Term vs. Terms

We don’t want to ever politicize our communication with you.  However, if we don’t address the topic of where the economy is going under President Trump, you will think us timid, which good advisors should never be.  Therefore, let us address the question that many of you are at least mulling in private if not addressing in public: Will the economy be good under Donald F. Trump, or tank because of his leadership?

The answer to this question, one that is on everyone’s mind globally and not just in the United States, We proffer the comments below. Remember that anyone who tells you they know exactly what will happen is simply after your money.  If they really knew, they’d be using their own money and disappear into the Seychelles for a life of leisure for the next 30 years on the money they would have made.  Therefore, watch your pocketbooks and any such predictions.

As a sound place to start, you only really have to answer two questions;

  1. Will the earnings of companies be higher 3-4 years from now? If those earnings tend to average higher by 3-5% per year, then stock prices (aka equity markets) will generally be higher. If earnings will be lower, stock prices will go lower.
  2. Will we have inflation?  If we have inflation, interest rates will rise.  If interest rates rise, sooner or later bonds (fixed income markets) will have higher coupon rates and kick off more money for those investors who hold them.

Of course the challenge, is prognosticating the answers to these two seemingly simple questions.  The questions are easy, and the answers not so much. There are a host of very complicated variables going into them.  Still, we could identify a few policies that portend an up market, and those that would be bad for the economy.

Positives portrayed; More jobs (people spend money when they have more income), less regulation (compliance is an ‘expense’ to business, and fewer rules mean higher earnings), a revised tax code for corporations (pay less to the Feds, leave more for shareholders), and, not to be dismissed, increased confidence on behalf of companies and consumers.

Negatives possible; Trade wars (sooner or later, higher tariffs mean less ‘frictionless’ trade, and frictions create costs, and increased bring lower bottom lines (for both individuals and businesses)), less free movement of people (immigrants have unmistakably been a long term good for economies), too fast a rise in interest rates (quick jumps scare new homeowners from borrowing and lessen corporate investments), and, not to be dismissed, a decreased sense of confidence on behalf of companies and consumers.

Easy as pie, you say.  However, before you place your big investment bet, let us remind you that ALL of these stated points of view (and others) are already incorporated into the market price of all traded securities (bonds, stocks, REIT’s, etc. etc.).  Each and EVERY day, these variables are repriced into the market.  It is a positive reality that money is not loyal to any party.  Mathematically, none of us knows as much as all of us together, which is why traded markets are such a marvelous agent of investor democracy.

Therefore, let us close by saying whether you are hugely positive on the current administration, or massively dejected by the election, I cannot urge you enough to grasp this ONE fact; Presidents serve for a 4 year term, and your investment future should be 20-40 years minimally in length.  Security prices (stocks, bonds) are calculated using a similar 10-40 year term of valuation, not a presidential term.  Again, speaking purely mathematically, you will outlive this administration.   And the next one.  And the next one.

Mankind’s unceasing creativity and capitalism’s enforced discipline are very wise long term bets.  As an investor, I’d bet on the long term.  Be concerned about politics and policies today, make improvements to the past and be an involved citizen, but as an investor, bet on the long term.