Are Romney and Obama Keeping You Out of This Market?

Alexander Green
by Alexander Green, Chief Investment Strategist, The Oxford Club

The other day I bumped into a friend who told me he has sat out this year’s stock market rally entirely.

“The worst part is I’m just sitting in cash,” he said. “That means I’m earning next to nothing. The little I am earning is taxable. And my return, after inflation, is negative.”

“So why don’t you put some of that money to work in the stock market?” I asked.

From the look on his face, you would have thought I suggested he play Russian roulette.

“Are you kidding?” he said. “The economy is weak. Unemployment is high. Consumer confidence is low. And the government is spending us into bankruptcy.”

So I’ve heard. But I’ve also heard something else: This too shall pass.

No Incentive to Be Positive

This is an election year, one in which neither side has any incentive to say anything positive. Here’s what I mean…

The goal of Mitt Romney is to make Obama look like a man who doesn’t deserve re-election. The best way to do that is to talk about the appalling economy. Millions are out of work. Millions more have given up looking for work. Most who are working aren’t really getting ahead. You’re hearing a lot of talk – and seeing a ton of political ads – about the miserable state of the nation.

Ordinarily, of course, the incumbent rebuts these charges by saying something positive about the economy. Not this time. Most of what Obama has accomplished – the two stimulus packages, the auto bailout, ObamaCare, etc. – isn’t terribly popular with the people he is trying to attract: independents and swing voters.

Plus, he doesn’t want to say anything good about the economy for fear of sounding “out of touch.” Remember President George H.W. Bush’s Rose Garden Strategy? He kept insisting recovery was just around the corner and the economy was probably already out of recession. History proved he was right. But it didn’t feel that way to the electorate and they voted him out of office.

So today we have a presidential election where no one has any incentive to say anything whatsoever that is positive about the economy.

No wonder investors are depressed.

Plenty to Be Excited About

That’s unfortunate, really, because there is actually plenty to be excited about. Short-term rates are near zero. (Not good for savers but great for corporations and consumers who need to borrow.) Inflation is low. The housing market is finally beginning an upturn. Huge new markets are opening up overseas, particularly in the developing world where more than three-quarters of the world’s population resides. Valuations in the stock market are historically low. Corporate profits are at an all-time record. And so are profit margins.

Of course, say all these things today and you sound insensitive, elitist or out of touch. (“Don’t you know people are hurting?”) Having a positive outlook on the economy, the stock market or the free-enterprise system just isn’t politically correct these days.

But if your goal is to make money and meet your financial goals, what difference does it make? Investors in the S&P 500 are up more than 15% this year. (And good stock pickers have done much better.) Investors in money markets, by comparison, are up less than one-tenth of one percent.

That’s a heck of a price to pay for being PC – or for listening to a lot of political blather in an election year.

Good Investing,

Alex

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