In what will easily be the most bizarre presidential campaign in our lives (maybe in history), I am telling you today that it is important that you vote. I’m not telling you which candidate should receive your vote. My Investment Commentary remains impartial for a reason.
But never in my life have I heard so many people say, “I hate them both, so I’m not going to vote.” And it’s a fair statement. Both of them are not very likable, each for their own special reasons.
Although there may be other good reasons for you to cast a ballot (foreign policy, deficit spending, fiscal policy, she’s a liar, he’s a loose cannon), the most important reason is the Supreme Court. Over the next four years, there are likely to be as many as four new vacancies on the Supreme Court.
The president of the United States gets to choose who fills those vacancies. Yes, Congress has to confirm the selection, but they only vote on who the president chooses.
And whoever gets selected and confirmed serves on the Supreme Court for THE REST OF HIS or HER LIFE! Which means whoever wins in November will likely have a large impact on this country and our lives for the next 30 to 40 years.
If you would like for the Supreme Court to become very liberal, then you probably should cast your vote for Hillary Clinton. If you would like for the Supreme Court to become more conservative, you should probably cast your vote for Donald Trump.
You might think, “It doesn’t matter if I vote because my state (be it California or Kansas) is so heavily Democratic or Republican, my vote won’t even matter.” Ordinarily that’s probably a true statement, but I think this is a year that traditional voting trends could get turned upside-down. Just a feeling.
However, if you live in one of the traditional “swing states” (Ohio, Michigan, Indiana, Pennsylvania, Florida, etc.), you DEFINITELY NEED TO VOTE.
The biggest red flag to come out of this presidential campaign is that Bernie Sanders generated as much support as he did. Either Hillary underestimated his potential and ran a really bad campaign or Bernie’s message is starting to sound really good to a lot of people. Maybe a little bit of both. At the Democratic Convention, the crowd cheered when Bernie was introduced. And they kept cheering for about three to four minutes. This is scary.
When socialist ideology begins to sound like a better system, a capitalist society needs to LISTEN! The reality is that the gap between the “haves” and the “have nots” in the United States has gradually grown wider and wider over the past three decades.
If it continues to grow wider, the next “Bernie Sanders” will likely garner even more support and may actually become the Democratic nominee. It’s conceivable that a Socialist candidate could become president someday….unless the “haves” sit up and listen….and vote for the candidate that will create meaningful jobs for the middle class and narrow the gap between ultra-rich and everyone else.
I’m not sure I know who that candidate is, but in the long run, it is the candidate who says he or she intends to shrink the size of the government. For the past sixteen years or more, we have watched the government grow dramatically under both a Republican (Bush) and a Democratic (Obama) president.
Governments don’t create meaningful jobs. The private sector does. The larger the government, the smaller the private sector. Vote for the candidate who outlines well how he or she intends to create private sector jobs. Otherwise, brace yourself for an even larger government than we already have….and eventually a socialist government. You won’t want to own stocks if that happens.
The stock market loved last month. During July, the S&P 500 increased 3.68%, and it has increased 5.59% for the past 12 months. Since the recession ended in February, 2009 it is up 245%, an annual rate of 18.1%. Of course, that’s cherry picking from the bottom of the stock market crash. If you dial the returns back to the end of October, 2007, the S&P is only up 6.23% annually.
As I’m writing this, the Dow Jones Industrial Average, the S&P 500 and the NASDAQ are all three hitting record highs, the first time that has happened since December, 1999. If I recall correctly, what happened shortly after December, 1999 was not pretty. The S&P 500 peaked in March, 2000 and fell over 36% over the next 18 months. And those were the good stocks. Because this was a “Tech Stock Bubble,” the technology laden NASDAQ declined over 70%!
We are not necessarily predicting a 35% – 70% market crash in the next two years. The NASDAQ, while it has had a nice run, is trading nowhere near the ridiculous valuations at which it was trading in 2000.
(Although there were many insane tech stock stories, one of my favorites involves a stock called JDS Uniphase. At the peak of investor tech stock insanity/euphoria, it traded at $666 per share, adjusted for splits. In 2008, at its nadir, it traded at $1.25 per share. They have since changed the name of the company. Probably so that we would quit talking about them.)
We do, however, feel that stocks are not cheap. They are not horribly expensive but they are not cheap. Markets have traded at much higher prices (relative to earnings) than they are today. And seldom have we experienced interest rates this low. When the risk free rate of return remains low, the temptation to invest in risky assets becomes more attractive. Many stocks today pay dividends greater than the interest rate on the 30-year Treasury Bond.
In an environment where interest rates are very low, stocks can become very expensive….and more expensive….and even more expensive. And if investor perception is that interest rates might go even lower, stocks can get ridiculously expensive as investors misprice risk in order to get a reasonable return. This has the potential to end very badly.
Meanwhile, interest rates remain ridiculously low and will remain ridiculously low for a long time. Earlier this month, the Bank of England (BOE) reduced interest rates by .25% to .25%. The BOE also pledged to purchase billions of pounds of high grade corporate bonds in order to keep rates low.
The U.S. Bond market continues its 35-year bull run, interest rates declining in July. The 30-year US Treasury bond traded as low as 2.09%, closing the last day of July at 2.28%. The 10-year closed the month at 1.45% after trading as low as 1.35%.
At Boyer & Corporon Wealth Management, we have increased the duration of our fixed income securities since we feel interest rates will remain low and possibly go lower.
Although we are not yet reducing or hedging our equity positions, we are nervous. But as long as interest rates remain low and trend even lower, investors will probably continue to drive stock prices higher.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.