STAY CALM It’s An Election Year!

Right now, many people are up in arms about the investment climate because of the election-year jitters. Many, if not most news media are desirous of creating negative emotions because it sells newspapers and the politicians believe it is the best way to win votes.

The Savvy Investor Never Depends Upon Who Is President

Realistically, the savvy investor never depends upon who is president or which party is in power for their investment strategy. This does not discount the fact that there are decisions that need to be made in an election year, but money is made no matter what party is in power.

Huge Political Changes Are Planned

There are changes necessary to any long-term investment strategy that are based upon changes in taxation levels, but these strategies should be built into your plan. Being a savvy investor means you make money no matter the political climate and no matter who is in power.

In the short term, there seems to be so much focus on who is going to be the next president or who is going to be the party in power. When you look back at the difference between Bush H.W, Clinton, Bush W, or the Obama administrations, you will find that money was made during each administration. The seemingly massive political shift through the eyes of history make the differences in administrations smaller.

Economic Climate Has A Much Bigger Effect on Investing Patterns

Economic climate has a much bigger effect on investing patterns than anything else. People must eat, people must work, people must have shelter and comfort, and these are the biggest drivers of any economic climate. The best part about real estate is that everyone must have a place to live, no matter what. So, even though the housing market can change, the demand only shifts, it does not go away.

The Focus Is On Making Money In Any Climate

The real goal is to focus upon making money in any climate. If you can make money in any climate, then there is no need to worry who is going to win the next election.

Monetary Policy?

One of the most misunderstood concepts is monetary policy — even by the most studied economists. I put a great deal of time into the study of monetary policy and the flow of money and I still cannot get my mind around it. Even though it is an exceedingly difficult study, you can see certain principles that are at work at any given time.

Why Are There ‘Buy Local’ Ad Campaigns?

You may have heard the ad campaigns, even seen posters or billboards that say, “Buy Local.” These campaigns are so popular because when someone buys locally that dollar will cycle up to nine times in that local economy.

This is imperative to really get the infrastructure and the investment to be sufficient in any local area. This helps the local economy run smoothly. Where there is sufficient local spending you will see a robust marketplace that is growing.

This also happens on a mass scale in the world market and is what I believe is driving the massive growth on the global level. Even as world trade rises and falls individual markets are growing internally and reducing local poverty.

Global Poverty As A Marker

The poverty standard is always linked to how many people in the world are living on less than one dollar a day. This measurement is powerful especially in the markets of Africa, India, and China, where most of the people living below the poverty level reside.

How Steve Jobs Changed the World

The per capita dollar-a-day lifestyle has been vastly changed by the advent of the iPhone and really the smartphone in general. It has been said that Steve Jobs has caused more change and caused more people to get out of poverty than almost any other influencer. Using the free flow of information that owning a smart phone can provide is making generational changes to the knowledge base of peoples stuck in areas where poverty previously kept their knowledge down.

The Dark Continent

Over the last few hundred years, the continent of Africa has been called the dark continent and not because of the melanin in their skin. It seems that no matter what outside force is brought to bear, be it a foreign direct investment, or trying to bring civilization to that continent... it has been almost impossible for knowledge to stick.

You can go into parts of Africa where at the end of the 1800s, there were enormous cities populated and funded by the crown of England and the European powers that are still being overrun by the jungle. This is where the technology has made such a difference. Now individuals in an impoverished area or culture can access knowledge—they only needed access to the internet! The smartphone has made huge changes by giving access to people that willingly want to learn.

The World Poverty Was Reduced Faster Than Expected

The understood trajectory of people coming out of poverty (i.e. incoming growing greater than one dollar a day) has moved rapidly. What was expected to happen by 2030 happened in 2012. It was a real shocker to world leaders working on world poverty.

How Does This Effect The World?

This phenomenon is not only happening in Africa, but it is happening in India and China as well. Just as in the ‘spend locally’ concept, when the world’s largest population areas have a change from $1 per person to $2 per person and then to $3 per person and so on, the effect has global consequences to global demand for goods. This is causing a change in global markets we are yet to understand. We are really at the beginning of a new economic era.

