Building Wealth What goes up does not always come down...
Especially when it comes to big government.
It's easy to add spending for every new government program initiative. But good luck trying to remove one.
Imagine trying to end Medicare or Social Security. Voters would never allow such a thing to happen. We've all "paid for" and planned on those services. The only way to remove them is to replace them with something bigger and better.
This is called the "ratchet theory" of spending. You can crank it up and up, but never (or rarely) down.
This works on both the expenditure side and the taxation side.
It's hard to remove services people depend on and to fire the employees who run those programs. It doesn't happen often... even when, prior to being established, those services could have been provided in ways other than government.
Just look at border-crossing personnel... To avoid furlough regulations, the U.S. and Canada are doing 30-day rolling travel bans instead of closing for longer, which would have required letting people go. Thus, government keeps everyone on the payroll for as long as possible.
We're staying away from any partisan stance and even any judgment of whether a big government is good or bad. You can judge for yourself, but this is just the way it is. And politics don't seem to matter.
This year is no exception...
As we write, the poll numbers coming in increasingly suggest the election has become a foregone conclusion. We think that will be the case, but things can change, and polls can be wrong, as they were in the 2016 election.
The important thing here is that it doesn't matter which side wins.
In recent decades, the GOP has grown the government just as much as the Democratic Party.
Under President Donald Trump, the size of the budget deficit increased, even though the economy was humming along. That's counter to the typical pattern where a strong economy reduces deficits, since a strong economy brings in more tax revenues.
Under George W. Bush, total federal spending increased by 53%. Even under conservative icon Ronald Reagan's first term, overall federal spending jumped 22%.
The Wall Street Journal writes that the Republican party has embraced big government: "This is a different Republican party. It's the populist party of Donald Trump, not the party of traditional conservative ideology. Mr. Trump isn't opposed to activist government and, as noted, isn't the least afraid of debt and deficit spending."
The libertarian, small-government-minded Reason magazine writes, "Believing that Republicans will make good on pledges to reduce the size and scope of government makes us Charlie Brown to politicians' football-holding Lucy."
The fact is, all politicians find it easier to secure reelection by giving the people more government, not less.
As far as market performance goes, our favorite stat is one that shows that since 1926, Republicans have simultaneously held the House, Senate, and presidency for 13 years. In those years, the market returned an average of 14.52% per year. There have also been 34 years of similarly unified Democratic government. In those years, the market returned an average of... 14.52% – identical returns under the two parties.
Leaders change, but things stay the same.
As an investor, you'll do best if your horizon stretches past a presidential term... and certainly the two years before the House of Representatives or Senate can flip. You've never heard Warren Buffett or any of the other greats spout a thesis based on who was in the White House.
We're looking beyond that, at drivers bigger than a single person's election platform. And so is our colleague Dr. Steve Sjuggerud...
According to Steve, a number of strange events have begun to play out in the financial markets – with almost no fanfare or media coverage.
Here are just a few:
- A big shift in where hedge-fund and mutual-fund managers are investing their money (I haven't seen a trend this powerful since August 2006)...
- Goldman Sachs, JP Morgan, Morgan Stanley, and Bank of America all quietly changing their stock outlook for 2021...
- A historically unprecedented anomaly in the options market...
- And a new COVID-19 statistic that I haven't seen published ANYWHERE in the mainstream media.
Tomorrow night, Steve will explain how all these signals means that something big is brewing in the markets and what you should to do profit from it.
If you listen to what Steve has to say, you could be one of the very few who could become absurdly wealthy in 2021.
He'll show you exactly how tomorrow night, October 21 at 8p.m. Eastern time.
Click here to confirm your spot.
What We're Reading...
- Did you miss it? The bear market everyone's ignoring.
- Something different: China's post-pandemic recovery is gaining speed.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
October 20, 2020