacrosanctity of monetary policy cannot be mixed with politics. This is a third rail that should never be touched. Jerome Powell should do all he can to keep his job and avoid letting a loyalist be placed in his seat.
Our military power and foreign policy are equally important to our strength as a nation, despite all of their flaws. Since the end of World War II, we have defended democracy around the globe at great expense. Here I will tread lightly, as this is far from my area of expertise. But to back down against Putin in Ukraine seems to me a grave mistake. Bullying our allies and ripping up decades of global policy that have kept peace seems reckless. I hope these things will not come to pass.
There’s the debt and the deficit to consider. We’ve made promises to ourselves that have not been funded. There are only two ways out—raise taxes or cut spending. We most likely need to do both. I applaud efficiency and attempts to detect waste and fraud. (That’s why I thought properly funding the IRS was a good idea) An Elon Musk-style reorganization of the federal government sounds like a disaster. Blowing it all up to start over is not a viable option, as appealing as it sounds. We cannot wall ourselves off from the impacts of pulling the social safety net. Are you willing to tolerate an explosion of homelessness among our most vulnerable populations? Do you want bread lines around your corner and the spike in crime that will inevitably follow? Perhaps Mark Zuckerberg can hide in his Hawaiian bunker, but most of us will still live in the real world.
I value decency, respect, decorum, politeness, unity, and compassion in leaders. Color me old-fashioned for yearning for the blandness of a Mitt Romney or a Jimmy Carter. I’d gladly pay a little more in taxes to shield my children from the mean-spirited rhetoric we will soon have again at our helm.
I believe in the best of America and Americans. I see how we treat each other in real life, face to face. We are not what we see on TV and read online. The Rs and the Ds are not our enemies; they are our neighbors. The government is not evil; it is us. We get the government we deserve because we elect our leaders. And there’s a whole wide world out there waiting to embrace you if you’ll simply turn off the 24-hour cycle of doom and get out in it.
But be warned, the price of filet mignon is through the roof.