Monetary Policy And The Global Indicators That Give Insight To Global Markets

What are the indicators that I am looking at to show you this? The national debt of the United States is one of them. When George W. Bush was in office, we went from approximately $4 trillion in debt to $9 trillion in debt (these numbers are not exact, only estimates).

While campaigning, Obama said it was immoral that Bush had put so much extra debt on the American people’s balance sheet. The debt was more than all the total combined debt of all the previous presidents since George Washington.

Little did I know, every president puts more on the balance sheet than any previous president.

I Was Expecting Another Crisis

Why am I bringing this up? During the entire Obama administration, I was looking for another massive downturn in the economy and it never came.

The 2008 financial crisis happened and had little to do with the Obama administration. After hearing the cries of woe about the national debt, I thought the extra debt added was going to sink the US. The whole eight years in office the national debt continued to climb. It went from $9 trillion in debt to just under $19 trillion. By the time he left the office, we were right around $20 trillion in debt. How is the growth of $4 trillion in debt to $49 trillion immoral if Obama willingly went from $9 trillion to $20 trillion? (The real answer is, it’s immoral if the other guy does it… a lesson in human psychology!)

National Debt Has Nothing To Do With The Economy In The Short Run

The biggest thing I learned was that the national debt really has nothing to do with the American people owning that money. It has to do with monetary policy and how the world economy is coming together to drive the ability for the American government to carry that debt without it bankrupting the country. The stock market is the driving indicator of the world’s tolerance for US Debt as markets are borderless. The national debt has more to do with the demand of the US dollar than with the need to pay it back or even our ability to pay it back. If you quietly listen, you will hear that the US dollar is backed by the full faith and confidence of the US government. Who is the US government (Of The People, By The People, For The People…we are!) Not just our full faith and confidence but the world demand for the US dollar is what is backing the US dollar. Therefore, the growth in our debt has not caused a massive downturn. Even the world demand/markets have limits on how much national debt or printing of money or monetary policy is possible. And, as our currency is the reserve currency of the world, one of the battles for international dominance will be to change the US dollar as the reserve currency to another or a basket of currencies.

Mind-boggling Growth!

Since 2020 we just saw the United States government add trillions of dollars in one bill to the national debt and the stock market went up. This means that there is new demand on the global stage. Bizarre or totally out of whack? I know it seems to be but no matter who is in power over the next 10 to 15 years, the global demand in China, India and Africa for goods and services will actually cause the entire global community to have a huge amount of growth and investment.

Even though right now, we are fluttering around 30,000 on the Dow many believed that this last crisis was going to cause another stock market crash and long recovery. It did not. It caused a crash and quick recovery. I spoke with several investors that were concerned, I told them that this is a short term and in some context a fake controversy because it was manmade. The fact that they are forcing businesses to close and the economy is booming… once those businesses open, up there will be a stark recovery.

When an investor recently asked me if he should get out of the stock market when it was down 30% to 40%. I said an emphatic No! It will be back to it’s original high within six months to a year, and we are back.

Rebalancing Portfolio

What does this mean for you? Well, to prepare for the next election, one of the things you can do is rebalance your portfolio.

What Does Rebalance Mean?

It means that you need to take stocks that are ‘way up’ and sell a portion of them off. It depends upon your own portfolio, what you’ll want to do, but somewhere between 5% and 30%. You should go to either a cash position or a cash equivalent position. This allows you to be in position to buy, no matter what the election causes. If the election causes the market to go up, you can reinvest at that point. Or if the election causes the market to go down, you can buy-in at a better value. No matter what happens you will be able to buy.

If you’d like to have a discussion about how you can “stay calm” by getting part of your retirement dollars out of the stock market and get them earning a high rate, tied to a real asset, reach out to me on my cell at (608) 306-1199.

Another move you can make is to protect your retirement from the dangers of tax policy. In our next issue, I will be going over ways to drastically improve your nest egg through personal tax policy. Be sure to check it out.

I know this was a long and complicated one… thanks so much for reading.

— Joshua Dudgeon