Now that President Obama has won, I’d like for us to have a mature discussion on the investment and economic outlook for the next four years. Let’s also touch upon how we should act in public now that big government is here to stay.
In order to create wealth, we must make reasonable assumptions about the future and invest accordingly. It’s important to remove our biases from the equation given we often see what we want to see and ignore everything else. We shouldn’t harp on the fact that over $2 billion dollars of campaign spending went into this election, which could have gone to help people in need.
If you are a raging right wing Republican, sorry, but your guy lost. Get over it. I got over the fact I stopped growing in the 9th grade. Your hope for smaller government, less taxes, less red tape, less welfare, less marriage equality, and a supposed balanced budget isn’t likely going to happen!
Remember to keep an open mind because creating wealth is the name of the game. Don’t let your stubbornness blind you. Let us begin.
The economy will continue to improve, regardless of Obama or Mitt in the White House. The unemployment rate is inching down, earnings growth is healthy although decelerating, inflation is low, interest rates are low, and companies have the most cash ever on their balance sheets.
We’ve also got the Federal Reserve acting as Obama’s puppet to pump as much money into the system to the delight of debtors, and to the dismay of savers. The Federal Reserve is a backstop that guarantees any downturn will be short-lived. Now do you realize why Republicans have been so vehemently against the Fed? Economic recovery is the number one reason why Obama got re-elected.
CPI (inflation) will remain around 2% for the next four years given the output gap in the economy. The 10-year yield will also remain below 2.5% during this time period. As a result, everybody with debt should seek to lower their interest obligations. Call your credit card companies, mortgage loan officers, and loan sharks with big bats. Look into peer-to-peer lending to consolidate into a lower rate. Those without debt should consider following the government’s lead and take on debt given how cheap money is. Unlike the government, you don’t have a printing press and will eventually have to pay your loan back, so don’t go too crazy!
GDP growth will hover between 2.5%-3.5%, which isn’t that great, but at least it’s faster than inflation and better than a contraction. China’s GDP will likely continue to grow at a 7-8% clip, eventually outpacing US production. Their problem is a demographic cliff in 2016 given their one child policy. Learn some Mandarin. It’s good for you.
If Mitt Romney had won, the stock market would have probably jumped 5-10% within a week of announcement given his victory would have been a surprise to many. Mitt’s reputation is business friendly and Wall Street loves the Republican party. The problem with being business friendly is that it is often employee unfriendly. A lot of people get fired during “right-sizing.” After a week or so of jubilation, the market would probably consolidate and normalize with earnings and other market forces.
Obama provides status quo. Under his Presidency, the S&P500 is up over 55% and the NASDAQ is up over 100%. In many ways, his continued presence is good for the stock market because at least companies can plan for the devil they know. It’s during uncertainty when innovation, capital expenditure, and hiring grinds to a halt.
Under Obama, it was commonly thought that financial stocks would suffer, alternative-energy shares would prosper, agricultural plays would rally on his ethanol support and the health care sector would be depressed by universal-medical-coverage proposals. In fact, everything happened in reverse over the past four years! This makes me more bullish that it’s now time to sell financials, buy alternative energy, and sell healthcare stocks at the margin. Homebuilding stocks continue to look attractive under an Obama regime as Democrats try and prevent more foreclosures, leading to less supply on the market.
Over the past 14 presidential races, the stock market rallied on the Wednesday following Election Day six times and declined eight. In those six years when the market responded to the upside, stocks continued higher for the subsequent week every time, according to a study by SentimentTrader.com. The other eight years, the market’s negative response persisted over the following week six times. In other words, the slight bias is towards the downside by 57/43.
Corporate profits are decelerating, while QE3 has already been announced. These are two main reasons why I took 80% off the table in September. Locking in a 16% return in an environment where I knew Obama would win presented itself with a classic sell on news situation. I’ll be shocked if the S&P500 climbs more than 10% over the next 12 months. Everyone should expect a whole lot of nothing because the Republicans will control the House and the Democrats will control the Senate. If things get rancorous enough, the markets will have a painful sell-off as we approach a “fiscal cliff.”
It’s important not to stand out in an Obama world. The government’s hammer will pound you flat if protestors don’t get to you first. Instead, you need to blend into the middle class and become as unassuming as possible. This means not showing off your new house, driving an old car, and downgrading your wardrobe. Have a biscuit while you’re at it.
The Obama administration also allows you to take more risks with your life if you are getting tired of your job and want to quit. Of course you are going to follow my advice and negotiate a severance package before quitting. Afterward, the government will help subsidize your expenses for at least a year as you explore new careers or business ideas. There’s no way the government can just cut off millions of people cold turkey in 2013.
With universal healthcare now law, individuals should breathe easier knowing they won’t go bankrupt due to some unforeseen illness. Even smokers can breathe easier! Staying fit should always be a priority, however, if you want to workout less and eat more goodies, you’re safer now. I’m coming for you In N’ Out Burger!! There are plenty of winners in Obamacare, and I plan to be one of them.
If you happen to be a homeowner in a higher income tax bracket, expect a strong push for your taxes to go up further. Expect people to vote on goodies that benefit themselves paid for by your property taxes. As a result, you need to hide as much of your income as possible from the government in a legal way of course. You’ve also got to be vigilant in raising rents aggressively to share the burden if you are a landlord.
It’s probably best to accept the fact that we are all becoming the same. The rewards of outperforming your peers is becoming less and less. You may want to consider doing the minimum until there is a higher correlation with reward and effort. Socialism can really mean a brighter future if you embrace its good points. My business trip to visit the happiest people on Earth showed how wonderful life can be when everybody is the same. Let us leave no brother or sister behind as we march forward!
ONE MAN DOESN’T MAKE A DIFFERENCE
The most important thing you can do is focus on what YOU can control. Continue maxing out your 401K, building multiple income streams, furthering your education, working hard at your job, and coming up with new ideas. Although it’s tempting to start depending more on the government now that Obama is in power for four more years, try to use the government as a last resort. When you have a nice safety net, you should feel more confident to go for things!
May we all gain much wealth and prosperity over the next four years!
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About the Author: Sam began investing his own money ever since he opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $150,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.
Updated for 2016 and beyond.