It’s the ECONOMY, Stupid!

February 16, 2024

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It’s the ECONOMY, Stupid!

“It’s the ECONOMY, Stupid!” This quote comes from James Carville, who was a campaign strategist for Bill Clinton when he was running for president against incumbent George H W Bush. It’s often quoted during elections as people tend to “vote their pocketbooks”. What I mean by this, is how people vote will typically be influenced by economic factors or “kitchen table issues”.  Today, there seems to be a difference between how the economy is doing and how people feel about the economy.

First, how is the economy? By many measures we’re doing fine. The unemployment rate is 3.7%, which is about a 50 year low. Inflation, which was driven up to over 9% in the summer of 2022 for a variety of reasons, including large government spending programs during the pandemic and large supply and demand mismatches, again due to the worldwide pandemic. It is now back down to 3.1%. The widely predicted recession hasn’t materialized yet – and it may not. The US Growth Rate is 3.3%, which is higher than it was pre-pandemic. The stock market is hitting all-time highs, the value of our houses are up. Again, there are many reasons to feel good about the economy.

But how do people feel about the economy? Many don’t feel very good. Consumer sentiment was very low last year but did rise in January. It’s probably still lower than it should be given the economic measures that I just listed above.

I think the gloominess is all about uncertainty, and there’s plenty of reason to be uncertain. Wars cause uncertainty, we still have the ongoing war between Russia and Ukraine. Israel and Palestinian fighting in Gaza could possibly be spreading. And we have election uncertainty.

More than half the population of the world can vote this year. 4.4 billion people have the opportunity to cast votes in 2024. While there may not be too much uncertainty in the outcome of the Russian elections, in the US, it looks like almost a 50/50 split between the two presidential frontrunners. Also 34 senate seats are up for grabs, and all 435 representatives face elections. And congress seems pretty evenly split. It appears the presidential elections could be determined by a very small number of people in a few swing states. Remember, if 45,000 people in 3 states voted the other way, Donald Trump would have won the last election.

So which party or candidate is better for the economy? Well, I have often said the politicians take way too much credit but get way too much blame for the economy. Election day is November 5th.  But due to potential complaints, and accusations of unfair tactics, potential recounts, and court challenges, I wouldn’t be surprised if the election outcomes won’t be known until several days after the election.

According to John Emerson, former US ambassador to Germany and current co-chair of Capital Group “don’t let politics derail your investment plans”. Back in 2009, you may have been upset that a community organizer from Chicago named Barack Obama was elected president. If you got out of the market you were right for about 6 weeks, after that you missed the greatest bull market in history. Maybe you were so shocked in 2016 by a reality TV star named Donald trump defeating Hillary Clinton that you placed all your investments into cash. Again, you were right – for 1 day. After that you missed 4 years of very strong investment returns.

So, remember, to stick with your financial plan. Don’t let emotions of the short-term media noise derail your long-term goals.

 

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