As we embark on the fourth leg of 2020, we have already endured an environment that has moved the Dow Jones Industrial Average by 20,000 points. First, the sharp decline of 11,000 points fueled by the coronavirus pandemic; then the 9,500-point rally, anticipating a sharp recovery along with a vaccine to insure against a reoccurrence.
Today, a vaccine looks eminent, but its benefits may still be a year away. As to economic growth, we currently have growth, but the momentum seems to be slowing as people run out of “free money” provided by our government. Additionally, the non-housing consumer debt numbers are at an all-time high, having increased tenfold over the last ten years. This combined with increased corporate and government debt puts our environment in a highly inflammable and vulnerable state. Accordingly, we are still cautious as we invest in this high-risk environment.
Risk is one thing and uncertainty is another, and the market likes neither. The uncertainty is coming at us in the form of an election, through which Americans will decide what kind of country lies ahead for all of us. Most people see it as a Biden vs. Trump decision, but it’s much bigger than that.
What is really at stake is the survival of our country as we’ve known it, or a new socialistic form of government featuring much higher taxes on income, capital gains, social security, and estates, as well as the probable loss of other freedoms that we now take for granted.
In studying the Biden proposals, we see a possible repeat of Franklin D. Roosevelt’s tax mistakes which many historians blame for plunging our economy back into depression in the 1930s. There are other tax increases circulating within the Democratic Party such as Elizabeth Warren’s wealth tax proposal. We believe such policies will have a negative impact on economic growth.
For these proposals to be enacted into law with the resulting policies, it will likely take a Democrat sweep of both houses of the legislative branch as well as the White House. Current polls indicate that this is a distinct possibility.
While we always hesitate to comment on political issues, these proposals are clearly drafted to redistribute wealth rather than provide for an economic future with more wealth for all Americans. We simply have no choice but to call it as we see it…
Conversely, should the Republicans control one or more of the legislative branches and the White House, the current uncertainty and fear will be eliminated. We will then be left with COVID and high debt levels to contend with, but the structure of our society will not immediately change. The market will likely be buoyed by the elimination of this uncertainty.
Tax increases along with increasing debt is a local issue as well, with many states and municipalities adopting new and higher taxes. Just look at the highways to confirm the moving vans leading a migration of people to more favorable states.
There has always been and will continue to be one truism with regard to capital and wealth—it leaves if it is highly regulated and taxed—and this movement away from punitive tax schemes within our country confirms this old adage. Let’s hope the country as a whole does not become punitive… The weakness of the dollar will be your most reliable indicator that money is leaving the country, but we will save that topic for later if we need it.
Until then…vote wisely.