Why our money misses Obama
The early days of the Trump administration, market euphoria was in full effect. In a matter of months after Trumps election the S&P 500 rose by about 30 percent. However, come February, volatility spiked and the S&P 500 lost 10 percent in about two weeks. This was due to treasury yields approaching three percent which is the highest it’s been in recent years along with deficit spending and unclear expectations of what is to come in the near future regarding interest rates, debt, inflation, and trade wars. The Trump spending plan, that is characteristic of a struggling economy in need of stimulus, in the midst of a very healthy economy could lead to hyper inflation and an increasingly scary debt. Some of these fears were sparked by some political decisions backed by Trump and the Republican Congress. They decided to go forward with tax cuts while simultaneously increasing government spending which will do a number on our already huge deficit. Not to mention the increasing interest rates meaning the treasury will have to pay more on this debt. The economic and financial scene in current times look a lot different than they did when Obama was in office.
Despite such rhetoric of the Trump administration, Obama was known for proposing centrist policies and ideas that were often times based in sound economic reasoning. In fact, in his first year in office he wanted to cut spending and raise taxes in order to battle the debt inherited from the bailout of the “Too Big To Fail” banks. A politician, let alone a president, that wants to cross party lines to do something economically beneficial, whether bail out banks so that a recession doesn’t turn into a depression, or attempt to cut spending and raise taxes in order to cut national debt, is something extremely rare and a great sign of their competence.
One of the Obama administration’s most impressive strategies was its decision to approve the drilling and extraction of new oil at the end of 2014 — essentially flooding the market in an effort to hit Putin right where it hurt. Since the US economy is very diverse, a loss in the oil industry wouldn’t hurt the economy too badly. But for Russia, the entirety of its economy is based on oil so the administration’s decision had a serious impact on Russia’s economy and threatens its long term sustainability. If you know the simple principles of supply and demand, you know that an increase in supply leads to a decrease in price. And, as the graph below shows, that is exactly what happened.
The price of oil has been rising and since there is a delayed correlation between energy stocks and the price of oil, I would actually be a buyer of energy stocks at this level (July, 2018 prices) if Trump decides not to increase oil production. But, if you held a lot of energy stocks from 2014 until now, you would have hated this decision to flood the market but, if you just had a basic portfolio including the broader market, this wouldn’t have impacted your wealth that much. The economic attack on Russia’s economy also secures the future of the US economy indirectly by damaging a threatening competitor.
Nowadays, in the era of Putin-Trump collusion, uncertainty has been reflected in the market about Putin’s influence on the United States. However, Trump seems to have kept sanctions on dictators like Putin and Kim Jong Un so there is no way of telling what his stance is.
Technology, throughout the Obama administration, has creeped into the essence of the economy in the US, greatly improving the speed, efficiency, and quality of business. One way the Obama administration directly impacted your portfolio was through incentivizing growth in the tech industry. Obama, being the forward thinking president he was, knew that the future of the economy is in the hands of technology and thus he incentivized and encouraged people to work in the tech industry and get trained and re-trained for tech jobs. He remained lax on regulating the tech industry in order for it to flourish, knowing that is the industry of the future. This has unfortunately become problematic given the questions being raised about personal data security and online rights and privacy.
Just for reference, the Tech Hire Initiative was a program instituted by Obama aimed to help the tech industry hire more workers. The initiative helped employers find good candidates for tech jobs but by encouraging the hiring of candidates who have the skills, but not necessarily the formal degree for the job. It also connected people to tech skills who normally wouldn’t have access to those skills, as well as facilitated the connection between employers and newly trained job candidates. This greatly impacted the growth of the tech industry and helped shift the American worker’s skill base to a more modern set of skills.
In contrast, Trump seems to be taking huge steps backwards with his emphasis on saving the coal industry which is already dead and has no place in today’s, or the future’s, economy. These kinds of things effect your portfolio! Under Obama the tech industry saw some of the most intense organic growth ever seen in American history which directly impacts the rest of the US and global markets. This could be coming to an end though with Trump’s current and potential policies.
Due to Trump’s talk of tariffs, government spending increases, and all the ignorant decisions and uninformed activity and, quite frankly, chaos going on in the White House, volatility in the market has spiked, and uncertainty regarding trade, overspending, and even democracy have likely launched the longtime bull market into a bearish phase.
To navigate this uncertain market, check out my series: Vigilant Investor Trade Updates